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Just to clarify so that people won't plan their retirement wrong, the 4% safe withdrawal rate from the Trinity study is for having at least $0 of a fund at the

by ww520 11y ago

Just to clarify so that people won't plan their retirement wrong, the 4% safe withdrawal rate from the Trinity study is for having at least $0 of a fund at the end of 30 years. The withdrawal rate for an indefinite fund like Yale's is much lower.

jldugger 11y ago
You say that, but Wikipedia states that 4-6 percent are spent annually on operations and capital. It offers no citations, but I can produce some: Princeton (https://finance.princeton.edu/policy-library/endowment/endowment-spending/ https://finance.princeton.edu/policy-library/endowment/endow...): > The Trustees have endorsed a spending rate range of 4%-5.75% to achieve this balance. In order to enhance predictability and stability in endowment payout, the Trustees have established a standard spending rule that increases the spending distribution per unit by 5 percent per year, although the standard spending rule increase may change if necessary to maintain the spending rate within the prescribed policy band. Yale (http://giving.yale.edu/ways-to-give/endowment-fund http://giving.yale.edu/ways-to-give/endowment-fund): > Yale combines a long-term spending rate of 5.25 percent of the total endowment value with a smoothing rule that adjusts spending gradually in accordance with changes in the endowment market value. ... In January 2008, Yale announced that in the future, its endowment formula will be modified to place a floor of 4.5 percent on the expected payout rate and a ceiling of 6 percent. I might not have called it 'safe withdrawal' rate, as it conflates the two spend rates. But it's in the same ballpark. 2 percent of the endowment would be 1/3 to 1/2 the annual spend. And this all sets aside the concept of earmarks; money donated with an earmark cannot be used to offset the loss of income to the general fund.
- ww520 11y ago
  I was specifically clarifying the 4% safe withdrawal rate, which is often used in the context of retirement and is often misunderstood as safe to withdraw for perpetuity. For perpetuity, a lower withdrawal rate is required. As for Yale's and Princeton's higher withdraw rate, they probably count on additional incoming endowment going forward.

by ww520 11y ago

jldugger 11y ago

You say that, but Wikipedia states that 4-6 percent are spent annually on operations and capital. It offers no citations, but I can produce some: Princeton (https://finance.princeton.edu/policy-library/endowment/endowment-spending/ https://finance.princeton.edu/policy-library/endowment/endow...): > The Trustees have endorsed a spending rate range of 4%-5.75% to achieve this balance. In order to enhance predictability and stability in endowment payout, the Trustees have established a standard spending rule that increases the spending distribution per unit by 5 percent per year, although the standard spending rule increase may change if necessary to maintain the spending rate within the prescribed policy band. Yale (http://giving.yale.edu/ways-to-give/endowment-fund http://giving.yale.edu/ways-to-give/endowment-fund): > Yale combines a long-term spending rate of 5.25 percent of the total endowment value with a smoothing rule that adjusts spending gradually in accordance with changes in the endowment market value. ... In January 2008, Yale announced that in the future, its endowment formula will be modified to place a floor of 4.5 percent on the expected payout rate and a ceiling of 6 percent. I might not have called it 'safe withdrawal' rate, as it conflates the two spend rates. But it's in the same ballpark. 2 percent of the endowment would be 1/3 to 1/2 the annual spend. And this all sets aside the concept of earmarks; money donated with an earmark cannot be used to offset the loss of income to the general fund.

ww520 11y ago
I was specifically clarifying the 4% safe withdrawal rate, which is often used in the context of retirement and is often misunderstood as safe to withdraw for perpetuity. For perpetuity, a lower withdrawal rate is required. As for Yale's and Princeton's higher withdraw rate, they probably count on additional incoming endowment going forward.