Endowment Strategy #

The Endowment Strategy is used by Yale University to determine its annual spending of its endowment. It was developed by a team of Yale's economic professors working with the University's endowment officials.

Strengths #

  • It responds to market conditions, increasing risk of success by reducing spending when the market is performing poorly and increasing spending when the market does well.
  • It responds smoothly to market conditions, so that year-after-year changes to your withdrawal are small, unlike the Percentage of Portfolio strategy
  • It has a low likelihood of exhausting your portfolio, even over long retirement lengths.
  • Its algorithm is straightforward enough to calculate annual withdrawals by hand

Weaknesses #

  • Like all withdrawal strategies that vary based on market conditions, annual withdrawals can become too low without a minimum withdrawal in place.