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.
- 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.
- It's algorithm is straightforward enough to calculate annual withdrawals by hand
- Like all withdrawal strategies that vary based on market conditions, annual withdrawals can become too low without a minimum withdrawal in place.