Endowment Spending Rate Calculator

Balancing today's needs against tomorrow's endowment

An endowment is meant to support an organization indefinitely, which means the annual amount drawn from it has to stay below what long-term investment returns can realistically replenish - draw too aggressively, and the fund's real value erodes over time even while nominally staying the same size.

Worked example

For a $1,000,000 endowment with a $40,000 planned annual draw:

Spending Rate = 40000 / 1000000 x 100 = 4.0% (within commonly recommended range)

Frequently asked questions

Why is 4-5% the commonly cited range? It is based on historical long-term investment return expectations after accounting for inflation and fees - spending consistently above this range risks drawing down the endowment's real purchasing power over successive decades, even during years when markets perform well.

Do all organizations use the same spending rate? No - actual policy varies by investment strategy, risk tolerance, and the specific mix of assets held, so this range should be treated as a general reference point rather than a fixed rule for every endowment.