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Endowment Spending Policy Calculator

Enter the endowment value, spending rate and smoothing inputs to find the annual draw.

How it is calculated

The simple draw is draw = value × rate ÷ 100, where value is the endowment market value and rate is the spending rate in percent. The monthly figure is that draw divided by 12. If you also enter last year's actual spending (prior) and a smoothing weight w in percent, the tool adds a smoothed draw: smoothed = w/100 × prior + (1 − w/100) × draw. A higher weight keeps spending close to last year's amount; a weight of 0 gives the plain percentage draw. Note that this blends last year's spending with the current-value draw; it does not average several years of market values. Amounts are shown in US dollars and rounded to cents.

Worked example

A fund is worth 50,000,000 with a 4.5% spending rate. Simple draw: 50,000,000 × 0.045 = $2,250,000.00 a year, or $187,500.00 a month. Last year the fund spent 2,100,000, and the board sets the smoothing weight at 70%. Smoothed draw: 0.70 × 2,100,000 + 0.30 × 2,250,000 = 1,470,000 + 675,000 = $2,145,000.00. The smoothed figure sits between last year's spending and the new simple draw, closer to last year's.

Try this example →

Common mistakes

  • Typing the rate as a decimal (0.045) instead of a percent (4.5); the draw would come out 100 times too small.
  • Entering the smoothing weight as a fraction such as 0.7 rather than 70, which makes the prior-year amount almost irrelevant.
  • Putting last year's endowment value in the prior-draw field. That field expects the dollar amount actually spent last year.
  • Leaving the prior draw or smoothing weight blank and expecting a smoothed result; both are needed, otherwise only the simple and monthly figures appear.
  • Using a stale market value; the simple draw follows whichever value you enter, so use the valuation date your policy specifies.

Sources

About this calculator

The simplest endowment spending rule draws a fixed percentage of the current endowment value each year (draw = spending rate × endowment value), but because market values swing year to year, many institutions instead use a smoothed, weighted-average rule that blends last year's spending with the spending-rate draw on the current value — dampening the effect of a single bad or great market year on the operating budget. Here, you enter the weight placed on the prior year's draw, and the smoothed draw is that weight × last year's draw plus the remainder × (spending rate × current value).

University endowment managers, nonprofit boards, and foundation CFOs use this calculation to set the annual draw that funds scholarships, operations, or grants, balancing the competing goals of stable year-to-year funding and preserving the endowment's real value against inflation over the long run.

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