Endowment Strategy Calculator
A weighted blend of last year’s spending and a fresh percent-of-portfolio target, which smooths out the year-to-year swings in spending.
Part of the FIRE simulator, a historical backtest calculator that replays your plan across every rolling window of market history since 1871.
How the Endowment Strategy strategy works
Modelled on how university endowments (the Yale/Tobin rule) spend, this takes a weighted average of last year’s withdrawal and a fresh percent-of-portfolio target. The smoothing weight dampens the year-to-year swings of a pure percentage rule, so a market crash trims spending only gradually instead of all at once.
What the Endowment Strategy strategy trades off
Blending last year's withdrawal with a fresh percent-of-portfolio target keeps a percentage rule's sustainability while moving income gradually instead of all at once. The same lag means spending trails a recovery as slowly as it trails a crash.
Pros and cons
Pros
- Much smoother income than a raw percentage rule
- Never fully depletes the portfolio
- Cushions the impact of any single bad year
Cons
- Adjusts slowly, so it lags big market moves
- Still trends down through a long bear market
- Two inputs (weight and rate) to tune
Parameters you can adjust
- Smoothing weight (share of last year): How much of each year’s withdrawal is carried over from last year versus a fresh percent-of-portfolio target. Closer to 1 makes income smoother and slower to react.
- Target portfolio percent: The percent-of-portfolio target the smoothing pulls toward each year. Higher raises long-run spending (and how far it can eventually swing).
Backtest Endowment Strategy against market history
Opens the simulator with Endowment Strategy already selected, so you only set your portfolio and horizon.