Giving Away Everything Now or a Great Deal More Later

Giving Away Everything Now
Or
A Great Deal More Later

If a church receives a sizeable bequest, one of the options is to place these monies in a permanent fund with the provision that it distributes “grants” from income only, which would total approximately 5% of the corpus each year. This somewhat patient form of expenditure really means that after 16 years the amount distributed would equal the amount if the whole corpus had been distributed initially, but in fact significant distributions would continue to be made.

To be specific on this observation, using a 5% spend rate for distributions and an 8.4% Total Return on investments, after 16 years the grants from $1,000,000 would total $1,016,150 and the corpus would have grown to $1,731,271. At that point the annual distributions, which started out at $50,000, will have become $80,575.

(The 8.4% Total Return rate is the historical record from an investment allocation of 60% Equities and 40% Bonds. To make the distributions very predictable and growing at a rate to maintain their buying power in the face of inflation, calculate the distribution on a moving 12 quarter record of investment performance.)

Kim E. Warner
Spring 2000
PEER Board Member