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BY JACK BROOKS

When working as an investment advisor I was frequently asked by clients about the magic number of dollars needed to retire comfortably. At the heart of the discussion was not so much the actual dollars needed today, but a projected withdrawal percentage of the account needed to fund anticipated living expenses through all of one's retirement years. The so-called Safemax, or safe maximum annual withdrawal percentage, is often cited as 4% a year in the first year following retirement, with ongoing adjustments for inflation thereafter. The 4% figure is usually attributed to American certified financial planner William Bengen, cited in his book Conserving Client Portfolios During Retirement.

With record-low interest rates and volatile stock markets, more advisors are questioning this figure. A recent paper in the Journal of Financial Planning suggests the 4% withdrawal rate will cause portfolios to run out of money or fail with an 18% probability, higher than previously believed. They suggest a truly safe annual withdrawal rate today would be just over 2.5%. This is based on a conservative yet well diversified investment portfolio.

A similar discussion is being held when the Mid-Atlantic United Methodist Foundation is asked by a church, "What can we budget to take from our Endowment Fund so we never deplete this valuable resource of the church?"

Unfortunately for our churches the answer is not universal, and perhaps even more complex than working through one's retirement projections. The church has even more variables to consider, including use of the endowment, gift restrictions, investment policies, and the long-term outlook of the church and its members.

The starting point for the Foundation is a review of any formal plan documents. Every church endowment should have a formal Endowment Plan that outlines at a minimum the purpose of the endowment, the spending policy, and types of gifts that may be accepted. Additionally the endowment's Investment Policy Statement will affirm the SRI Policies of the UMC, categorize investments, and identify allocation percentages. Clearly this will have the most direct impact to any anticipated investment return projection and therefore any spending percentages.

Yet there is one percentage number to consider that is far more important than investment or spending percentage to the long-term distribution of an endowment's resources. That is what I call the endowment's Legacy Growth Percentage. At what rate is the endowment fund growing from current members making legacy gifts?

Historically many of our United Methodist Churches were not built on tithes, offerings, and capital campaigns but on planned gifts perpetuating the United Methodist Church. Is your church promoting legacy giving? Is the congregation informed in the concepts of Planned Giving? The Mid-Atlantic United Methodist Foundation can help.   

How much can you withdrawal from your endowment plan?  Or - what is the plan for your endowment?  I would argue the second question has more impact than all future spending percentages.

Jack Brooks is Executive Director of the Mid-Atlantic United Methodist Foundation: or 610-666-9090.