Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Harvard Rejects Withdrawal Premise of Firecalc
Old 05-18-2009, 08:41 PM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,387
Harvard Rejects Withdrawal Premise of Firecalc

"Harvard’s budget woes started last year, like many other schools across the country, with the deepest economic crisis since World War II. The university’s endowment, the biggest academic fund in the world at $36.9 billion June 30, lost 22 percent by Oct. 1 and is expected to fall by about a third by July of this year, Harvard said.
“We have to reshape and reset to being more like a $24 billion university than a $36 billion university,” Faust said in the forum with students."

Harvard’s ‘Quadlings’ Squawk as Sports, Bus Cuts Loom (Update1) - Bloomberg.com

So I guess what they are saying is that withdrawals must be guaged to current principle, not to some starting point which is assumed to give a perpetual rate of access.

Makes more sense to me than the constant inflation adjusted WR that was so popular in fiancial planning circles over the past years. Of course we haven't heard near so much about that recently. Goodness, I wonder why?

Ha
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-18-2009, 08:50 PM   #2
Thinks s/he gets paid by the post
Coach's Avatar
 
Join Date: Nov 2005
Location: Colorado, USA
Posts: 1,127
Harvard's enowment is so huge it defies comparison, but the way my alma mater has handled endowment payout for a number of years is to take a percentage of the average value of the endowment over the prior 12 quarters, with a 10% maximum change in payout year to year. Obviously they're anticipating significant payout reductions over the next three years.

Coach
__________________

__________________
Coach is offline   Reply With Quote
Old 05-18-2009, 11:54 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,293
Quote:
“We have to reshape and reset to being more like a $24 billion university than a $36 billion university,” Faust said in the forum with students."
It makes one wish to cry. The pain must be intolerable. Shall we take up a collection?
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 05-19-2009, 03:18 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
The key word was Perpetual. That is a fundamental difference between Harvard's Funding needs and Retirees...

  • Harvard intends to fund the school in perpetuity
  • Most Retirees only have to worry about 30+ years
__________________
chinaco is offline   Reply With Quote
Old 05-19-2009, 05:40 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,387
Quote:
Originally Posted by chinaco View Post
The key word was Perpetual. That is a fundamental difference between Harvard's Funding needs and Retirees...

  • Harvard intends to fund the school in perpetuity
  • Most Retirees only have to worry about 30+ years
Depends on what you mean by 30+. I've been on these boards for 6 years, and I would say the large majority of ERs will will a joint planning period of more like 50 years. Which isn't infinity, but it isn't any 30 years either. And practically speaking, I am not so sure that it is very different from the infinite endowment, unless one is buying an annuity.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is online now   Reply With Quote
Old 05-19-2009, 06:27 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Dawg52's Avatar
 
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 7,445
Quote:
Originally Posted by haha View Post
Depends on what you mean by 30+. I've been on these boards for 6 years, and I would say the large majority of ERs will will a joint planning period of more like 50 years. Which isn't infinity, but it isn't any 30 years either. And practically speaking, I am not so sure that it is very different from the infinite endowment, unless one is buying an annuity.
Ha
Ha still up at 3:40am? Must have stayed out late dancing again.
__________________
Retired 3/31/2007@52
Full time wuss.......
Dawg52 is offline   Reply With Quote
Old 05-19-2009, 06:39 AM   #7
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,939
Quote:
Originally Posted by Dawg54 View Post
Ha still up at 3:40am? Must have stayed out late dancing again.
Well what's your excuse for being up at 6:30 AM? You are RETIRED, remember? You can sleep in if you want to and go to the golf course late. Getting up early is for us po' working folks.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 05-19-2009, 07:09 AM   #8
Thinks s/he gets paid by the post
 
Join Date: Nov 2006
Posts: 2,268
Why is the endowment expected to "fall by about a third by July of this year"?
__________________
utrecht is offline   Reply With Quote
Old 05-19-2009, 09:43 AM   #9
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
A lot of people have pointed out that the "standard" advice to retirees has an inherent conflict. Retirees want stable, inflation-adjusted incomes. But the standard advice is to invest in assets with very unstable prices. Lots of posts on this board discuss the various systems that we're using to try to reconcile that conflict.

Harvard has the same conflict. Apparantly, they want to get a stable contribution to their operating budget from the endowment. But, they appear to be investing to maximize long-term yield, without a plan to deal with the short term fluctuations. If that's true, maybe we should offer some ideas

This may have some direct financial implications to the younger people on this board. About a year ago Harvard dramatically increased its financial aid for "middle class" families. Some outsiders said they we concerned about the tax situation of an endowment that had grown too big to justify. This caused Harvard's competitors to revise their aid formulas. If you've got a kid who plausibly could go to an Ivy, you could have significant bucks riding on how this works out.

On a tangent -- I'm disturbed that Harvard even wants an endowment this big. I think a reasonable plan would be to have spent it faster in the past.
__________________
Independent is offline   Reply With Quote
Old 05-19-2009, 09:56 AM   #10
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,613
Quote:
Originally Posted by Independent View Post
A lot of people have pointed out that the "standard" advice to retirees has an inherent conflict. Retirees want stable, inflation-adjusted incomes. But the standard advice is to invest in assets with very unstable prices. Lots of posts on this board discuss the various systems that we're using to try to reconcile that conflict.
Well, sure -- and a lot of that is simply related to the fact that for most of us, if we want to have a large enough asset base to have a reasonably comfortable, inflation-protected retirement, we need to take equity risk.

If you're independently wealthy and have far more money than you'll ever need, or if you have a combination of SS and COLA'd pensions that more than meets your living expenses, you don't need to take that risk. But that's describing fewer and fewer people, I think, as time goes by. The rest of us, no matter how much we'd rather not, get on the roller coaster despite our "motion sickness."

It seems to me that if you are only eating a small percentage of an endowment each year, you can more adequately weather market cycles than if you're taking too much -- a lot like the SWR discussions we have here.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 05-19-2009, 10:25 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,387
Quote:
Originally Posted by Dawg54 View Post
Ha still up at 3:40am? Must have stayed out late dancing again.
No; I crashed on the couch at 8pm! At a little after 3am I woke up and had to stagger around and brush my teeth, etc- so I rang up my friends on ER.org. I just got up again. Don't know what is going on, maybe the weather getting cooler again is making me a sleepy-head.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is online now   Reply With Quote
Old 05-19-2009, 10:35 AM   #12
Recycles dryer sheets
Culture's Avatar
 
Join Date: Apr 2007
Posts: 491
Everyone is assuming that Harvard was spending at a sustainable rate to begin with. Maybe they were not. Perhaps they were spending 5%/year in the good years, so will have to cut back to 2.5-3%/year in the bad? Anyone know?
__________________
Culture is offline   Reply With Quote
Old 05-19-2009, 10:37 AM   #13
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,613
Quote:
Originally Posted by haha View Post
No; I crashed on the couch at 8pm! At a little after 3am I woke up and had to stagger around and brush my teeth, etc- so I rang up my friends on ER.org. I just got up again. Don't know what is going on, maybe the weather getting cooler again is making me a sleepy-head.
FIRE means not caring what time of day it is or what day of the week it is. Other than to remember when the weekends are, so you can stay home while all the working stiffs are out doing things and running errands.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 05-19-2009, 10:41 AM   #14
Recycles dryer sheets
Culture's Avatar
 
Join Date: Apr 2007
Posts: 491
Quote:
Originally Posted by Independent View Post
On a tangent -- I'm disturbed that Harvard even wants an endowment this big. I think a reasonable plan would be to have spent it faster in the past.
Interesting point. With a $36B endownment, an actual enrollment of 19,650 students and a conservative withdrawal rate of 3%, Harvard could supply $55,000/year to each student, i.e. Harvard should be free for all students who attend.

What gives? Any Harvard grads here know anything about how they operate?
__________________
Culture is offline   Reply With Quote
Old 05-19-2009, 12:05 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
freebird5825's Avatar
 
Join Date: Feb 2008
Location: East Nowhere, 43N Latitude, NY
Posts: 9,017
Quote:
Originally Posted by Want2retire View Post
Well what's your excuse for being up at 6:30 AM? You are RETIRED, remember? You can sleep in if you want to and go to the golf course late. Getting up early is for us po' working folks.
Ha is a slacker by my standards. But he was only behind me by 1 hour, adjusting for relative time zones.
Nice try but no cigar, however I will issue an Honorable Mention.

I'm up at 530 AM Eastern time, 4 days a week. dh2b is going to the gym before w*rk. Miss Suzyhomemaker here likes to see him off to bolster his courage to face the sulphur mines.

Call me crazy, but I get treated to a gorgeous sunrise, a birdie symphony , very little internet traffic, and the gratification of getting up early because I CHOOSE to. You'll see what I mean in a few months.
__________________
"All our dreams can come true, if we have the courage to pursue them." - Walt Disney
freebird5825 is offline   Reply With Quote
Old 05-19-2009, 02:31 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by Culture View Post
Interesting point. With a $36B endownment, an actual enrollment of 19,650 students and a conservative withdrawal rate of 3%, Harvard could supply $55,000/year to each student, i.e. Harvard should be free for all students who attend.

What gives? Any Harvard grads here know anything about how they operate?
Exactly what I thought. So I went looking for their financial report. I found it here: Financial Administration - Annual Financial Report of Harvard University

Harvard's numbers are amazing. They did get $1.2 billion from the endowment for operations. However, that only covers 34% of their spending. Students cover 20%. So they could have wiped out the remaining student portion in 2008 by taking another 2% from the endowment.
__________________
Independent is offline   Reply With Quote
Old 05-19-2009, 02:34 PM   #17
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by Culture View Post
Everyone is assuming that Harvard was spending at a sustainable rate to begin with. Maybe they were not. Perhaps they were spending 5%/year in the good years, so will have to cut back to 2.5-3%/year in the bad? Anyone know?
To me, 5% should be sustainable if they are willing to stick to it in the down years. In fact, IIRC the gov't expects tax-exempt funds to distribute something in that neighborhood.

For more numbers, see the link in the post above.
__________________
Independent is offline   Reply With Quote
Old 05-19-2009, 04:16 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Dawg52's Avatar
 
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 7,445
Quote:
Originally Posted by Want2retire View Post
Well what's your excuse for being up at 6:30 AM? You are RETIRED, remember? You can sleep in if you want to and go to the golf course late. Getting up early is for us po' working folks.
I feel like I'm working again. Up early to stop by the nursing home to make sure my aunt is eating before heading to the golf course. Oh well, at least I got to play golf today. Now, time for the night shift.
__________________
Retired 3/31/2007@52
Full time wuss.......
Dawg52 is offline   Reply With Quote
Old 05-19-2009, 10:07 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,294
Quote:
Originally Posted by chinaco View Post
The key word was Perpetual. That is a fundamental difference between Harvard's Funding needs and Retirees...

  • Harvard intends to fund the school in perpetuity
  • Most Retirees only have to worry about 30+ years
Quote:
Originally Posted by haha View Post
Depends on what you mean by 30+. I've been on these boards for 6 years, and I would say the large majority of ERs will will a joint planning period of more like 50 years. Which isn't infinity, but it isn't any 30 years either. And practically speaking, I am not so sure that it is very different from the infinite endowment, unless one is buying an annuity.

Ha
I know we've discussed this on earlier threads and I think I came to the conclusion that once you get conservative enough for a 50 year portfolio w/o deep downdraws, you essentially have a "perpetual" portfolio.

Quote:
Originally Posted by Independent View Post
To me, 5% should be sustainable if they are willing to stick to it in the down years. In fact, IIRC the gov't expects tax-exempt funds to distribute something in that neighborhood.

For more numbers, see the link in the post above.
I've read that 5% number before for charities - it does seem at odds with the 4% for 30 year number - does adjusting to the current portfolio really make that big a diff?

-ERD50
__________________
ERD50 is online now   Reply With Quote
Old 05-19-2009, 11:58 PM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,387
Quote:
Originally Posted by ERD50 View Post
I've read that 5% number before for charities - it does seem at odds with the 4% for 30 year number - does adjusting to the current portfolio really make that big a diff?-ERD50
I don't know the details but big schools like Harvard, Yale, Stanford, UTexas are constantly dunning alumni for more money. Some of which goes into ops, but a large amount gets added to the endowment.

Ha
__________________

__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
10.425% withdrawal rate succeeds in FIREcalc! SecondCor521 FIRE and Money 8 07-04-2008 01:22 PM
fundamental premise windsurf FIRE and Money 46 03-03-2007 07:43 AM
FIRECalc Withdrawal Amount? mccl FIRE and Money 6 08-10-2005 10:15 AM
TIPS funds: FIREcalc inputs, withdrawal strategy.. Cb FIRE and Money 2 09-28-2004 02:13 PM
FIREcalc and long withdrawal periods cute fuzzy bunny FIRE and Money 13 02-24-2004 02:53 PM

 

 
All times are GMT -6. The time now is 05:50 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.