Why can’t Carnegie Mellon spend more out of the endowment each year?
Significantly increasing the annual endowment payout formula (currently 5% of a 36-month average of the endowment value) would significantly risk material erosion to the endowment’s “real” (i.e., after-inflation) purchasing power over the long-term. Analysis shows, for instance, that there is approximately a 35% chance that an endowment that spends 5% of its value each year will experience a 10% decline in its “real” purchasing power over a 20-year period. If its spending formula were increased to 6%, then the chance that the endowment would lose 10% of its “real” purchasing power over the same time period would increase to 50%, which, obviously, would negatively affect the programs and tuition benefits available for future generations of students. Carnegie Mellon takes very seriously its legal and moral responsibility to honor our donors’ wishes to ensure that endowment funds are at least as strong 10, 20 and 50 years from now as they are today – so they can continue to serve the futu
