Nusbaum: The 4% rule

Random Roger writes more about the 4% rule (link1). In the comments section a FPA article is cited as another source (link2).

For those unfamiliar with the term, the 4% rule that retirees can only count on withdrawals of 4% each year. I have been familiar with this for a long time. I remember a conversation many, many years ago, when money markets and one-year CDs were yielding over 5%. I mentioned that endowment funds will only spend 3% of their capital each year.

Over time, with average market conditions 3% means the endowment can maintain its level of giving in terms of steady buying power. So if inflation ticks up, the returns are likely to be higher than 3%, but the level of spending has to go up to maintain the level of giving in real terms.