Endowments and Rule of 20

Posted on Mar 04, 2020 by Jon Dize - Funding the Mission

My last 2 posts (https://www.thelutheranschools.org/posts/10-billion-lutheran-transfer-why-wait) and (https://www.thelutheranschools.org/posts/the-sweet-spot-aging-congregations) focus on estate giving and supporting endowments. I still think endowments are the key to long-term survival for our schools. Without an endowment started today, there may not be a school in 20 years.

So, the next question may be, how much should you direct to your school’s endowment fund?

Set a minimum: Let’s say you typically give the school $1,000 a year. The Rule of 20 suggests a gift of $20,000. Assuming that an endowment fund spends on average 5% of the fund every year, $20,000 x .05 = $1,000. You would be replacing your annual gift, forever. And assuming an endowment can grow 8% on average and only pay 5%, we bet that $1,000 every year will grow to more than $1,000 as the endowment fund invests and grows.

And when you add up those annual payments, in less than 20 years the school would have benefitted from the equivalent of your original $20,000 and will continue to benefit for the next 20 years, and the next, and the next.

You can also use the Rule of 20 if you want to fund $5,000 in scholarships every year. A gift of $100,000 would provide that goal in perpetuity and allow room for growth.

You don’t have to wait until your estate plan matures to support endowments. The Lutheran Foundation provides a matching challenge now for the schools in the Partnership and your gift of $1,000 to the endowment by June 1 will be doubled for the school’s endowment ($1,000 turns into $2,000) and will also provide a current grant of $1,000. $1,000 today = $3,000 for today and tomorrow.

Now, that’s what I call new math!