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Charitable gift annuity rate of return up 0.75%

Written on Feb 24, 2023

The American Council on Gift Annuities (ACGA) has raised the maximum suggested payout rates on charitable gift annuities by 0.6%. 

The updated guidance, which officially took effect Jan. 1, comes as the result of an upward revision — from 4.5% to 5.25% — in the targeted annual rate of return on charitable gift annuities following the Fed’s rate hikes. 

ACGA calculates its suggested payout schedules from an actuarial formula designed to leave 50% of the gift funds contributed for an annuity remaining after all payments have been made. The formula incorporates a variety of factors related to market and economic conditions, as well as a donor’s age and an assumed 1% annual expense ratio but treats the annuities primarily as a philanthropic vehicle and only secondarily as a source of investment income, said ACGA Board President Joseph Bull. 

A payout schedule revision also took effect July 1 after the Fed’s initial rate hikes earlier in the year, a rare occurrence for a board that normally tries to limit such actions to no more than once per year and is “pretty conservative about changing things,” said Bull. 

While it’s too early to say when or if ACGA might adjust its suggested payout schedules again, the board has done so only 21 times in the past 25 years.