CGAs are more sensitive to market volatility because the charity owes fixed payments to annuitants. When the rate of return for a CGA pool is not high enough to sustain payments for the annuitants' lives, the charity needs to make up the shortfall.
Related to market volatility, timing risk can also impact CGAs. If the investment returns are lower in the early years of a CGA, there is a greater chance that the gift will be exhausted before the annuity matures, even if market conditions improve.
If annuitants outlive their expected actuarial mortality, the non-profit will need to make more annuity payments than originally calculated when the gift was funded.
If a CGA pool's assets and liabilities are concentrated with a small number of annuitants, even short periods of underperformance can make meeting financial obligations to annuitants more challenging.
Calculating metrics such as the average and median ages for annuitants, the gift's effective payout and projected years to exhaustion, the projected remainder value for the charity, and the annual distributions by annuitant will help non-profits assess their CGA pools.
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