Monte Carlo Retirement Simulator

The Monte Carlo Retirement Simulator helps to assess the probability of achieving your retirement spending goals. By simulating thousands of potential future financial scenarios, this calculator takes into account various factors such as investment returns, inflation rates, and withdrawal strategies. Input your current financial details, retirement plans, and investment assumptions to derive the success probability of your retirement spending goal.

Monte Carlo Retirement Simulator Instructions

How to Use the Monte Carlo Retirement Simulator:

1. Enter Your Personal Information:
   • Current Age: Input your present age.
   • Retirement Age: Specify the age at which you plan to retire.
   • Life Expectancy: Enter your expected lifespan to ensure your savings last throughout retirement.
2. Input Your Financial Data:
   • Current Savings ($): Provide the total amount you have already saved for retirement.
   • Annual Contributions ($): Enter the amount you plan to contribute to your retirement savings each year until retirement.
3. Define Your Retirement Spending:
   • Annual Withdrawal ($): Specify the amount you wish to withdraw each year during retirement.
   • Spending Growth Rate (%): Input the expected annual increase in your retirement spending to account for inflation.
4. Set Your Investment Portfolio Parameters:
   • Asset Allocation:
     • Stocks %: Allocate the percentage of your portfolio to stocks.
     • Bonds %: Allocate the percentage of your portfolio to bonds. (Ensure that Stocks % + Bonds % = 100%.)
   • Expected Return:
     • Stocks %: Enter the expected annual return rate for stocks. The average long-term annual return for stocks ranges from 6% to 10%. Unfortunately, the likelihood of achieving the average annual return of stocks is highly sensitive to the starting valuation, so investors should be cautious and consider the possibility of lower returns, even over the next 10 to 20 years.
     • Bonds %: Enter the expected annual return rate for bonds. The average long-term annual return for stocks ranges from 2% to 4%.
   • Volatility (Standard Deviation):
     • Stocks %: Input the annual volatility for stocks.
     • Bonds %: Input the annual volatility for bonds.
   • Correlation Between Stocks & Bonds:
     • Enter the correlation between stocks and bonds. You can find the latest major asset correlation from Asset Class Trends & Correlations page.
5. Run the Simulation:
   • Click the “Run Simulation” button to initiate the Monte Carlo analysis. The calculator will perform 10,000 iterations, simulating various market conditions and investment outcomes.
6. Review the Results:
   • Success Rate: The percentage of simulation runs where your portfolio successfully met or exceeded your retirement spending needs throughout your retirement period.
   • Median Ending Balance: The middle value of all simulation results, indicating the central tendency of your portfolio’s ending balance.
   • 95% Confidence Interval: The range within which 95% of the simulation results fall, providing insight into the variability and potential outcomes of your retirement savings.
7. Adjust and Optimize:
   • Use the simulation results to experiment with different variables such as increasing your annual contributions, adjusting your asset allocation, or modifying your withdrawal strategy. Re-run the simulation to see how these changes impact your retirement planning.

Free newsletters

High quality resources for 401k, 403b, 529 retirement plans on investment, contribution, fees, retirement planning and much more ...

Looking for a (forgotten) 401(k)?

Find plan contact info, plan expenses, investment options, rollover your old plan, or learn how to select investments on your 401k plan ...