What is a Monte Carlo simulation for retirement?

A Monte Carlo simulation runs thousands of hypothetical retirement scenarios using random sequences of investment returns based on historical return distributions. The percentage of scenarios where money does not run out is the success rate.

What success rate should I aim for?

Most financial planners recommend 85-95% success rate. 100% means the plan succeeded in all historical scenarios, which may require an unnecessarily conservative withdrawal rate. 90% is a common target balancing caution and spending.

How does portfolio size affect success rate?

For a $1M portfolio with $40,000/year withdrawal over 30 years: typically 85-90% success rate at 60/40 allocation. Increasing to $1.1M raises success to ~92%. Adding flexibility to cut spending in bad years significantly improves success rate.

What inputs matter most in Monte Carlo?

The most sensitive inputs are: withdrawal rate, time horizon, asset allocation, and assumed return/volatility. Higher equity allocation increases average success but also increases variance (higher chance of both great and terrible outcomes).

How is simplified Monte Carlo different from full simulation?

Full Monte Carlo uses correlated asset class returns in each simulation. Simplified versions use historical distribution of portfolio returns or normal distribution assumptions. Both have limitations and should be combined with stress testing and judgment.

Monte Carlo Retirement Success Rate Calculator (Simplified)

Estimate retirement plan success rate using simplified Monte Carlo analysis. Given a portfolio, withdrawal rate, time horizon, and asset allocation, estimate probability of not running out of money using historical return distributions.

Principal ($)

Annual Rate (%)

Years

Compounding / Year

$ Finance Disclaimer: These calculators are for educational and illustrative purposes only. Results do not constitute financial advice. Consult a licensed financial advisor before making investment or borrowing decisions.

How It Works

Each component has a specific meaning:

Simplified Monte Carlo analysis — The simplified monte carlo analysis recorded for the scenario being assessed.

Note: Interpret the monte carlo retirement success result against the thresholds and context described above.

How to Use

Enter the simplified Monte Carlo analysis for the scenario you are assessing. Estimate retirement plan success rate using simplified Monte Carlo analysis. Given a portfolio, withdrawal rate, time horizon, and asset allocation, estimate probability of not running out of money using historical return distributions. Use the monte carlo retirement success result to inform your calculation.

Related Calculators

Safe Withdrawal Rate

Finance & Accounting

Sequence of Returns Risk

Finance & Accounting

FIRE Number Calculator

Finance & Accounting

Monte Carlo Retirement Success Rate Calculator (Simplified)

How It Works

How to Use

Related Calculators

Frequently Asked Questions

What is a Monte Carlo simulation for retirement?

What success rate should I aim for?

How does portfolio size affect success rate?

What inputs matter most in Monte Carlo?

How is simplified Monte Carlo different from full simulation?