Step 12: Monte Carlo Simulation
750 independent simulations of your 25-year retirement horizon. Each run draws a fresh random sequence of annual market returns.
0.0% of 750 simulations maintained a positive balance through Age 90. Your plan has meaningful shortfall risk — review spending or timeline assumptions.
Distribution of Ending Balances at Age 90
Each bar = a range of final portfolio balances at Age 90. Dark bars = positive outcome · Amber bar ($0) = portfolio depleted before Age 90.
Outcome Percentiles at Age 90
| Scenario | Interpretation | Ending Balance |
|---|---|---|
|
Conservative 90th Percentile |
90% of simulations ended with at least this amount | $0 |
|
Median 50th Percentile |
Half of simulations ended above this; half below | $0 |
|
Optimistic 10th Percentile |
10% of simulations ended with this amount or more | $0 |
The Real World Isn't a Straight Line
Steps 8–10 used a straight-line projection — your expected return arriving in equal installments every year. Step 12 is a stress test: same inputs, but 750 simulations each with a different random return sequence. If your plan survives most of them, you have high-confidence outcomes.
How It Works
- 750 complete 25-year retirements simulated.
- Each year's return is drawn randomly — mean 5.0%, std dev 12.0%.
- Some simulations get strong early gains; others face an early crash. Both outcomes are represented.
Sequence of Returns Risk
The biggest retirement risk is not your average return — it is when bad years strike. A 20% loss in Year 1 is far more damaging than the same loss in Year 20, because early losses permanently shrink the portfolio you draw from. This is called Sequence of Returns Risk — invisible in a straight-line projection, fully captured here.
How to Read the Bar Chart at Left
- Each bar = a range of ending balances at Age 90.
- Dark bars — portfolio survived through Age 90.
- Amber bar ($0) — portfolio depleted before Age 90.
- Bars clustered right = robust plan. Significant amber on the left = revisit spending or timeline.
Inflation is modeled. Gross spending starts at $0/mo and grows 3.0%/yr through Age 90. Fixed income ($0/mo) is held flat, so the net portfolio draw widens each year. Ending balances are in future (nominal) dollars.
Why This Differs from Step 11
Step 11 shows one deterministic path — 5.0% every year like clockwork. Step 12 uses the same 5.0% average but replaces the straight line with 750 random paths. Because volatile compounding has an inherent drag, the median Monte Carlo outcome typically runs 15–20% below Step 11 — this is mathematically correct, not an error.
The Step 11 figure corresponds roughly to the 65th–70th percentile here (above-average luck). The Median row is the realistic answer; the Conservative row is the stress-test floor.