How to Use RetirePro's Monte Carlo Simulator

What is Monte Carlo Simulation?

When planning for retirement, the biggest uncertainty is market returns. Will you average 7% per year? 5%? What if there's a crash right after you retire?

Monte Carlo simulation addresses this by running thousands of scenarios with different random market returns. Instead of assuming a fixed return, it shows you the range of possible outcomes and the probability of each.

RetirePro runs 1,000 simulations for every projection, giving you a realistic picture of your retirement success probability.

Why Monte Carlo Beats Fixed Projections

The Problem with Fixed Returns

If you assume a steady 7% return every year:

• Your projection looks smooth and predictable
• You get a single "answer" (you'll have $X at retirement)
• Reality is never this smooth

What Actually Happens

In real life:

• Some years return +25%, others -35%
• Sequence of returns matters (bad years early in retirement hurt more)
• Inflation varies year to year
• Markets are unpredictable

Monte Carlo Reality

Monte Carlo simulation:

• Runs 1,000 different market scenarios
• Shows the range of outcomes (best case, worst case, median)
• Calculates your success rate (% of scenarios where money lasts)
• Accounts for sequence-of-returns risk

How to Access Monte Carlo in RetirePro

1. Enter your data in the Start and Your Finances tabs
2. Go to the Results tab
3. Look for your Success Rate percentage
4. View the Charts tab for Monte Carlo distribution

Understanding Your Success Rate

Your success rate is the percentage of simulations where your money lasted through your planned retirement:

What's a Good Target?

Most financial planners recommend 85% or higher. This means:

• In 85 out of 100 market scenarios, your money lasts
• You have a cushion for bad luck
• You can probably handle some unexpected expenses

The Monte Carlo Distribution Chart

The distribution chart shows the range of portfolio values over time:

Reading the Chart

• Top line: Best-case scenarios (90th percentile)
• Middle line: Median outcome (50th percentile)
• Bottom line: Worst-case scenarios (10th percentile)
• Shaded area: Range of likely outcomes

What to Look For

• Does the median line stay above zero? Good sign.
• Does the bottom line (worst case) go to zero? That's your failure scenario.
• When does the worst case hit zero? Earlier is worse.
• Is the range wide or narrow? Wider = more uncertainty.

Factors That Affect Your Success Rate

1. Withdrawal Rate

The biggest factor. Higher withdrawal = lower success.

2. Asset Allocation

More stocks = higher average return but more volatility.

• 100% stocks: Higher median, but wider range
• 60/40 stocks/bonds: Balanced risk/return
• Conservative: Lower volatility, lower growth

3. Retirement Length

Planning to 95 vs. 85 makes a big difference.

• 20-year retirement: Easier to fund
• 30-year retirement: Requires more savings
• 35+ years: Very challenging without high savings

4. Guaranteed Income

Social Security and pensions reduce what you need from your portfolio.

More guaranteed income = higher success rate.

5. Flexibility

Can you cut spending in bad years? This dramatically improves success rates but isn't modeled in basic Monte Carlo.

How to Improve Your Success Rate

If your success rate is below 85%, here are your options:

1. Save More

Each additional dollar saved improves your starting portfolio.

2. Work Longer

Even 1-2 extra years helps:

• More savings time
• Fewer retirement years to fund
• Can delay Social Security

3. Spend Less in Retirement

Reducing expenses by $10,000/year can improve success rate by 10-15%.

4. Delay Social Security

Higher guaranteed income = less portfolio dependence = higher success rate.

5. Adjust Asset Allocation

Sometimes a slightly more aggressive allocation improves outcomes (but increases volatility).

6. Consider Part-Time Work

Even $20,000/year in early retirement dramatically improves success rates.

Monte Carlo Limitations

What It Doesn't Account For

• Your flexibility: Can you cut spending if needed?
• One-time expenses: Major healthcare costs, helping kids, etc.
• Sequence details: Uses random ordering, not worst-case-first
• Your actual behavior: Will you panic sell in a crash?

Don't Over-Rely on a Single Number

Your 87% success rate is a guide, not a guarantee. Use it to:

• Compare scenarios (is 62 or 65 better?)
• Identify whether you're in a danger zone
• Track progress as you save more

Practical Monte Carlo Strategies

Run Multiple Scenarios

Test these variations:

• Retire at 60 vs. 62 vs. 65
• Claim Social Security at 62 vs. 67 vs. 70
• Save $500/month more
• Reduce retirement spending by 10%

Focus on the Worst Case

The median outcome is nice, but pay attention to the 10th percentile. If your worst case runs out of money at 78, you have a problem.

Update Regularly

As markets move and you save more, your success rate changes. Check quarterly.

Don't Chase 100%

A 100% success rate means you're probably being too conservative. You might be saving too much and enjoying life too little.

Sweet spot: 85-95%

Monte Carlo in Action: Example

Scenario: 55-year-old with $800,000 saved, planning to retire at 62

Result: 72% success rate ⚠️

Improvement Options

Monte Carlo helps you find the combination that works.

The Bottom Line

Monte Carlo simulation is the most realistic way to project your retirement. It shows you:

• The range of possible outcomes
• Your probability of success
• How different choices affect your odds

Aim for 85%+ success rate, check your plan regularly, and use scenarios to optimize your retirement timing and spending.

Ready to run your Monte Carlo simulation? RetirePro runs 1,000 scenarios on your portfolio automatically. See your success rate →

Also try our dedicated calculators: Retirement Calculator | Early Retirement & FIRE | Social Security Optimizer