Retirement Monte Carlo Simulation Projections

Visualize potential future stock price paths with Monte Carlo simulations based on historical returns and volatility.


How To Use:

This webpage is designed to help users simulate potential future values of an investment based on historical performances using, Monte Carlo method and Real Index Return methods. By inputting initial investment amounts, number of years and max simulations to run, and other parameters, users can visualize a range of possible outcomes to better plan for retirement.

The withdrawal options provided in this tool help users customize their retirement planning strategies by allowing them to simulate different withdrawal scenarios. This can be critical for understanding how various withdrawal strategies impact the longevity and sustainability of their retirement savings.


Simulation Options:

Type Description Use Case
Monte Carlo Generates random scenarios based on expected return and volatility. Average Historical Return and Historical Volatility represent typical values based on past performance of the S&P 500. The average return gives an idea of what investors might expect to earn annually, while volatility indicates how much returns can fluctuate. Best for understanding the range of possible outcomes given specific market assumptions.
Rolling Returns Uses historical data to simulate future returns based on past performance periods. Useful for seeing how investments might perform based on actual historical patterns.
Round Robin Rolling Returns Similar to Rolling Returns, but cycles through historical data to create more diverse scenarios. It loops through years, allowing for more paths even with limited data. Provides a broader range of historical scenarios, useful for stress-testing portfolios.
Random Real Returns Randomly selects individual year returns from historical data to create scenarios. Helps in understanding potential outcomes based on a mix of historical yearly performances.

Explanation of Inputs:

  1. Choose a simulation method:
    • Monte Carlo: Generates random scenarios based on expected return and volatility.
    • Rolling Returns: Uses historical data to simulate future returns based on past performance periods.
    • Round Robin Rolling Returns: Cycles through historical data to create more diverse scenarios by looping through years.
    • Random Real Returns: Randomly selects individual year returns from historical data to create scenarios.
  2. Initial Investment ($): Enter the amount you plan to start with when the investment is made.
  3. Average Historical Return (%): The annual rate of return that the investment is expected to earn on average. Historically, the S&P 500 has returned about 8-11%, 8% is used as the default value here.
  4. Historical Volatility (%): This represents the standard deviation of the investment's annual returns. For the S&P 500, historical volatility over a long period averages around 15%, but we've used 18% here to factor in additional uncertainty.
  5. Number of Years: The duration over which the investment will be held. Ideally, this should be based on the length of your retirement planning horizon.
  6. Number of Simulations: This refers to the number of individual paths the simulation will generate. Increasing this number provides a broader view of potential outcomes. A default of 100 simulations is chosen.
  7. Optional Withdraw Parameters: Customize the withdrawal strategy for your simulation.
    1. Withdraw Type: Choose between:
      • No Withdrawals: No withdraws are taken out allowing for full growth.
      • Percentage: Perfect for testing the 4% rule and other variations. This helps simulate the impact of withdrawing a consistent proportion of the investment each year, adjusting for growth and volatility.
      • Fixed Amount: This option allows users to specify a fixed dollar amount to withdraw each year. It helps simulate the impact of withdrawing a set amount regardless of the investment's performance.
      • Fixed Amount + Inflation: Similar to fixed amount withdrawals, but this option adjusts the withdrawal amount for inflation each year. This helps simulate a more realistic scenario where the cost of living increases over time.
    2. Withdraw Amount (% or $): Specify the amount to withdraw. This can be a percentage of the investment or a fixed dollar amount.
    3. Withdraw Failure Threshold (% or $): Set a threshold below which withdrawals are considered a failure. This can be a percentage of the initial investment or a fixed dollar amount.
    4. Start Withdraw in X Years: Indicate the number of years after which withdrawals should start.
  8. Run Simulation: After entering all inputs, click this button to see the possible futures of your investment.
Simulations of 10,000 or more may take a bit longer to process.


Version 0.20 Updates: Version 0.10 Updates:
Disclaimer

The data provided on this page is for informational purposes only and is not intended for trading purposes or advice. It is provided on a best-efforts basis and we do not guarantee the accuracy, completeness, timeliness, or correct sequencing of the data.

This site and its owners shall not be liable for any errors or delays in the content, or for any actions taken based on the content.

Please be aware that investing in financial markets and securities involves risk. Past performance of these investments is not indicative of their future performance. Investments can lose value and investors can lose the entire amount of their investment. Before investing, please carefully consider your financial situation and risk tolerance to determine if the investment aligns with your financial goals. Seek advice from a professional financial advisor if you have any doubts. This information is provided 'as is' and solely for informational purposes, not for investment purposes or advice. This information is not an offer to sell or a solicitation to buy any security.