Financial Goals

This Monte Carlo simulation supports planning for financial goals and related spending. Multiple cashflow goals can be applied based on different life stages, and the simulation supports the use of a linear glide path to transition from a career stage growth portfolio into a retirement stage income portfolio. The following simulation models are supported for portfolio returns:

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Monte Carlo Simulation Results

Monte Carlo simulation results for 10000 portfolios with $100,000 initial portfolio balance using available historical returns data from Jan 1994 to Dec 2017. 35-year linear glide path was used to transition from starting portfolio to retirement portfolio. The simulated inflation model used historical inflation with 2.22% mean and 1.19% standard deviation based on the Consumer Price Index (CPI-U) data from Jan 1994 to Dec 2017. The generated inflation samples were correlated with simulated asset returns based on historical correlations. The available historical data for the simulation inputs was constrained by Global Bonds (Unhedged) [Jan 1994 - Nov 2018].
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Portfolio Allocations

Starting Portfolio
Asset Class Allocation
US Stock Market 52.00%
Global ex-US Stock Market 28.00%
Total US Bond Market 16.00%
Global Bonds (Unhedged) 4.00%
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Retirement Portfolio
Asset Class Allocation
US Stock Market 13.00%
Global ex-US Stock Market 7.00%
Total US Bond Market 64.00%
Global Bonds (Unhedged) 16.00%
Save portfolio »

Financial Goals

Financial Goals
PurposeTypeStarts InEnds InFrequencyTimesTotalSuccess
Career SavingsContribute $1,5001 month35 yearsMonthly420$630,000100.00%
CollegeWithdraw $40,00012 years15 yearsAnnually4-$160,000100.00%
Retirement SpendingWithdraw $3,50035 years49 years and 11 monthsMonthly181-$633,50099.98%
Total is the sum of expected cashflows in present dollars

Summary Statistics

Summary Statistics
10th Percentile25th Percentile50th Percentile75th Percentile90th Percentile
Time Weighted Rate of Return5.29%6.10%6.94%7.79%8.52%
Portfolio End Balance (nominal)$2,934,364$4,417,934$6,582,118$9,553,548$13,286,092
Portfolio End Balance (inflation adjusted)$1,000,005$1,491,136$2,194,067$3,180,239$4,352,660
Maximum Drawdown-36.45%-28.50%-24.91%-16.99%-13.41%
Maximum Drawdown Excluding Cashflows-39.79%-33.01%-25.77%-18.67%-15.40%
9998 portfolios out of 10000 simulated portfolios (99.98%) survived all withdrawals.
   
Notes on results:
  • Monte Carlo simulation uses historical data and thus assumes that the future will, to some extent, mimic the past. The actual future results may vary.
  • The probability of success is based on the number of simulations the portfolio survives with a positive end balance.
  • Maximum drawdown statistics are calculated from simulated monthly balances.
  • The results assume annual rebalancing of portfolio assets at the end of each year. Taxes and transaction fees are not taken into account.
  • Past performance is not a guarantee of future returns and data and other errors may exist. See Disclaimer and Terms of Use
  • Glide path based portfolio allocation changes are done as part of annual rebalancing
  • Withdrawals are done at the start of each specified time period (fixed amounts before percentage based)
  • Contributions are done at the end of each specified time period

Simulated Assets - Correlations and Returns

Simulated Assets - Correlations and Returns
NameUS Stock MarketGlobal ex-US Stock MarketTotal US Bond MarketGlobal Bonds (Unhedged)InflationCAGRExpected Annual ReturnAnnualized Volatility
US Stock Market1.000.830.000.180.039.58%10.79%14.77%
Global ex-US Stock Market0.831.000.010.360.055.38%6.87%16.66%
Total US Bond Market0.000.011.000.63-0.125.12%5.18%3.57%
Global Bonds (Unhedged)0.180.360.631.000.015.91%6.16%6.85%
Inflation0.030.05-0.120.011.002.21%2.22%1.19%
Asset correlations and return vs. risk statistics are based on monthly returns from Jan 1994 to Dec 2017

Expected Annual Return

Expected Annual Return
Percentile1 Year3 Years5 Years10 Years15 Years20 Years25 Years30 Years40 Years50 Years
10th Percentile-9.90%-3.38%-0.52%2.25%3.46%4.19%4.60%4.87%5.17%5.29%
25th Percentile-1.17%3.28%3.95%5.21%5.66%5.89%6.04%6.13%6.12%6.10%
50th Percentile13.20%9.26%8.80%8.16%7.95%7.74%7.57%7.44%7.14%6.94%
75th Percentile19.53%14.41%12.75%10.97%10.04%9.52%9.08%8.73%8.15%7.79%
90th Percentile23.55%18.16%15.86%13.20%11.91%11.01%10.37%9.85%9.05%8.52%

Annual Return Probabilities

Annual Return Probabilities
Return1 Year3 Years5 Years10 Years15 Years20 Years25 Years30 Years40 Years50 Years
>= 0.00%74.55%83.39%88.86%95.88%98.71%99.62%99.93%99.97%100.00%100.00%
>= 2.50%70.20%76.98%80.78%89.15%93.79%96.72%98.10%98.95%99.77%99.92%
>= 5.00%70.20%68.92%70.45%76.53%80.34%84.09%86.84%88.84%91.75%93.17%
>= 7.50%66.15%58.50%57.25%56.23%55.49%53.63%51.17%48.84%40.33%32.65%
>= 10.00%53.63%46.18%42.07%33.31%25.45%19.27%13.43%8.72%2.39%0.52%
>= 12.50%53.63%34.31%26.42%13.91%6.80%2.73%1.02%0.22%0.00%0.00%

Glide Path