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 2018. 35-year linear glide path was used to transition from starting portfolio to retirement portfolio. The simulated inflation model used historical inflation with 2.21% mean and 1.18% standard deviation based on the Consumer Price Index (CPI-U) data from Jan 1994 to Dec 2018. 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 2019].
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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 monthsMonthly180-$630,00099.95%
Total is the sum of expected cashflows in present dollars

Summary Statistics

Summary Statistics
10th Percentile25th Percentile50th Percentile75th Percentile90th Percentile
Time Weighted Rate of Return (nominal)4.80%5.61%6.48%7.33%8.04%
Time Weighted Rate of Return (real)2.58%3.35%4.17%4.99%5.69%
Portfolio End Balance (nominal)$2,166,594$3,363,365$5,190,941$7,669,224$10,561,277
Portfolio End Balance (real)$741,136$1,139,662$1,745,773$2,555,533$3,531,210
Maximum Drawdown-39.27%-30.16%-25.05%-17.86%-14.02%
Maximum Drawdown Excluding Cashflows-40.15%-33.34%-25.81%-18.77%-15.41%
Safe Withdrawal Rate3.04%3.95%5.12%6.50%7.81%
Perpetual Withdrawal Rate2.53%3.24%4.01%4.76%5.39%
9995 portfolios out of 10000 simulated portfolios (99.95%) survived all withdrawals.
   
Notes on results:
  • Past performance is no guarantee of future results, which may vary. All use is subject to terms of service.
  • Investing involves risk, including possible loss of principal. The value of the investments and the income derived from them may fluctuate over time.
  • The projections and other information generated by the Monte Carlo simulation tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results may vary with each use and over time, and hypothetical returns do not reflect trading costs, transaction fees, or taxes.
  • A Monte Carlo simulation is a mathematical technique designed to provide a range of possible outcomes to determine the probability of a particular result or set of results. The simulation provides a distribution of possible results, which are used to derive the probability of different outcomes.
  • The results are based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete.
  • The results do not constitute investment advice or recommendation, are provided solely for informational purposes, and are not an offer to buy or sell any securities.
  • The results are based on the total return of assets and assume that all received dividends and distributions are reinvested.
  • 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.
  • Safe withdrawal rate is the percentage of the original portfolio balance that can be withdrawn at the end of each year with inflation adjustment without the portfolio running out of money.
  • Perpetual withdrawal rate is the percentage of portfolio balance that can be withdrawn at the end of each year while retaining the inflation adjusted portfolio balance.
  • The results assume annual rebalancing of portfolio assets at the end of each year.
  • 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 Market1.000.83-0.000.190.048.94%10.15%14.79%
Global ex-US Stock Market0.831.000.010.370.054.50%5.96%16.56%
Total US Bond Market-0.000.011.000.62-0.144.90%4.97%3.56%
Global Bonds (Unhedged)0.190.370.621.000.005.51%5.74%6.77%
Inflation0.040.05-0.140.001.002.20%2.21%1.18%
Asset correlations and return vs. risk statistics are based on monthly returns from Jan 1994 to Dec 2018

Expected Annual Return

Expected Annual Return
Percentile1 Year3 Years5 Years10 Years15 Years20 Years25 Years30 Years40 Years50 Years
10th Percentile-9.90%-3.44%-1.06%1.76%2.81%3.52%3.97%4.27%4.61%4.80%
25th Percentile-1.17%2.40%3.42%4.53%4.99%5.27%5.44%5.54%5.60%5.61%
50th Percentile13.20%8.44%7.96%7.53%7.32%7.12%7.03%6.90%6.63%6.48%
75th Percentile18.34%13.79%12.04%10.35%9.52%8.94%8.54%8.19%7.66%7.33%
90th Percentile23.55%17.76%15.35%12.59%11.32%10.48%9.81%9.32%8.54%8.04%

Annual Return Probabilities

Annual Return Probabilities
Return1 Year3 Years5 Years10 Years15 Years20 Years25 Years30 Years40 Years50 Years
>= 0.00%71.99%82.12%87.44%94.67%97.98%99.51%99.80%99.95%100.00%100.00%
>= 2.50%68.32%74.63%79.05%87.01%91.44%94.72%96.94%98.44%99.52%99.87%
>= 5.00%68.32%66.23%67.52%71.59%74.96%78.05%80.85%82.40%85.21%87.22%
>= 7.50%64.13%55.27%52.96%50.26%47.80%44.74%41.55%37.83%28.69%20.42%
>= 10.00%51.72%42.94%37.50%27.72%20.13%13.72%8.49%4.73%0.93%0.11%
>= 12.50%51.72%30.65%22.39%10.37%4.67%1.73%0.42%0.06%0.00%0.00%

Loss Probabilities

Loss Probabilities
LossLoss Probability Excluding CashflowsLoss Probability Including Cashflows
Within Time PeriodEnd of Time PeriodWithin Time PeriodEnd of Time Period
>= 2.50%64.14%0.00%25.65%0.09%
>= 5.00%48.04%0.00%17.03%0.09%
>= 7.50%41.71%0.00%9.35%0.09%
>= 10.00%36.26%0.00%8.93%0.09%
>= 12.50%31.28%0.00%8.87%0.09%
>= 15.00%29.20%0.00%4.38%0.09%
>= 17.50%20.69%0.00%4.21%0.09%
>= 20.00%16.36%0.00%4.14%0.09%
>= 22.50%13.98%0.00%0.48%0.09%
>= 25.00%12.03%0.00%0.45%0.09%
>= 27.50%10.40%0.00%0.27%0.08%
>= 30.00%9.19%0.00%0.27%0.08%
>= 32.50%8.16%0.00%0.12%0.07%
>= 35.00%5.17%0.00%0.09%0.07%
>= 37.50%3.99%0.00%0.08%0.07%
>= 40.00%3.13%0.00%0.08%0.07%
Loss is measured against the original portfolio balance.

Glide Path