This online Monte Carlo simulation tool provides a means to test long term expected portfolio growth and portfolio survival based on withdrawals,
e.g., testing whether the portfolio can sustain the planned withdrawals required for retirement or by an endowment fund.
The following simulation models are supported for portfolio returns:
Historical Returns - Simulate future returns by randomly selecting the returns for each year based on available historical returns
Statistical Returns - Simulate future returns based on the mean, volatility and correlations of portfolios assets
Forecasted Returns - Simulate future returns based on any forecasted mean and standard deviation of assets
Parameterized Returns - Simulate future returns based on the specified statistical distribution
You can choose from several different withdrawal models including:
Fixed annual withdrawal or contribution - Apply a fixed annual withdrawal or contribution.
Yearly inflation adjustments are by default done for the specified withdrawal or contribution amount based on the selected model.
Fixed annual percentage - Withdraw a fixed percentage of the portfolio balance annually.
This model ensures that the portfolio never runs out, but the annual spending amount varies based on the portfolio growth.
The percentage based withdrawal can be smoothed by using the rolling portfolio average or a geometric spending rule.
Life expectancy based annual withdrawal - This model withdraws a variable percentage of the portfolio
balance based on life expectancy. This is the RMD approach where the withdrawal percentage is 1 / Life Expectancy.
Custom sequence - Import custom sequence of periodic cashflows from a file.
To simulate multiple stages such as career and retirement with detailed cashflow goals use the Financial Goals planning tool.
Monte Carlo Simulation Results
Monte Carlo simulation results for 10000 portfolios with $1,000,000 initial portfolio balance using available historical returns data from Jan 1972 to Dec 2017. The historical return for the selected portfolio for this period was 10.21% mean return (9.64% CAGR) with 9.93% standard deviation of annual returns. The simulation results are based on generated nominal returns and specified inflation adjusted withdrawals ($45,000 per year). The simulated inflation model used historical inflation with 3.98% mean and 1.32% standard deviation based on the Consumer Price Index (CPI-U) data from Jan 1972 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 US Stock Market [Jan 1972 - Nov 2018].
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