This 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
Forecasted Returns - Simulate future returns based on any forecasted mean and standard deviation of assets
Statistical Returns - Simulate future returns based on the mean, volatility and correlations of portfolios 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 for 10000 portfolios with $250,000 initial portfolio balance using available statistical model data from Jan 1972 to Dec 2019. Returns were modeled as correlated random samples from a multivariate normal distribution. The historical return for the selected portfolio for this period was 11.95% mean return (10.44% CAGR) with 15.34% 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 3.90% mean and 1.30% standard deviation based on the Consumer Price Index (CPI-U) data from Jan 1972 to Dec 2019. 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 - Jun 2020].
8952 portfolios out of 10000 simulated portfolios (89.52%) 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.
Contributions and withdrawals are done at the end of each specified time period
Simulated Assets - Correlations and Returns
Simulated Assets - Correlations and Returns
Name
US Stock Market
Inflation
CAGR
Expected Annual Return
Annualized Volatility
US Stock Market
1.00
-0.07
10.44%
11.75%
15.34%
Inflation
-0.07
1.00
3.89%
3.90%
1.30%
Asset correlations are based on monthly returns from Jan 1972 to Dec 2019. Historical volatility is used with specified expected annual returns. CAGR is estimated from the expected mean return and volatility.
Expected Annual Return
Expected Annual Return
Percentile
1 Year
3 Years
5 Years
10th Percentile
-8.85%
-1.22%
1.17%
25th Percentile
0.23%
4.16%
5.45%
50th Percentile
11.22%
10.62%
10.56%
75th Percentile
22.79%
17.38%
15.81%
90th Percentile
34.55%
23.78%
20.55%
Annual Return Probabilities
Annual Return Probabilities
Return
1 Year
3 Years
5 Years
>= 0.00%
75.46%
87.37%
92.79%
>= 2.50%
70.14%
80.50%
86.16%
>= 5.00%
64.62%
72.15%
76.94%
>= 7.50%
58.99%
62.70%
65.48%
>= 10.00%
52.94%
52.44%
53.28%
>= 12.50%
46.87%
42.71%
40.21%
Loss Probabilities
Loss Probabilities
Loss
Loss Probability Excluding Cashflows
Loss Probability Including Cashflows
Within Time Period
End of Time Period
Within Time Period
End of Time Period
>= 2.50%
62.11%
6.32%
93.73%
87.09%
>= 5.00%
49.73%
5.37%
92.12%
86.44%
>= 7.50%
39.09%
4.57%
90.47%
85.67%
>= 10.00%
30.89%
3.88%
88.83%
84.65%
>= 12.50%
24.06%
3.12%
87.41%
83.68%
>= 15.00%
18.27%
2.53%
85.88%
82.44%
>= 17.50%
13.93%
2.13%
84.31%
81.34%
>= 20.00%
10.41%
1.76%
82.60%
79.90%
>= 22.50%
7.67%
1.33%
80.82%
78.60%
>= 25.00%
5.63%
1.10%
79.21%
77.16%
>= 27.50%
4.00%
0.78%
77.27%
75.45%
>= 30.00%
2.80%
0.58%
75.36%
73.82%
>= 32.50%
1.89%
0.46%
73.75%
72.42%
>= 35.00%
1.22%
0.33%
71.92%
70.82%
>= 37.50%
0.82%
0.24%
69.97%
68.98%
>= 40.00%
0.50%
0.16%
67.80%
67.08%
Loss is measured against the original portfolio balance.