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
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 $875,000 initial portfolio balance using available historical returns data from Jan 1987 to Dec 2018. The historical return for the selected portfolio for this period was 9.05% mean return (8.53% CAGR) with 9.22% 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 2.61% mean and 1.12% standard deviation based on the Consumer Price Index (CPI-U) data from Jan 1987 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 Total US Bond Market [Jan 1987 - May 2019].
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8688 portfolios out of 10000 simulated portfolios (86.88%) 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.
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. 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
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
Total US Bond Market
Inflation
CAGR
Expected Annual Return
Annualized Volatility
US Stock Market
1.00
0.07
0.01
9.76%
11.02%
14.99%
Total US Bond Market
0.07
1.00
-0.11
5.78%
5.85%
3.81%
Inflation
0.01
-0.11
1.00
2.60%
2.61%
1.12%
Asset correlations and return vs. risk statistics are based on monthly returns from Jan 1987 to Dec 2018
Expected Annual Return
Expected Annual Return
Percentile
1 Year
3 Years
5 Years
10 Years
15 Years
20 Years
25 Years
30 Years
10th Percentile
-3.20%
0.54%
2.42%
4.11%
4.94%
5.38%
5.74%
5.98%
25th Percentile
2.18%
4.83%
5.55%
6.28%
6.69%
6.99%
7.11%
7.24%
50th Percentile
10.25%
9.24%
8.89%
8.69%
8.67%
8.64%
8.60%
8.57%
75th Percentile
17.39%
13.16%
12.13%
10.98%
10.49%
10.23%
10.03%
9.88%
90th Percentile
22.33%
16.65%
14.75%
12.94%
12.12%
11.64%
11.27%
11.03%
Annual Return Probabilities
Annual Return Probabilities
Return
1 Year
3 Years
5 Years
10 Years
15 Years
20 Years
25 Years
30 Years
>= 0.00%
78.41%
91.32%
95.69%
99.12%
99.76%
99.96%
99.99%
99.99%
>= 2.50%
72.40%
84.62%
89.70%
95.61%
98.11%
99.26%
99.70%
99.84%
>= 5.00%
66.21%
74.22%
78.66%
85.12%
89.57%
92.53%
94.51%
96.03%
>= 7.50%
62.96%
60.83%
61.26%
63.57%
65.99%
67.68%
69.26%
70.85%
>= 10.00%
50.08%
45.30%
40.88%
35.67%
30.87%
28.19%
25.39%
23.14%
>= 12.50%
40.64%
29.06%
22.59%
12.38%
7.71%
4.87%
2.95%
1.77%
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%
43.34%
0.01%
62.98%
24.15%
>= 5.00%
26.24%
0.00%
55.34%
23.86%
>= 7.50%
21.15%
0.00%
49.44%
23.46%
>= 10.00%
16.77%
0.00%
44.08%
23.18%
>= 12.50%
11.75%
0.00%
38.70%
22.93%
>= 15.00%
7.59%
0.00%
35.13%
22.67%
>= 17.50%
6.35%
0.00%
32.30%
22.43%
>= 20.00%
5.50%
0.00%
29.95%
22.19%
>= 22.50%
2.98%
0.00%
28.17%
21.93%
>= 25.00%
1.97%
0.00%
26.66%
21.53%
>= 27.50%
1.30%
0.00%
24.76%
21.28%
>= 30.00%
0.85%
0.00%
23.58%
21.00%
>= 32.50%
0.53%
0.00%
22.80%
20.70%
>= 35.00%
0.41%
0.00%
21.89%
20.35%
>= 37.50%
0.33%
0.00%
20.95%
19.97%
>= 40.00%
0.16%
0.00%
20.34%
19.76%
Loss is measured against the original portfolio balance.