Retirement Parameters

$
Current portfolio value
$
Yearly savings during accumulation
%
Enter as percentage (e.g., 7 for 7%)
%
Standard deviation of annual returns
yrs
Your age today
yrs
When withdrawals begin
$
First-year withdrawal amount in retirement
%
Annual inflation for withdrawal adjustment
yrs
Duration of distribution phase
Number of Monte Carlo scenarios
Model Assumptions
  • Returns are normally distributed (arithmetic, R ~ N(μ, σ²))
  • Constant expected return and volatility
  • Contributions added at end of each year
  • Withdrawal = first-year retirement amount, inflated annually
  • Portfolio wealth floored at $0 (no borrowing)
  • No taxes, Social Security, or pension offsets
  • No glide path (fixed asset allocation)
  • For educational purposes. Not financial advice.
Ryan O'Connell, CFA
Calculator by Ryan O'Connell, CFA

Simulation Results

Success Probability --
Median Terminal Wealth --
10th Percentile --
90th Percentile --
Worst-Case Depletion Age --
Accumulation End Median --

Wealth Projection

Formula Breakdown

W(t+1) = W(t) × (1 + R) + Contribution
R ~ N(μ, σ²) where μ = expected return, σ = volatility

Understanding Monte Carlo Retirement Analysis

What is a Monte Carlo Retirement Simulation?

A Monte Carlo retirement simulation uses random sampling to model the uncertainty of investment returns over your lifetime. Instead of assuming a single fixed return each year, it generates thousands of possible return sequences to estimate the probability that your savings will last throughout retirement.

Wealth Evolution
Accumulation: W(t+1) = W(t) × (1 + R) + C
Distribution: W(t+1) = W(t) × (1 + R) - D × (1 + π)t-1
R ~ N(μ, σ²), C = contribution, D = first-year withdrawal, π = inflation, t = retirement year

Two Phases of Retirement Planning

Accumulation Phase

Saving years (now to retirement)
Portfolio grows through investment returns and annual contributions. Wealth compounds over time, building your retirement nest egg.

Distribution Phase

Retirement years
Portfolio is drawn down through inflation-adjusted withdrawals. The key risk is running out of money before the end of retirement.

Reading the Fan Chart

The fan chart visualizes the range of possible wealth outcomes:

  • Median line (solid): The 50th percentile outcome - half of simulations fall above, half below.
  • Dark band (25th-75th percentile): The middle 50% of outcomes - your most likely range.
  • Light band (10th-90th percentile): Captures 80% of all outcomes, showing the broader range of possibility.
  • Vertical dashed line: Marks the transition from accumulation to distribution phase.

Success Probability Guidelines

  • 85%+ (Strong): High confidence your plan will sustain through retirement.
  • 70-85% (Moderate): Reasonable but consider increasing savings or reducing withdrawals.
  • Below 70% (Needs Attention): Significant risk of running out of money. Adjust inputs.
Tip: If your success probability is low, try increasing contributions, delaying retirement, reducing withdrawals, or adjusting your asset allocation to change the return/volatility profile.

Frequently Asked Questions

A Monte Carlo retirement simulation runs thousands of hypothetical market scenarios to estimate the probability that your retirement savings will last throughout your retirement. Each simulation uses random returns drawn from a normal distribution based on your expected return and volatility inputs, providing a range of outcomes rather than a single deterministic projection.

The success probability represents the percentage of simulated scenarios where your portfolio maintained a positive balance throughout the entire retirement period. A higher percentage indicates a more robust retirement plan. Generally, a success rate above 85% is considered strong, while below 70% suggests the plan may need adjustments.

Inflation erodes purchasing power over time, meaning your withdrawal amount needs to increase each year to maintain the same standard of living. You enter the first-year retirement withdrawal amount, and this calculator compounds it by the inflation rate each subsequent year. For example, a $50,000 first-year withdrawal at 2.5% inflation grows to $82,030 by year 20 of retirement.

The fan chart shows the range of possible wealth outcomes over time. The darker shaded region represents the 25th to 75th percentile (middle 50% of outcomes), the lighter region shows the 10th to 90th percentile, and the solid line is the median (50th percentile). A vertical dashed line marks the transition from accumulation to distribution phase.

1,000 simulations typically provide a reliable estimate of success probability. Increasing to 5,000 or 10,000 produces more stable results but takes slightly longer to compute. The difference in accuracy above 1,000 simulations is usually minimal for practical purposes.

Monte Carlo simulations assume returns follow a normal distribution, which may not capture extreme market events (fat tails). They also assume constant expected return and volatility, whereas real markets exhibit time-varying dynamics. Results should be used as one input among many in retirement planning, not as a guarantee of outcomes.
Disclaimer

This calculator is for educational purposes only. It assumes normally distributed returns, constant volatility, and does not account for taxes, Social Security, pensions, or changes in spending patterns. Actual retirement outcomes depend on many factors not modeled here. Consult a qualified financial advisor for personalized retirement planning.

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Course by Ryan O'Connell, CFA, FRM

Portfolio Analytics & Risk Management Course

Master portfolio theory and risk management from fundamentals to advanced analytics. Covers modern portfolio theory, risk metrics, performance evaluation, and factor models.

  • Monte Carlo simulation and retirement planning
  • Modern Portfolio Theory and efficient frontier construction
  • Risk metrics: VaR, CVaR, drawdown analysis
  • Hands-on exercises with real portfolio data
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