Meet the Monte Carlo Retirement Simulator: Because Straight-Line Projections Lie to You
Most retirement calculators are lying to you. Not maliciously — they're just using straight-line projections. They assume your portfolio earns 7% every year, you withdraw your planned amount, and the line goes up. You're told you're "on track." You retire. Then a bear market hits in year 2, and suddenly that "on track" projection is worthless.
Monte Carlo simulation doesn't assume a straight line. It runs your plan through hundreds or thousands of possible market sequences — good years, bad years, crashes, recoveries — and tells you what percentage of those futures your plan survives.
How Monte Carlo Works
Instead of assuming one return path, the simulator randomizes the annual returns based on historical market data. Each simulation is one possible future. Run it 1,000 times, and you get a probability distribution:
- If your plan survives in 900 out of 1,000 simulations: 90% success rate
- If it survives in 650: 65% — a 1-in-3 chance of running out
- If it survives in 950+: you're in great shape
What the Tool Shows
The microtool takes six inputs — current age, retirement age, life expectancy, current savings, annual contribution, and annual withdrawal — and returns:
- Success probability: The percentage of simulations where your portfolio survived
- Median ending balance: What the 50th-percentile portfolio looks like at end of life
- Worst-case balance: The 10th-percentile outcome — what the bad futures look like
- Best-case balance: The 90th-percentile outcome — what the good futures look like
- Recommended adjustment: If success is below 80%, the tool suggests how much to save more or spend less
Real Numbers: A 40-Year-Old Planning to Retire at 65
- Current age: 40
- Retirement age: 65
- Life expectancy: 90 (25 years of retirement)
- Current savings: $200,000
- Annual contribution: $15,000
- Planned annual withdrawal: $60,000
Straight-line projection: At 7% for 25 accumulation years, the portfolio reaches roughly $1.75M. A $60K withdrawal is 3.4% — looks fine.
Monte Carlo results (1,000 simulations):
- Success probability: ~78%
- Median ending balance: ~$950,000 (at age 90)
- 10th percentile (worst case): $0 by age 82 — ran out of money
- 90th percentile (best case): $3.2M
A 78% success rate means roughly 1 in 5 simulated futures ran out of money. That's not nothing. The tool identifies the drivers: an unlucky sequence of bad early returns (like 2000–2002 or 2008 returning right after retirement) is what causes the failures.
The fix: Saving an extra $5,000/year bumps success to 86%. Delaying retirement by 2 years to age 67 bumps it to 91%. The tool shows these levers explicitly.
Why "You're On Track" Is Meaningless
A financial advisor who says "you're on track" based on a straight-line projection is giving you a number with no probability attached. You have no idea whether "on track" means 95% likely to succeed or 55%.
The Monte Carlo simulator gives you the actual probability. You get to decide what level of risk you're comfortable with — and what you're willing to adjust to improve it.
Alistair runs 1,000 futures against your plan in seconds. No advisor will do this for you — it doesn't fit in a 60-minute annual review.
That's what this microtool does. See the range of outcomes, not just the fantasy.