Monte Carlo simulation
Running a plan thousands of times with random market returns to see how often it succeeds.
It shows a range of outcomes instead of one average path. Results depend on the assumptions behind the random returns.
Related terms
- Sequence-of-returns riskThe risk that bad market years early in retirement do lasting damage, because you sell investments at low prices to live.
- 4 % ruleA rule of thumb that you can spend 4 % of your savings in year one and adjust for inflation, and the money has historically lasted 30 years.
- VolatilityHow much an investment’s value swings from year to year.
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Investing
Sequence risk: why the first ten years of retirement decide
Two retirees, the same average return and very different outcomes. How the order of returns can break a plan and what early retirees can do about it.