Stress test monte carlo?

Submitted by JimEH on Sun, 12/01/2013 - 00:00

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Hi

I understand the role in the Mont Carlo, randomizing various outcome, however, is it possible to use a actual historical data? e.g. Assume inflation and market returns starting in 1963 to 2004 were to occur again starting in the year of your retirement. I choose using 1963 because it was one of worse time to retire in the past 50 years. If this is possible how does one implement it into ESplan ?

Thank you

Jim Hargreaves

Comments

BrianVezza

Tue, 12/03/2013 - 07:45

Hi Jim,

Hi Jim,

I have a few ideas for this. First, take your "total income" results and feed this into one of the online calculators that uses historical data with your other assumptions (e.g. net worth, etc.) You might be able to see how this fits in some of these, but I haven't tried it recently.

Second, in stress testing with ESPlanner, I did a ton of sensitivity testing first along with using historical data to come up with "reasonable and conservative" assumptions as a baseline. Assuming you're happy with your profile, you can easily see how low, medium, and high inflation settings impact you to come up with a range of reasonable estimates for your results. You can also try this with rate of return, gaining or losing assets in a steep decline, etc. or in combination.

Hope this helps.

Best,
Brian

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