Distribution of Living Standard in Monte Carlo Simulation with Conservative Spending

When I run ESPlanner assuming conservative spending, is it correct that the Details and Suggestions section of the PDF report assume that I spend, and earn, zero real return on my investments, in each year until the last year when no assets are left? Then, if that is true, what are the assumptions regarding spending and earning in each of the various runs in the Monte Carlo simulations that are reported in the PDF table entitled Percentile Distribution of Living Standard? Does each simulation assume spending based on zero real return on my investments, in every year, but the actual earnings on my investments are at the stochastic real rates (rather than at a zero rate)?


dan royer's picture

Yes that's what it means. If you imagine the distribution displayed as a line chart--what is, it five lines I guess--by moving from aggressive spending to conservative spending, you tip the cone up on the right side where it spreads wider--but there's no free lunch, you tip it up to the right at the same time you lower the overall cone, push down on the entire graphic. So you have more potential upside in the future at the expense of lowering your expectation in the near term.

Thanks Dan. I have a follow-up question if you don't mind. Regarding the table in the PDF report labelled "Percentile Distribution of Living Standard," I am not sure what assumptions about spending and earning are built into each of the different 500 simulations. If as you seem to have confirmed above, each uses my "Specified Mean Real Return," then isn't that number the assumed spending in each simulation? In other words, what does it mean when the table shows a different number as the living standard if all of the simulations assume the same living standard as my spend rate? I hope my confusion about what the table is reporting is clear, and I appreciate your help in understanding this.

We use cookies to deliver the best user experience and improve our site.