Monte Carlo numbers

In the Monte Carlo simulation, at age 70, my projected retirement assets is 598,378. However, when I go to the probability of my retirement assets lies within specified range of projected trajectories, Monte Carlo says that I have zero chance of being between the 0-50% (0- 797,309) with a 6% chance of being between the 50-75% (797,309- 1,007,507).

My question is this, how can my projected retirement asset of 598,378 at age 70 occur when Monte Carlo itself says that there is 0% of this happening?


dan royer's picture

Projected column represents the expectation based on the average yield (the mean I believe) of that combination of asset classes. In the monte carlo tables we see the probability of these averages playing out.

For the distribution we read it year by year. For the trajectory tables we read down the column to view the upside and downside in a particular life.

The help document is pretty good at explaining this. See a copy of it in the Learn More area above.

dan royer's picture

Ok, I think I found the problem (and possible bug to the program). I ran my scenario 3 times, with the only change in each scenario my spending behavior. Everything else is exactly the same. At age 70 (I focus on this age because in all my scenarios, I haven't yet begun any spending yet), my projected retirement assets in monte carlo are the following:
Spending conservatively 407,041
Spending cautiously 598,378
Spending aggressively 874,707
So, in summary, the difference in projected retirement assets at age 70 has a aprxly 466,000 range. Tongue in cheek, it seems your program is encouraging me to spend money like a mad man because then I'll have more money to spend. (We in the psychology field call this magical thinking. Interestingly, however, the projected assets in the spend aggressively column do seem to line up more reasonably than the others. Also of interest, the monte carlo simulation in all scenarios are pretty much identical. I could use some assistance in clearing up this mystery. Thanks.

Hi Phil,

I'm just a user, but hopefully this can help. First, there's a bunch of MC posts in the forum that can help although can also be confusing at times.

ESPlanner's algorithm assumes your financial assets get spent by maximum age of life per your profile. However, in MC when you mandate a safety factor through setting spending behavior to cautious or conservative you get an interesting situation.

As ESPlanner performs its calculations on a year by year basis, it spends down assets at your spending behavior rate (e.g. 0% real return, 50% MC real return, or MC real return)while growing assets at your MC rates of returns (variable). Over time, assuming your assets grow larger, ESPlanner makes adjustments in your consumption. It still spends at a reduced rate to ensure a safety factor, but it also, by default, is set up to spend down all assets by end of life. Larry writes "The less you spend at any given date, the more assets you'll have to invest and the more resources out of which you can spend in the future, for any given draws of returns you might experience. This lowers the initial level of spending and tilts the living standard percentile distribution curves upward." This is all shown in the MC reports.

So ... setting the spending behavior to cautious or conservative lowers your consumption to start, increasing assets over time lead to increasing consumption (although still with a safety factor), and near end of life ESPlanner ramps up consumption over the last decade or so of life to ensure (per your specific profile and programming) that you have plenty of consumption while you end up spending down your assets as described earlier.

Your "main" report consumption figures show the results as if your rate of return is set to 0% real return, 50% MC real return, or MC real return. That reflects the figures in your last post, I think.

In the MC reports, you see much more information and year by year results based on the 500 MC runs. Assuming you don't have odd User Defined Assets (UDA) which will create faulty results, you may want to try Higher Precision which should be more accurate results. ESPlanner runs through your specific MC assets and portfolio and could come up with the results you see. There have been updates to MC over the past few years because of "wacky" results so there could also be a bug.

My guess is that it's a challenge interpreting the results. They are often confusing, but the forum posts and some time should help. Good luck.


Thanks for your input Brian. I think I see what you mean. If am interpreting your comments correctly, then when I choose a consumption choice, I am also choosing (unknowingly), a change in return of investment. What had me going (and still does to an extent) is that I have the program set for zero consumption till age 70, but I got such a big difference in projected return at age 70 using the conservative, cautious and aggressive consumption models. It certainly makes a difference knowing this when projecting the future return of investment. Thanks for your input on this, it helps clear this up for me.

Hi Phil,

I don't want to confuse this further, but will add one thing that helped me to interpret the results and reports.

In your mind, try to separate your MC rate of return (RR) and your "safety factor" (SF) or consumption choice as you put it. Also, separate your MC report results and the "main" report consumption figure. #1-5 below help me to do this.

1. Your MC RR is the same under all scenarios (subject to variability per your portfolio and MC randomness).
2. Your consumption is subject to your SF at levels equivalent to - 0% real return, 50% MC real return, or MC real return. If you spend at "conservative, cautious, or aggressive" levels, your remaining assets still grow at the same MC RR set in #1.
3. Depending on your specific portfolio and MC set up, there can be huge differences in results. #4 and 5 will talk about reports/results.
4. This relates to your "unknowingly" comment. Your "main" report, I believe, essentially takes your spending behavior input (0% real return, 50% MC real return, or MC real return) and uses this as your real "rate of return" as if it's set manually in your "assumptions" tab. This confused me for a while, but I'm pretty sure it's correct. It does this to give you a feel for how much you could consume if your "fixed" RR was at these different levels. I use the main report consumption number (in MC mode) as a benchmark to compare against my manual RR inputs. If the MC results are way higher than my manual results, then, in my mind, the MC results seem risky. If the MC results are close to or lower than my manual RR results, then I feel more confident that I won't run out of money by end of life (hence the safety factor). This is all for the "main" report.
5. At the same time, your "MC reports" basically ignore #4 and follow #1 and #2 above. What this means is the MC results show the highlights of the 500 actual MC runs with their specific details per your profile as described previously. I won't go into more detail here, but there's a ton of data that can be analyzed.

Hope this helps.

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