Monte Carlo statistical method is a computer simulation of hundreds or even thousands of sequences of returns with variables for inflation rates, interest rates, growth rates and other metrics.
As mentioned by William F. Bengen in his book, "Conserving Client Portfolios During Retirement" about Monte Carlo simulations he states, "...they have been randomly generated from a set of mathematical rules and do not correspond to any actual historical data..." and this leads actually to "...lower success rates for withdrawal rates below about 5.25 percent, and higher probability scores for withdrawal rates above 5.25 percent..."
Since many advisors use withdrawals rates of 4-5%, then using Monte Carlo simulations may suggest that you have a starting "nest egg number" that is higher than you really may need in order to reach a 95% success rate where you do not run out of money.
The software is just not capable of providing the best answer - yet. But as Mr. Bengen states in his book, "...I have learned never to underestimate the ingenuity of man when he attacks a problem of importance to him..."
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.