Why running 1,000 fake futures gives you a better retirement plan than assuming everything goes according to plan.
Open any basic retirement calculator and it asks: how old are you, how much have you saved, and what return do you expect? You type in 7%, and it tells you exactly how much you'll have at 65.
The problem? Markets don't return exactly 7% every year. They return 24% one year, -18% the next, 11% the year after. The sequence and timing of those returns matters enormously, and a calculator that assumes smooth, predictable returns is lying to you, politely.
A 7% average return is not the same as 7% every year. The difference can mean hundreds of thousands of dollars, or running out of money entirely.
Instead of assuming one future, Monte Carlo simulation generates hundreds or thousands of possible futures, each with a different sequence of market returns drawn from historical volatility. Some runs get lucky (strong markets early in retirement). Some get unlucky (a crash right as you retire). Most are somewhere in between.
After running all those scenarios, you don't get a single number. You get a probability distribution. "Your plan succeeds in 87 out of 100 scenarios." That's a fundamentally different, and more honest, answer.
Imagine two retirees with identical portfolios and identical average returns over 20 years. One experiences strong returns early and weak returns late. The other gets weak returns early and strong returns late. Their outcomes can differ by hundreds of thousands of dollars, even though their "average return" is identical.
This is called sequence of returns risk, and it's the central danger of retirement that simple calculators completely ignore. Monte Carlo simulation captures it naturally, because each simulation run has its own random sequence.
For each simulation year, Retirfi draws a random return from a normal distribution calibrated to historical equity volatility (roughly 12% standard deviation for a stock-heavy portfolio). This happens independently for each year and each simulation run.
The simulation then applies that return to your current account balances, adds contributions (if still working), subtracts withdrawals (if retired), handles Social Security income, forces Required Minimum Distributions from traditional accounts, and applies the appropriate tax treatment to each withdrawal type.
This runs for every year from now until your plan-to age (default age 90) and repeats for every simulation run. The percentage of runs that reach plan-to age without hitting zero is your probability of success.
A simulation "succeeds" if your portfolio balance stays above zero through your plan-to age. But success isn't binary in practice. A run that ends at $50,000 at age 90 isn't meaningfully different from one that ends at $500,000. What matters more is whether you're generating sufficient income through your retirement years.
Retirfi shows you not just success rate, but median portfolio balance, income across percentile bands, and year-by-year breakdowns so you can understand the shape of your outcomes, not just a pass/fail score.
In accumulation (while working), tax efficiency is about what accounts you put money into. In decumulation (retirement), it's about what order you take money out. Getting this wrong can cost tens of thousands in unnecessary taxes over a long retirement.
The optimal order, endorsed by most tax researchers, is: taxable brokerage first (favorable capital gains rates), then cash accounts, then traditional pre-tax accounts (fill lower tax brackets), then Roth last (tax-free, no reason to touch it early). Retirfi applies this automatically in every simulation year.
Monte Carlo is a tool, not an oracle. It uses historical volatility as a proxy for future volatility, which is a reasonable assumption, but not a guarantee. Black swan events, changes in tax law, extended low-return environments, extended periods of high inflation (post Covid era), and health emergencies can all produce outcomes outside the model.
Use the probability of success as a planning signal, not a promise. If your success rate is 85%, that's good, but build in a buffer. If it's 60%, that's a signal to adjust something: save more, retire later, spend less, or accept more investment risk.
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