What is Monte Carlo Simulation?
Background
Monte Carlo simulation is a technique that runs thousands of randomised scenarios of future investment returns to test how often a retirement plan succeeds or fails.
Explanation
Instead of assuming a single average return every year, Monte Carlo samples returns from realistic distributions (good years, bad years, crashes) and runs your plan across each path. It then reports a success rate, like “your money lasts 30 years in 85% of simulations.” This helps you understand risk, not just the average case.
Example
A plan with a 3.5% withdrawal rate and 60:40 equity–debt mix might show a 90% success rate over 35 years, while a 5% withdrawal might show only 50–60%. You can then adjust retirement age, corpus or withdrawals to reach a comfort level.
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