Monte Carlo simulation results

The TIME MACHINE should have been run at least 101 times and more when guardrails are applied, see below). The first run will be of your scenario with your set rates. For each subsequent run, a simulation of rates is obtained using the Society of Actuaries model. The simulation results are saved with the first TIME MACHINE run. You can access the full results of that run using the "Scenario" button in the table. You will have an extra button below the TIME TABLE of results for that run to view the simulation results presented here, and these will also be show in the pdf report. You can save the run as usual. It will also show up as your last TIME MACHINE run.

If fewer than a 100 simulations are shown, this would be due to some of the simulations having failed. That is commonly due to a loan that could not be amortized with the simulated rates in the TIME MACHINE.

We present you with a table for your end-of-life financial legacy. The values are shown for your regular input scenario (no simulation), followed by the minimum, 10%, 25%, 50% (median), 75%, 90%, quantiles, and the maximum of the values obtained with the simulated rates. This data is also presented as a box plot.

Additional graphs are shown of the median value for the 100 simulations. In dark shading around the median are the 25% to 75% quartiles, and the min and max areas are shown in lighter shading.

In this manner we show NET WORTH, NET WORTH excluding properties, and your WALLET balances, for every year. CCPC owners will also have a graph of the CCPC value in every year.

These graphs thus show the variability that can be expected in these values for your plan. If you see dark shading below zero in any of these graphs, your plan may be at risk and you should consider reducing expenses or increasing income. The Wallet graph is particularly interesting. As explained below, if you run out of money in the TIME MACHINE, it will give you a loan from you Wallet account that must be paid back the following year. If you see the wallet account dip below 0 in a portion of the simulations, this indicates years that you may be at risk for running into cash-flow problems.

The simulations results show you the percentage of runs that did not have a cash-flow problem. You want that success rate to be high. If it is low, then your plan is at risk, and a common strategy to mitigate that risk is to reduce spending. Of course you can adjust your EXPENSES entries to modify the amounts or the dates they apply. But you may want to adopt a dynamic strategy to adapt your account withdrawals in years following years where the market returns have been lower than your expected returns. We’ve now implemented guardrails for the simulations that implements this strategy. It works this way: After 100 simulations, the success rate is calculated. If less than 90% then another 100 simulations are run, but it also reduces your EXPENSE entries by 10% for any years following a year where market returns were lower than the expected return of your entire portfolio at that time. Reducing expenses will reduce required income from your accounts, thus reducing withdrawals, and that will lead to a higher success rate. If still not over 90%, it runs another 100 simulations the same way but reducing the expenses by 20%, then again by 30% if it has to.