We dedicated this week’s episode of Grow Money Business to the Monte Carlo simulation. When multiple outcomes are possible due to the presence of random variables, a Monte Carlo simulation can be used as a model to forecast their probabilities. Join us as we dive into what Monte Carlo simulation is, where it comes from, the assumptions that are used in this kind of analysis, and how much trust we can put in these kinds of analyses when we are making decisions regarding retirement.
Show Notes
[04:31] 4% withdrawal rule – Grant starts the conversation by explaining how the 4% withdrawal rule works.
[08:46] eMoney Advisor – Grant dives into eMoney Advisor, a leading provider of technology solutions and services that help people talk about money.
[17:16] Success versus failure – Grant shares his thoughts on the “chances of success” versus “chances of failure” feature of the Monte Carlo projection.
[23:03] Form of analysis – Grant talks about the importance of not relying solely on Monte Carlo projections, but also looking at things like cash flow implications and tax ramifications.
[27:01] Different options – Grant explains how to sort out the best form of analysis according to your background.
Resources
Monte Carlo Projection — A Practical Guide
towardsdatascience.com/monte-carlo-a-practical-guide-85da45597f0e
Opinion: Should you use a Monte Carlo Projection to determine if your retirement savings will last?
The Problems With Monte Carlo: Why Projections May Not Predict Your Success in Retirement