Monte Carlo Retirement: What's Your Probability of Not Running Out of Money?
We ran 10,000 simulations to show how market volatility affects your pension pot. The 4% rule isn't a guarantee—here's what the maths actually says.
Will your pension pot last? The traditional answer uses simple averages—but markets don't work in averages. They crash, they boom, and the sequence of returns can make or break your retirement.
That's where Monte Carlo simulation comes in. We ran thousands of scenarios through our Monte Carlo Retirement Calculator to show you what "retirement planning" really means when you account for market volatility.
The Problem with Average Returns
Here's what most retirement calculators assume:
"Invest £500,000, earn 7% annually, withdraw 4%—you'll be fine."
But real markets don't deliver steady 7% returns. You might get:
- +22% in year one
- -15% in year two
- +8% in year three
The average might be 7%. But if the -15% happens early in retirement while you're withdrawing money, your portfolio takes a permanent hit. This is called sequence of returns risk—and it's why simple calculators fail.
What Monte Carlo Simulation Actually Does
Monte Carlo analysis runs thousands of possible futures:
- Generates random market scenarios based on historical volatility
- Simulates your portfolio through each scenario
- Counts how many scenarios leave you with money at the end
The result: a probability of success, not a false certainty.
We Tested It: UK Retirement Scenarios
Using our calculator, we modelled different retirement scenarios for a 40-year-old planning to retire at 67 (state pension age).
Scenario 1: Workplace Pension + State Pension
| Input | Value |
|---|---|
| Current Pension Pot | £150,000 |
| Annual Contributions | £12,000 |
| Retirement Spending | £30,000/year |
| State Pension | £11,500/year |
| Simulations | 10,000 |
Results:
| Metric | Value |
|---|---|
| Success Rate | 96% |
| Portfolio at Retirement (Median) | £720K |
| Implied Withdrawal Rate | 2.6% |
Interpretation: Excellent odds. The state pension covers significant income, reducing withdrawal needs from the pension pot.
Scenario 2: Early Retirement at 55
| Input | Value |
|---|---|
| Current Pension Pot | £250,000 |
| Annual Contributions | £20,000 |
| Retirement Spending | £35,000/year |
| State Pension | £11,500/year (from age 67) |
| Simulations | 10,000 |
Results:
| Metric | Value |
|---|---|
| Success Rate | 71% |
| Portfolio at Retirement (Median) | £580K |
| Implied Withdrawal Rate | 6.0% |
Interpretation: Marginal. The 12-year gap before state pension kicks in creates vulnerability.
! A 71% success rate means there's a 29% chance you run out of money before you die. Would you board a plane with those odds?
Scenario 3: FIRE Retirement at 45
| Input | Value |
|---|---|
| Current Age | 35 |
| Retirement Age | 45 |
| Current Portfolio | £300,000 |
| Annual Savings | £40,000 |
| Retirement Spending | £30,000/year |
| State Pension | £11,500 (from 67) |
| Plan Until Age | 95 |
Results:
| Metric | Value |
|---|---|
| Success Rate | 82% |
| Portfolio at Retirement (Median) | £680K |
| Implied Withdrawal Rate | 4.4% |
Interpretation: Decent but risky. The 22-year gap before state pension requires careful planning.
Understanding Success Rates
What's a "good" success rate? Here's how to interpret:
| Success Rate | Assessment |
|---|---|
| 95%+ | Excellent - Very conservative, may be over-saving |
| 85-94% | Good - Comfortable margin for most retirees |
| 75-84% | Marginal - Consider adjustments |
| Below 75% | Poor - High risk of running out of money |
The 4% Rule: Does It Work for UK Retirees?
The American "4% rule" assumes US market returns and no state pension. For UK retirees:
Advantages:
- State pension provides guaranteed floor income
- NHS reduces healthcare costs vs US retirees
- Lower required withdrawal rates from private pensions
Disadvantages:
- UK market historically lower returns than US
- State pension age is 67 (and rising)
- ISA limits cap tax-efficient savings
Our simulations suggest UK retirees can often use 3.5-4% withdrawal rates when state pension is included.
***** Your state pension forecast is available at gov.uk. Include this income when planning—it significantly affects your required pension pot.
How to Improve Your Success Rate
Option 1: Max Out Pension Contributions
| Extra Annual Contribution | Success Rate Change |
|---|---|
| +£5,000/year | +7% |
| +£10,000/year | +13% |
| +£20,000/year | +21% |
Don't forget: employer matching is free money. Max it out.
Option 2: Reduce Retirement Spending
| Spending Reduction | Success Rate Change |
|---|---|
| -£5,000/year | +9% |
| -£10,000/year | +17% |
Option 3: Delay Retirement
| Delay | Success Rate Change |
|---|---|
| 1 year | +4% |
| 3 years | +11% |
| 5 years | +19% |
Each year delayed means one more year of contributions and one fewer year of withdrawals.
UK-Specific Considerations
Lifetime Allowance (Abolished)
The £1.07M lifetime allowance was abolished in 2024. You can now build larger pension pots without tax penalties.
State Pension Age
Currently 67, rising to 68 between 2044-2046. Plan for potential further increases.
ISAs for Flexibility
Pension access is restricted until 55 (rising to 57). Use ISAs for earlier retirement bridge funding.
Pension Drawdown vs Annuity
Monte Carlo assumes drawdown (keeping investments). Annuities provide guaranteed income but less flexibility. Consider a blend.
Action Plan
Based on our simulations:
If Your Success Rate is 90%+
You're well-positioned. Consider:
- Whether you're over-saving
- Earlier retirement options
- More generous retirement spending
If Your Success Rate is 75-89%
Solid but room for improvement:
- Increase pension contributions
- Consider delaying retirement 1-2 years
- Plan for spending flexibility
If Your Success Rate is Below 75%
Action needed:
- Maximise pension contributions (including carry forward)
- Reduce planned spending
- Delay retirement or plan for part-time work
Run Your Numbers
Every retirement is different. Our Monte Carlo calculator runs 10,000 simulations with your specific inputs:
- Monte Carlo Retirement Calculator - See your success probability
- UK Pension Calculator - Calculate your pension income
- FIRE Calculator - Calculate your FIRE number
The maths doesn't lie. Know your probability before you hand in your notice.