Monte Carlo Retirement: What's Your Probability of Not Running Out of Money?

Will your retirement savings 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:

1. Generates random market scenarios based on historical volatility
2. Simulates your portfolio through each scenario
3. Counts how many scenarios leave you with money at the end

The result: a probability of success, not a false certainty.

We Tested It: Real Scenarios

Using our calculator, we modeled different retirement scenarios for a 40-year-old planning to retire at 65.

Scenario 1: Conservative Saver

Results:

Interpretation: Excellent odds. A 2.5% withdrawal rate with Social Security income provides a large safety margin.

Scenario 2: Aggressive Spender

Results:

Interpretation: Dangerous territory. A 7.7% withdrawal rate fails in nearly 4 out of 10 scenarios.

! A 61% success rate means there's a 39% chance you run out of money before you die. Would you board a plane with those odds?

Scenario 3: Early Retirement (FIRE)

Results:

Interpretation: Marginal. The 50-year retirement horizon with no Social Security creates vulnerability to sequence risk.

Run your own FIRE simulation →

Understanding Success Rates

What's a "good" success rate? Here's how to interpret:

Why not aim for 100%? Because the only way to guarantee success is to never spend anything—or die young. A 95% rate means you're prepared for almost any market scenario short of civilization collapse.

The 4% Rule: Still Valid?

The famous "4% rule" says you can withdraw 4% of your portfolio annually (adjusted for inflation) with minimal risk of running out in 30 years.

Our simulations show:

The 4% rule works—but it's not guaranteed. And it assumes:

• 30-year retirement (dies at ~95)
• 60/40 stock/bond portfolio
• Historical US market returns

If you're retiring early (40+ year horizon) or markets underperform historical averages, the 4% rule may be too aggressive.

***** For FIRE retirees with 40+ year horizons, consider a 3-3.5% withdrawal rate. The additional safety margin is worth the reduced spending.

How to Improve Your Success Rate

Our calculator shows you can improve odds by adjusting any variable:

Option 1: Save More Now

Every extra dollar saved before retirement compounds for decades.

Option 2: Spend Less in Retirement

Spending reductions have outsized impact because they reduce withdrawals throughout retirement.

Option 3: Delay Retirement

Delaying gives you more savings years and fewer retirement years—a double benefit.

Option 4: Part-Time Work

Adding even $10,000/year in part-time income during the first 5 years of retirement can boost success rates by 10-15%.

Portfolio Projections: The Fan Chart

Our calculator shows percentile projections over time:

• 90th percentile: Best 10% of outcomes (great markets)
• Median (50th): Middle outcome
• 10th percentile: Worst 10% of outcomes (poor markets)

The spread between these lines shows risk. Wider spreads mean more volatility and uncertainty.

A healthy portfolio shows:

• The 10th percentile staying above zero
• The median growing or staying stable
• Reasonable convergence toward end of life

If your 10th percentile hits zero before age 85, you have a sequence risk problem.

Pre vs Post Retirement Returns

We use different assumptions before and after retirement:

Why lower post-retirement? Most retirees shift to more conservative portfolios (fewer stocks, more bonds) to reduce volatility when they're withdrawing.

You can adjust these parameters in our calculator to match your actual allocation.

What Monte Carlo Can't Tell You

Limitations to understand:

1. Historical data isn't destiny - Future returns may differ from past patterns
2. Inflation uncertainty - We assume stable inflation, but it varies
3. Spending flexibility - Real retirees adjust spending based on market conditions
4. Sequence risk mitigation - Many retirees use guardrails (cut spending in down years)

Monte Carlo gives you a probability, not a prediction. Use it as one input among many.

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 savings by 10-15%
• Consider delaying retirement 1-2 years
• Plan for spending flexibility

If Your Success Rate is Below 75%

Action needed:

• Significantly increase savings
• Reduce planned spending
• Delay retirement or plan for part-time work
• Reconsider retirement timing

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
• FIRE Calculator - Calculate your FIRE number
• Time to FI Calculator - How savings rate affects timeline

The math doesn't lie. Know your probability before you quit your job.