Monte Carlo Retirement Calculator Excel


Getting Started On Personal Capital

Retirement Portfolio Monte Carlo Simulation in Excel without Macros! – Part 2

FIRECalc is one mans passion project to help others for free. Personal Capital, on the other hand, is a for-profit investment institution.

Yes, they offer some of the best free financial software available. But they also offer wealth management services.

In a sense, they operate as many high-tech companies do: by using the freemium business model. That means their software is free you can download the app at no cost and use the free tools they provide.

Thats what the majority of people do including me.

The Personal Capital app is highly-rated in the App Store, with a 4.7/5 rating and over 16,000 reviews.

It works similarly to many other budgeting apps:

  • You get started by signing up on your smartphone
  • Once youve created your account, Personal Capital asks you to sync your current accounts, such as your investments, 401, credit cards , and checking and savings accounts.

Once your accounts are synced, youll have access to all of Personal Capitals free tools. If youre interested in learning more, read our full Personal Capital review.

Who Uses Monte Carlo Simulation

Many companies use Monte Carlo simulation as an important part of their decision-making process. Here are some examples.

  • General Motors, Proctor and Gamble, Pfizer, Bristol-Myers Squibb, and Eli Lilly use simulation to estimate both the average return and the risk factor of new products. At GM, this information is used by the CEO to determine which products come to market.

  • GM uses simulation for activities such as forecasting net income for the corporation, predicting structural and purchasing costs, and determining its susceptibility to different kinds of risk .

  • Lilly uses simulation to determine the optimal plant capacity for each drug.

  • Proctor and Gamble uses simulation to model and optimally hedge foreign exchange risk.

  • Sears uses simulation to determine how many units of each product line should be ordered from suppliersfor example, the number of pairs of Dockers trousers that should be ordered this year.

  • Oil and drug companies use simulation to value “real options,” such as the value of an option to expand, contract, or postpone a project.

  • Financial planners use Monte Carlo simulation to determine optimal investment strategies for their clients retirement.

Get Started With An Easy Retirement Template

You can build your own retirement planner, but its faster and easier to get started with a free template. So here are seven of the best free retirement spreadsheet templates.

These spreadsheets can even help you find the best age to retire. For example, you might want to plan for early retirement, or a hybrid scenario where you keep working part-time or otherwise choose to delay your social security benefits.

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Testing The Otar Optimizer

When I first ran the optimizer, I used the same assumptions that I used for the previous calculators. With Otar, I landed in the gray zone. Data showed that if I were unlucky, I would run out of money at the age 91.

I like Otars calculator because I believe it has more accurate results and it is more conservative. The two diagrams below show asset depletion if you hit the worst period in US history, with lower bond yields. I used 2.76% as my bond yield.

First The Best Early Retirement Calculator

The Best Retirement Calculators Online

Update: Before we look at my spreadsheet, its worth mentioning that if you want to automate a lot of your early retirement projections, its super easy to do it with Personal Capitals free retirement planning tool. The great thing about using Personal Capital to run your retirement numbers is that it automates the whole process.

Because this early retirement calculator connects directly with your financial accounts, you dont have to input the numbers yourself. On top of that, the Personal Capital retirement planner will run a Monte Carlo analysis of your actual spending and savings habits to figure out how close you are to hitting your target retirement date.

Best of all, its 100% free. Just and you can play around with their kick-ass early retirement calculator and tools to see how your monthly spending will affect your retirement timeline.

Personal Capital also has other cool features like their fee analyzer, which will analyze the holdings in your 401 and other retirement accounts for unnecessary fees. Even just a small optimizing here can potentially save you hundreds of thousands of dollars down the road, thanks to the power of compound interest. Just and you can find everything in their dashboard.

If automation isnt your thing and you want to do it the ol fashion way with just a laptop, a spreadsheet, and cup of coffee, then keep reading!


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Monte Carlo Simulation Calculation

The investors can assess portfolios using Monte Carlo simulation. The MarketXLS® add in system calculates the standard deviation and annual returns for your portfolio based on set weights to give the result.

Step1: Calculate the Monthly Return of Every Asset in the Portfolio


Note: To maintain consistency with theory in this regard, Close Price is a securitys Adjusted Close of the last day of a given month, and the Open Price is the Adjusted Close price for the last day of the previous month.

Step2: Calculate Monthly Return of Portfolio

Portfolio return for a given month is calculated as follows:


Retirement Calculator Tips For Best Results

A retirement calculator is a valuable tool when used properly, but can dangerously mislead you when used improperly.

The best retirement calculators allow you to model your financial plan by varying input assumptions and then projecting those assumptions into the future. You can include projected income sources, growth of retirement savings, as well as model the sale of substantial assets such as a business or real estate to see how it affects savings growth and income over time.

In other words, retirement calculators make the math of long-term financial modelling easy. That is their redeeming feature. You can put real numbers behind your future plans to decide both how much money you need to retire and if you are saving enough to reach the goal.

Without a retirement calculator the math would be too complicated for all but the most dedicated spreadsheet junkies.

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Information And Instructions On How To Use The Fire Calculator

One of the most important things to note in using this calculator is that all growth rates and values shown are done on a real basis, i.e. everything is done in current dollars.

Your Target Retirement Amount is based upon your expected annual retirement spending and your withdrawal rate.FIRE Target amount = retirement spending / withdrawal rate

The choice of withdrawal rate is an important one. The withdrawal rate is defined as the percentage of your retirement savings that you withdraw when you start your retirement. The canonical retirement withdrawal rate is 4%. This means that you will withdraw 4% of your initial retirement balance annually . On a $1 million dollar retirement account, this amounts to $40,000 annually. To understand the risks of different withdrawal rates, see the 4% rule / safe withdrawal rate visualizer.

In addition to your initial level income and spending, you also have the ability to specify multiple income or expense streams over any specified number of years . This is helpful if you expect certain extra income sources or expenses to only occur for a finite amount of time , such as mortgage payments, child care costs, college tuition payments or an inheritance.

The early retirement calculator determines how many years it takes to reach the FIRE Target.

When Can I Retire And How Long Do I Need To Save Before I Can Retire

Retirement Portfolio Monte Carlo Analysis in Excel without Macros! (with Withdrawal Period) – Part 3

Thats the key question! This interactive fire calculator was built to let you play with the inputs and help you understand how savings rate and retirement spending strongly determine how long it will take you to save up for retirement. Note: it does not simulate the post-retirement period when you start to draw down your savings. That can be done on this post-retirement fire calculator which compares the frequency of various outcomes in retirement .

Generate URL Use this button to generate a URL that you can share a specific set of inputs and graphs. Just copy the URL in the address bar at the top of your browser .

Ever since I read Mr Money Mustaches blog, Ive been creating spreadsheets dealing with early retirement. I wanted to create a tool that would be accessible to everyone and provide a useful and educational visualization of the process in addition to crunching the numbers.

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The Best Free Monte Carlo Simulator

Far and away my favorite online financial calculator to help you run Monte Carlo simulations on your portfolio is the Personal Capital Retirement Calculator.

Heres what I like about the free tool:

  • Simulation. It calculates investment returns by running 5,000 simulations from different time horizons. It then gives you the likelihood of a successful retirement that is, the likelihood that you wont run out of money as a percentage.
  • It uses real data. It pulls your actual income, expenses, and current portfolio not your estimates.
  • Customization. Not all calculators allow you to insert variables such as college savings, changes in retirement income, and social security. You could test hundreds of different scenarios with Personal Capitals retirement income planner. For example, What if I increase my savings by 10% a year? or What if I take a part-time job that pays $15,000 per year during retirement?

Along with the more advanced data, youll get a simple probability figure showing how well your current portfolio would perform, based on market averages. Heres what mine looks like:

What I also like about Personal Capital is its Investment Checkup tool. Using the tool allows you to gather additional important data on your portfolio. My favorite feature is the risk and return analysis, which measures where your portfolio is on the Efficient Frontier .

As far as what this looks like, heres what Personal Capital allows me to see:

Early Retirement For Military And Civil Service

Early retirement at age 55 or younger is more common among people who began military or civil service at an early age. This includes police officers and firefighters. Pension plans for these employees typically allow workers to retire with full pension payments before the age of 65. For example, the Civil Service Retirement System allows all workers to retire with full pension benefits at 62, or at 55 under qualifying circumstances. Air traffic controllers can retire after 25 years of service, no matter their age.

In addition, the rule that allows qualifying workers to draw on 401 funds at age 55 is even more forgiving for some government employees. People who work in public safety, customs and border protection, federal firefighting, and air traffic control may be eligible for penalty-free withdrawals from their 401 plans at age 50.

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Advanced Budget/income/net Worth/fire Spreadsheet

The FIRE movement is all about financial independence and early retirement. The very active FIRE community on Reddit has produced several excellent spreadsheets to accomplish the goal. Take a look at this popular detailed spreadsheet for lots of detailed planning and an emphasis on FIRE principles.

Learn More |

How Can A Greeting Card Company Determine How Many Cards To Produce

Financial Planner

In this section, you will see how Monte Carlo simulation can be used as a decision-making tool. Suppose that the demand for a Valentines Day card is governed by the following discrete random variable:




The greeting card sells for $4.00, and the variable cost of producing each card is $1.50. Leftover cards must be disposed of at a cost of $0.20 per card. How many cards should be printed?

Basically, we simulate each possible production quantity many times . Then we determine which order quantity yields the maximum average profit over the 1000 iterations. You can find the data for this section in the file Valentine.xlsx, shown in Figure 60-4. You assign the range names in cells B1:B11 to cells C1:C11. The cell range G3:H6 is assigned the name lookup. Our sales price and cost parameters are entered in cells C4:C6.

You can enter a trial production quantity in cell C1. Next, create a random number in cell C2 with the formula =RAND. As previously described, you simulate demand for the card in cell C3 with the formula VLOOKUP.

The number of units sold is the smaller of our production quantity and demand. In cell C8, you compute our revenue with the formula MIN*unit_price. In cell C9, you compute total production cost with the formula produced*unit_prod_cost.

We are 95 percent sure that our mean profit when 40,000 calendars are ordered is between $56,687 and $62,589.

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Vanguard Nest Egg Calculator

Vanguard differs from FireCalc completely. It uses the S& P 500 index from 1926 to 1970, the Dow Jones Wilshire from 1971 and the MSCI US Broad Market Index thereafter. For bonds they use the S& P 500 index from 1973-1975, and the Barclays Capital US aggregate afterward. It also uses the Citigroups 3-month treasury and Bill index, for inflation. For annual changes, Vanguard uses the annual Consumer Price Index from 1926 to last year. It then runs a total of 100,000 hypothetical scenarios.

It also gives me a 91% chance

Vanguard gives me a wild upside. But, it does not tell me what the negative amount would be. Coincidently, the failure rate of the Vanguard is almost identical with the rate I got from FireCalc. Vanguard is, however, a more simple retirement calculator.

How To Plan Realistically

There are a few basic adjustments that experts suggest to help remedy the shortcomings of Monte Carlo projections. The first is to simply add on a flat increase to the possibility of financial failure that the numbers show, such as 10% or 20%.

Another is to plot out projections that use a percentage of assets each year instead of a set dollar amount, which will greatly reduce the possibility of running out of principal.

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How Can You Simulate Values Of A Normal Random Variable

If you type in any cell the formula NORMINV,mu,sigma), you will generate a simulated value of a normal random variable having a mean mu and standard deviation sigma. This procedure is illustrated in the file Normalsim.xlsx, shown in Figure 60-3.

Lets suppose we want to simulate 400 trials, or iterations, for a normal random variable with a mean of 40,000 and a standard deviation of 10,000. Copying the formula =RAND from C4 to C5:C403 generates 400 different random numbers. Copying from B4 to B5:B403 the formula NORMINV generates 400 different trial values from a normal random variable with a mean of 40,000 and a standard deviation of 10,000. When we press the F9 key to recalculate the random numbers, the mean remains close to 40,000 and the standard deviation close to 10,000.

Essentially, for a random number x, the formula NORMINV generates the pth percentile of a normal random variable with a mean mu and a standard deviation sigma. For example, the random number 0.77 in cell C4 generates in cell B4 approximately the 77th percentile of a normal random variable with a mean of 40,000 and a standard deviation of 10,000.

Couples Retirement Planning Spreadsheet

Retirement Portfolio Monte Carlo Simulation in Excel without Macros! – Part 1

Couples choose to manage their individual and combined finances in many different ways, most having individual savings accounts and investments acquired from an assortment of jobs. Understanding the financial contribution that both parties are bringing to retirement can be tricky. This spreadsheet is designed to help.

Note that this spreadsheet is configured in British Pounds, but you can change the currency in Google Sheets.

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Introducing The Early Retirement / Freedom Spreadsheet V2

Thats right! We already have a 2nd version! Haha

Its not as pretty/simple as my first one, but it does include a handful of new things to consider:

  • Hourly income
  • Principle mortgage payment
  • After-tax income
  • Savings rate off of that after-tax income
  • Years to FI
  • Years to FI based on reduced monthly spending in retirement
  • Budget area to compare expenses now vs in retirement
  • Amount of money needed *per line item in budget* for FI

That last one is a whopper! For example, if your cell phone costs you $50/mo right now, and you want to keep it in early retirement, you will need $15,000.00 banked to cover that alone! How powerful/scary is that?

Now FYI those budget areas are totally made up from Jeremy just to give us a working area. He did get our $2,000/mo expenses for daycare correct though which means if we were to keep it around for 10 years+ , wed need $600,000 just to continue paying that area itself. Thats more than ALL my investments combined right now! And youll see in his examples that shaving that off plus some other areas drastically reduces the amount of $$ needed in retirement by over $1 million dollars. Which then cuts the # of years to FI down by 10 and allows me to retire in 9 years when Im 45 instead of 54.

Thats a big difference.

What Age Is Considered Early Retirement For Women

Women may have to work longer than men to fund a comfortable retirement, according to the U.S. Department of Labor. They may contribute less to Social Security, because they’re more likely to work part time and take extended breaks from working in order to deal with family responsibilities. They’re also less likely to have access to employer-sponsored retirement plans.

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