For most people, retirement means deferring their income in order to save for future retirement expenses. But what can one expect from those years and years of saving? A Monte Carlo simulation calculator Monte Carlo calculator can be a great retirement planning resource for people who want to manage their expectations.
Using the Monte Carlo calculator, one can run a number of potential scenarios for retirement. What will happen to your nest egg if you have unexpected long term medical expenses or there is a sudden crash in the stock market, or an increase in tax rates. Rather than worrying about it, you can plug in the numbers into a calculator, and see how it would effect your retirement fund and adjust accordingly. The difficult part, of course, is to make interpretations of the probable output that a retirement fund may accrue and to know the reliability of these results.
The Monte Carlo calculator analyzes and predicts the potential yield to your retirement portfolio, from the history of your investment phase. Rather than assuming a static rate over a period of 30 years, this retirement planning tool accounts for variations over the long period and the potential effect of those variations over the long haul. However, this tool has been controversial having a range of different outputs depending on the assumptions entered into the tool. Therefore, the real question is, how does one use the Monte Carlo simulation tool in an effective way? The key is using it to track ballpark progress rather than using it as a predictive measure.
The most sound advice we could offer about the Monte Carlo simulation tool is that it is a useful tool to see how potential scenarios would effect your potential retirement fund. But as you are building up your nest egg, we would not recommend “putting all your eggs in one basket” by relying only on the results of the Monte Carlo simulation.
This article was submitted by Rohit Arora, co-founder of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to