One average return hides the futures that run out

Most retirement spreadsheets make one quiet assumption: the same return, every year, forever. Seven percent in year one, seven percent in year twenty. The math is tidy. Markets are not.

The order of the years matters

While you are adding money, a bad year early and a bad year late roughly even out. Once you are taking money out, they don’t.

When markets fall early in retirement, every withdrawal sells more of your savings at low prices. Those sold units are gone; they are not there for the recovery. The same bad year twenty years later hits a smaller pile and costs far less. Two plans with exactly the same average return can end very differently, only because the years arrived in a different order. Planners call this sequence-of-returns risk.

A single average return cannot show it, because a single average has no order.

What a Monte Carlo simulation does instead

A Monte Carlo simulation replaces the one smooth line with many possible paths. Each path draws its yearly returns at random from the same assumptions about markets: some start with a crash, some with a boom, most somewhere in between. Then it counts how many of those futures your plan lasts through.

The answer reads differently from a spreadsheet. Instead of “the money lasts to age 95”, you get something like “the money lasts in 87 of every 100 futures”, and you can look at the 13 where it doesn’t: when they run out, and what the early years looked like.

How to read “N of every 100 futures”

• It is a count, not a promise. It counts the futures a model produces from stated assumptions. Real markets can do things no model includes.
• The ones that run out matter most. Look at when they run out. A plan that fails at 94 is a different conversation from one that fails at 71.
• Compare markets. The same plan in weaker and stronger markets shows how much the answer leans on the assumptions.
• Check what the count is sensitive to. Spending a little less, or working a year longer, often moves the count more than people expect.

How Monte does it

Monte: Money What-If Simulator runs a money decision in your own numbers across 10,000 simulated futures, on your iPhone, with no account. It says plainly how often the plan holds, shows the futures play out year by year, including the ones that run out, and puts weaker and stronger markets side by side. Every formula and assumption is shown in the app with its source.

The same question works for more than retirement: a year off, renting or buying, a job loss, a baby, starting a business. Each one is a what-if with a range of outcomes, not a single number.

An educational simulator, not financial advice. Figures above are a hypothetical illustration.