Learning My Way: Need help w/ "Percentile of Distribu..
I'm new to ESPlanner, and find it quite facinating.
At the moment, I need a quick "hint" on understanding the report: "Percentile of Distribuiotn of Living Standard."
Do I read any line, say year 2008, by taking the Projected column (say it reads $47,000) and then adding the other approriate matching column (such as the 50th, which has $13,000) to get the expected Living Standard for that percentile (in this example I have a good chance of hitting $47k+13k=$60K)?
RSS
Nope, that's not quite right.
The "projected" column indicates how things would pan out if there was no variation in the market, but rather a steady 8% (or whatever your assets average) year after year.
Those percentile columns are representative of the spread of statistical possibilities. So the numbers in the 90th percentile column represent the possibility that is better than 90% of the 500 other cases that the computer ran with your number set. The number in the 50th percentile column on a given year shows the living standard that was calculated with half doing better and half doing worse, etc.
So if the projected is 47K in some given year, and you read across the columns, you can compare the statistical probability of that actually happening given the assets classes that were chosen in the Monte Carlo area. As you choose less volitile assets, you'll see the difference between 5% and 90% become less and less.
There are some caveats related to all of this, but that's the basic. Read through some of the stuff in the tutorial toward the end for more detail and some charts and examples.
Best,
Dan
How does "Percentile Distribution of Living Standard" compare to Consumption? What is the relationship?
I see that my "Projected Trajectory" is around 50-65% of Consumption.
I remember reading this earlier and it did not make sense (may be my mental block against word math problems); but now I get it.
To pharaphrase: The Living Standard is based on a "single" person, while Consumption is the living standard multiplied by the number of people in the household, but adjusted by the number of kids (a percentage of a whole person) and the fact that two people can live cheaper than two people (default 1.7 factor).
Thanks Larry!