First, thanks for a great tool.
I'd like to see what the monte carlo results are if I choose to spend at a fixed real rate. ESP advises me that I can consume at one level, but then assumes in Monte Carlo that I consume at a higher level.
A further refinement would be to specify that I spend at a fixed rate, modified +/- (with caps on the + and -) depending on the market return.
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I'd like to see what the monte carlo results are if I choose to spend at a fixed real rate
I'm a little confused by this. ESPlanner is giving you a smooth consumption number already. How is what you're asking for different?
I think he's asking for what we consider "conventional planning" in which he guesses what he has to spend and ESPlanner tells him how close he came (or in the case of monte carlo, the %age of time he does better or worse than that). ESPlannerBasic has facilities for this, post retirement. We have plans to put equivalent features into the stand alone products, but nothing more detailed than what is in ESPlannerBasic. Hit www.esplanner.com/basic and try conventional planning under Assumptions to see what we're planning on in this arena.
Best,
Dick Munroe
I think Dick is on the right track. I just wanted to add that I'm not really "guessing", I'm actually using the number that ESPlanner gave me as my consumption number. I don't know why, but Monte Carlo bumps me up to a higher starting consumption number than ESPlanner without Monte Carlo.
I'm willing to live with the consumption number from ESPlanner without Monte Carlo. Then I would like to understand (through Monte Carlo) the odds that I can actually live with it.
Because of your portfolios. The default rate of return is 6% nominal (2.91...% real) for all assets with MC turned off. When MC is turned on, the rate of return is whatever it works out for your portfolio (check the PDF report for details on your portfolios). You'll find that the rate of return for your portfolio is probably higher than 6% nominal which is why you are seeing more consumption with MC turned on.
You can get much of the effect that you want by selecting either cautious or conservative consumption rather than aggressive. In effect, these lower your consumption assumptions by changing the assumptions about what your portfolios return. Aggressive is the expected rate of return, cautious is one half of the expected rate of return and conservative is 0 rate of return.
The MC then tells you how much better than that you did. Due to the shape of the distributions, the median is lower than the mean, so on average and with aggressive spending, you should see a dive into the low end of the probability spectrum over time (which you do). By being either cautious or conservative you can insure your standard of living while still being able to enjoy some upside benefits when necessary. Not all that surprising a result, actually but its always nice to see it in black and white.
Best,
Dick Munroe