Need help understanding trajectories
My trajectory results are this after summing the columns:
0-25% = 0
25-50% = 0
50-75% = 0
75-100% = 350
100-125% = 2000
125-150% = 1000
150-175% = 400
175-200% = 90
200%+ = 100
I do not understand how to interpret this data. Am I correct in saying that 50% of the time I am projected to be in the 2000 range? I have searched the forum and read through the documentation for two hours now. I either missed the explanation or the explanation is not out there. Can someone explain this to me in very simple terms.
RSS
It's not clear from your question what trajectory you're actually asking about, but I can infer that it's the probablity charts.
For each year, you have 100% (reading left to right). Each column is a percentage of the "projected" value for that year. If you have 15 in the 50%/75% column for a given year, you read that as 15% of the time you have 50% to 75% of the projected value for that chart.
Summing them down columns is meaningless.
Best,
Dick Munroe
Sorry Dick, for not including enough information. What I summed was the columns from the Probability of Living Standard Ranges. I did this because I saw this in the file ESPlannerHelp.pdf page-51:
This is what the help file stated:
"This chart illustrates the kind of custom chart that can be created from the Excel Monte Carlo reports.
This particular chart is simple to create. It represents an aggregate picture of the probability of living
standard ranges in the Monte Carlo report. 1) Select the first empty row at the bottom of the columns in
the probability report. 2) Sum the columns by clicking the autosum icon (Σ) in Excel. 3) With the sum results still selected, click on the chart wizard in Excel and create a simple bar chart."
This makes a nice chart Dick, but I am not sure how to interpret the results. I believe doing this exercise is suppose to: "...see a very broad snapshot of the entire range report." ref:ESPlannerHelp.pdf page-50 1st-paragraph line-13.
Combining what you wrote with what is contained in the ESPlannerHelp file would this scenario be correct: Using my data above for the summed columns it is clear that the column labeled 100-125% contains the largest sum (2000). Assuming a PROJECTED TRAJECTORY of the Living Standard is $10,000 each year over one's lifetime with the data I provided above would this be a correct interpretation of the summed column 100-125%: ($10,000 x 1 = $10,000) and ($10,000 x 1.25 = 12,500).
My Assumption: Over one's lifetime the probability that one's living standard will range between $10,000 to $12,500 is reasonable. Long winded but is this correct?
Your questions are good, but the answers are actually hard to generalize. I like to view the question a bit differently when I interpret the results. The question for me is not how likely will I be in the 100-125% range, but what is the risk of being below this number.
As an individual trying to understand my own long-term finances, this is why I like ESPlanner. Once I know the risk and have a tool that allows me to monitor and understand that risk, I can act properly. However, my interpretations might actually be very different than yours for the same results!
In your case, less than 10% of the model-years have show less than 100% of the projected living standard. Is this reasonable? Well, that depends...If you look at the projected amount and wonder how you will be able to survive on that amount, then a 1-in-10 chance of not having this amount may seem risky. However, if you expect to have options to help make up the deficit (put off buying a new car, move in with your kids, travel less, etc.), then this may seem very safe. It is also worth attention that once you are on a trajectory that falls below the projected number, then you are likely to stay there for the rest of the life.
In my case, I my model shows 35% chance of being in the 75-100% range. However, 75% of the projected amount is higher than my life-style requires, so I am pretty comfortable with this level of risk. Someone else might look at these same numbers and begin to worry.
JohnBK. Thanks for a different way to look at this. I have had E$Planner for several years and I find myself overwhelmed by the program; I would suspect the program is too sophisticated for me. Probably why I use it for awhile and then put the program on the shelf, so to speak, until I am ready to tackle it once again. It is frustrating to me when others bring forth interpretations of the data that seems so obvious once presented; it's as if I cannot see the forest for the trees.
When I see the above trajectories presented in nine columns ranging from 0 to 200%+ I say to myself, 200%+ of what? Am I correct in assuming the nine column headings 0-200% represent my ability to maintain from zero to two times the yearly amount of my calculated living standard?
Generally speaking it will be expressed in terms of a %age of whatever the column labeled "projected" has in it, whether that be standard of living or retirement account assets.
The entry in any particular column is the %age of the time you will have the range at the top of the column. Sum the values to the left and that's the %age of the time you will fall below the column of interest. Sum the values to the right and that's the %age of the time you will fall above the column of interest.
Best,
Dick Munroe
Each monte carlo simulation starts with the current year and runs to the end-of-life. This means that you get a living standard for each year. ESPlanner runs a lot of these individual simulations. These are then analyzed to provide all of the charts and tables.
I believe that the correct interpretation of a single number in the probability table is that it represents the % of times that the monte carlo simulations for that particular year fell in the range of projected standard of living as listed at the top. A value in the 200% column means that that simulation had LOTS of extra money available for consumption. This is usually late in life on the runs that started with a hot hand.
Okay! I believe the light bulb is starting to glow. Dick, you threw me a curve ball with that %age thing. I suspect it is just another way to reiterate what you wrote above,
"...For each year, you have 100% (reading left to right). Each column is a percentage of the "projected" value for that year. If you have 15 in the 50%/75% column for a given year, you read that as 15% of the time you have 50% to 75% of the projected value for that chart."
Because of the effort you two men have put forth here, this has become a little clearer. If the brain starts to fog again, I'll re-post.