Spending Behavior
I knew that selecting "Spend Cautiously" (as opposed to "Spend Aggressively") reduces the yearly consumption and living standard. I just realized it also reduces the yearly income for all asset accounts. We've somewhat artificially reduced earnings and spending to create a more conservative plan.
But, as I look at and think about my Monte Carlo results, it occurs to me that I've made them inaccurate with the cautious spending behavior selection. For instance, the MC results may indicate a 5% chance of ending up with only half of my planned living standard. But the actual results should be much better. Although I will "spend cautiously", my portfolio will "earn aggressively".
Are these observations correct?
RSS
Yes, by spending cautiously, you're reducing your downside living standard risk over time. Your portfolio will average its true mean return over time. By spending cautiously, you will end up at any date in the future with more assets that had you spent aggressively.
Let me rephrase my issue: I thought "Spend Cautious" would artificially reduce my living standard but use real returns for my portfolio.
In fact (if I am correct), returns are assumed to be about half of historic returns, which in turn produces reduced living standards.
Would it be more useful - and would it be possible - to use full historic returns combined with reduced living standards? This would result in what we all want - Monte Carlo results predicting a high level of success.