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Spending Behavior Assumptions

Submitted by fmbachman@aol.com on 10 February 2010 - 4:59pm

I am having trouble understanding how the spending behavior assumptions play into the various outputs of the Monte Carlo analysis. Can someone help me by referring me to an explanation in the Help or otherwise or laying it out for me.

Thanks

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Submitted by Dick Munroe on 11 February 2010 - 8:17am.
1

Under all circumstances, you'll consume all your money by the end of life, so keep that in mind.

The spending behavior attempts to model what you believe your rate of return will be.

Aggressive, you believe you always get the mean (expected) rate of return from your investments. You usually suffer a declining standard of living over time due to the shape of the return distributions.

Cautious, you believe that you'll get less than the mean rate of return, which we define as 1/2 the mean rate of return. So you spend accordingly. As a consequence your standard of living tends to stay level or rise somewhat over time, you should see corresponding increases in the various asset levesl.

Conservative, you believe that you have only the assets to spend, you get 0 rate of return.

Best,

Dick Munroe

Submitted by Lowell Williams on 11 February 2010 - 1:14pm.
2

Keep in mind that you will have "left over" money in the form of housing equity or inheritances, for example, if you have specified them.

Submitted by johnshelton on 11 February 2010 - 2:06pm.
3

I was also confused by the "Projected" trajectory at first, until I did a few experiments. The "Projected" trajectory is what will happen if your returns match your spending behavior. In other words, the Conservative Projected trajectory has a zero rate of return, etc.

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