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An ironic justification of MonteCarlo is when it is mentioned that the results are in-line with historical analysis! Then why not just use the historical analysis?
-ERD50
As I understand it, and someone correct me if I'm wrong, the reason for using MC with historical is to account for sequence of returns. Pfau, Cotton, or Kitces (or someone) talks about this somewhere but I'm too lazy to search for it
. I think it was Pfau that talks about fat tails accounted for in MC simulations, but I'm not sure. Dirk Cotton addresses strategies for overcoming SOR risk here:
The Retirement Cafe: RIIA Webinar -- Sequence of Returns Risk
To all of this, I personally would never be comfortable with a mere 100% success rate in any calculator. All calculators I use provide for generous heaping of $$ left over at end of plan, aka, "padding" (in addition to the padding in my budget).
Remember, we are engineering for the absolute worst case scenario. RIP provides results accounting or average, below average, and
signficantly below average (which I use), as does Financial Engines, which I use free through VG. ESPlanner, if you use the most conservative mode, can provide results for earning returns just keeping with inflation in Monte Carlo, or complete loss of risk assets in upside planning (I model both of these modes as they are the most conservative in ESP). Firecalc uses historical, while you can fiddle with ******** to produce all kinds of juicy results.
In all probability, if we model conservatively, we will probably have more money than we know what to do with in later years. Visited the folks over the holidays and this is precisely the "predicament" they are in.