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Interesting Comparison of Online Retirement Calculators (RIMC)
Old 11-26-2006, 10:44 AM   #1
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Interesting Comparison of Online Retirement Calculators (RIMC)

Pretty interesting article though I have not had time to evaluate each calculator (gummy-stuff, MoneyChimp, FIRECalc etc) on it's own merits myself. I enjoy battles like this because I never know where it is going to lead me. I seem to have used all of these calculators at one time or another and I do not recall that the results on my measly stash estimates varied that much.

Thus, using this analytic methodology the sustainability—for a 55-year-old who starts withdrawing a constant inflation adjusted $25,000 from a $500,000 retirement nest egg—is 75 percent, which means that the probability of ruin is 25 percent. Remember that although Monte Carlo generators are based on randomized returns or spinning roulette wheels, the randomly generated results should only differ from each other by a statistical margin of error. In fact, that is the point of a properly designed Monte Carlo simulation. The odds should eventually converge to the truth. Yet our preliminary analysis of over ten different calculators—six of which are publicly available and listed in Table 1—revealed a wide range of results for our 55-year-old retiree. The lowest sustainability number was 48 percent and the highest was 88 percent.
Some critics might view this as a critical flaw in the Monte Carlo methodology. We obviously don’t think the baby should be thrown out with the bath water. Other participants in the industry might not view this divergence of estimates as a problem or concern at all and will rightfully claim that every software developer or “quant” is entitled to their own opinion on how to model asset classes, mortality, or serial dependence. In fact, it is not our objective to criticize any particular set of assumptions per se. Obviously, every Monte Carlo vendor or developer can justify their own assumptions and approximations. But, akin to widely reported economic forecasts, or even weather predictions themselves, the market will eventually reward those who get it right and punish those who are consistently wrong or provide unrealistic predictions. Indeed, we do have some sympathy with this free-market view.
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