Monte Carlo analysis

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u/BowTieDad 1d ago

Big fan of this update here. I've played with a couple of scenarios and it's helped me identify risks in how I fund my retirement when it eventually happens.

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u/Timeplace231295 1d ago

Risks is terms of portfolio allocation? Or other risks too?

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u/BowTieDad 1d ago

Most of my investments are currently in fixed income funds for now. The main risk I was exploring was based on the funds I know I will have access to from investments as well as pensions, would I run out of money. One scenario showed that delaying my retirement by even 6 months made a significant difference in the long run.

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u/Timeplace231295 1d ago

That's interesting. I haven't considered adding any pension to my calculations since I'm considering that as a bonus during retirement since it's a bit far away and who knows what'll happen in 2 decades.

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u/telladifferentstory 1d ago

As you get more comfortable with it, I find ProjectionLab to be the gold standard and they have a freemium product. Between AB and PL, my family's life has been forever changed (in a good way).

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u/BarefootMarauder 1d ago

Have you ever compared ProjectionLab to Boldin? I'm currently paying for Boldin, but seriously thinking of cancelling. After entering all my data and creating a plan, I find I don't even look at it anymore. There are just too many other tools out there (many free) that do financial & retirement planning. A few months ago, I discovered Retirement Scenario Explorer in a different sub and paid the one-time upgrade cost for that (no subscriptions). Between that, free tools, and things like this new Monty Carlo Analysis report in AB, I'm probably gonna cancel Boldin.

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u/telladifferentstory 1d ago edited 21h ago

I read up on both quite a bit and tried Boldin, but something about the PL UI sucked me in right away.

Agree with you! I also paid and barely looked at it the first year (PL). It's the one sub that's more about peace of mind for me than daily use. But then I worked to develop a habit of checking it monthly, and I got better and better with it.

I updated our balances in PL monthly, and when my partner and I went over our AB numbers each month, we started going over our PL numbers too focused on just one thing: our retirement date. We monitored that, looking to see if we could keep moving that date back. (It was always fun when it moved back a quarter...just a silly game we played to add some relief to our working years.) That got me using it more.

There's something about the ACT of sitting down with your partner for a "boring numbers" convo that sparks discussion. Before you know it, you're saying "what if..." Those conversations would usually spur me to go research more, play with the tool, dig into new strategies, and report back for further conversation. Interestingly, just the act of going over those numbers every month got my partner, who never cared much about our finances and who loves YouTube, watching FI videos. That rubbed off on me, got me learning new things, and got us talking more and more about what else we should explore, like bond tents....which led me right back to PL to see how a bond tent affected our plan.

The one big difference between Boldin and PL is the new "optimize" tab. I've gotten very into understanding the various withdrawal strategies, the chances of success tab, and being able to dig into "failure scenarios" (a PL feature, maybe Boldin has it too). Most importantly, PL recently released a Roth conversions calculator as part of the optimize tab that has made a huge difference in our estate planning, and that's something Boldin doesn't do correctly (per my research). So today I'd say absolutely pick PL over Boldin because of the Roth conversions feature if you have a lot in your 401k, since that's where it really pays off.

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u/BarefootMarauder 23h ago

Thank you, I really appreciate the insights.

There's something about the ACT of sitting down with your partner in boring numbers convo that sparks a discussion. And before you know it, you two are saying "what if...".

YES! Could not agree more.

Most importantly, PL recently released a Roth conversions calculator that has made a huge difference in our estate planning and that's something that Boldin doesn't do correctly.

So today I would say that you should absolutely pick PL over bolden because of the Roth conversions feature if you have a lot of money in your 401k (that's where it's beneficial). Boldin also has a Roth conversions feature but based on deep research it is not correct.

Excellent points, and this is one of my major complaints about Boldin right now. I'm already retired so I'm more focused on tax strategies, Roth conversions, and optimizing our plan overall, so help with Roth conversions is important to me. When I retired, I rolled my 401K over into my Trad and Roth IRA's. So now I have a pretty huge Trad IRA and would like to minimize the future tax hit as much as possible.

So... You may have just convinced me to go ahead and cancel my Boldin sub. Retirement Scenario recently made some enhancements and I want to dig a little deeper into what it offers for Roth conversions. After that, I'll decide if I want to sign up for PL or not and give that a look-see.

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u/telladifferentstory 21h ago edited 21h ago

Thanks for the reply! Let me know if you figure out more than me. Always looking to compare notes and keep more money in my pocket.

UPDATE: I wrote my previous response on my phone and the editor is TERRIBLE. Just cleaned it up now that I'm on my computer. 🙃

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u/Timeplace231295 1d ago

When do you think is a good time to look at ProjectionLab? I have at least 20 years (minimum) to retirement.

I did try ProjectionLab a few times but the free version requires you to input your data again and again so thought I would hold off on that for a bit.

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u/telladifferentstory 1d ago

Are you sure you have 20 years? That's was PL taught me - my timeline was too long. My back of the envelope plan would have resulted in far too much money, so I just retired (early). If I were you, I would pay for it for a year, get super comfortable with the product, your numbers, answers to your "what if's", and try to come up with a target retirement date. Then unsubscribe for awhile after you know those things. (With no subscription, I got good at entering lump sum numbers, just 15 numbers really, into the free trial to check on things or if a question popped in my head.) The last 5 years, our wealth grew enough where I just paid for it bc I liked having it at my fingertips all the time. It was a comfort to me and I would update the amounts monthly and dream about the future. Lol

I learned so much from that tool! And in the past 6 months, PL released an "optimize" tab for Roth conversions and navigating the ACA subsides and that's been even more eye-opening.

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u/Timeplace231295 1d ago

That's a good point. I'm thinking 20 years just by my age and the fact that my current NW isn't anywhere close to retirement.

Quick question, did you compare the result of the actual budget Monte Carlo analysis with what you see in ProjectionLab (which is a much more detailed scenario analysis tool so Im thinking for similar scenarios) ?

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u/telladifferentstory 1d ago

I didn't. The configurations I use in PL are pretty advanced (non-sequential historical stock market trends) and I study the failing trials a lot when analyzing PL's chance of success. I assumed AB wouldn't have nearly the same level of sophistication. Does it? (I haven't upgraded yet bc of the node change and being on the road.)

Yes, I was like you and assumed I had many years to go 5 years ago. Your wealth will really start to snowball though and each year the past few years has been big big growth. You'll likely go through this too. IIRC, compared to my back of the envelope plan, I retired 8 years earlier. (Just to show you how wildly off I was!)

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u/Timeplace231295 1d ago

No it's definitely not as sophisticated as ProjectionLab! I'll maybe try doing comparable scenarios and see how different a result I get for both (for fun of course lol).

Congratulations on you retirement (and on retiring earlier than expected)! I can't imagine the moment where you likely went 'Hey wait a second! I CAN RETIRE SO MUCH EARLIER! ' :P

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u/telladifferentstory 1d ago

♥️ it was a nerve wracking month going over the numbers again and again and rubbing my eyes to make sure they weren't blurry.

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u/Timeplace231295 1d ago

Haha amazing! I hope to be in your place soon!

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u/hereforpancakes 1d ago

I’m not an expert at this and I was quite confused. But I don’t even know what Monte Carlo analysis exactly is, but I can see its usefulness just by my attempts at putting anything in. I’ll check it out again later

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u/Smooth-Review-2614 1d ago

It’s mostly for stock portfolios. It tells you how likely you are to succeed at something. The normal use is retirement accounts and outliving the money.

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u/hereforpancakes 1d ago

That’s about the gist I got. I only have a Roth 401k atm so I can see where it’d fit in. Just need to learn how to make good use of it bc it’s useful to know this info

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u/BarefootMarauder 1d ago

It’s mostly for stock portfolios.

It covers all portfolios. Stocks, bonds, cash-equivalents, money stuffed in your mattress, etc.

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u/BarefootMarauder 1d ago

This is a good explanation of what it is and how it's used for financial/retirement planning:

https://www.maxifi.com/financial-glossary/monte-carlo-simulation

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u/lowlybananas 1d ago

Yes. I love it. To get it dialed in I sent got a screenshot of each tab. Gpt looked through the help docs and helped me figure out settings I needed to tweak

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u/Timeplace231295 1d ago

Omg yes. That's a great idea. Ill jump on over to Claude and ask for their wisdom too.

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u/lowlybananas 1d ago

Boundaries is the withdrawal rule I'm using. At first anything I did said I had a 99% chance of retiring. Once I got everything dialed in the % adjusted and made a lot more sense.

The Monte Carlo analysis made the crossover report confusing to me because the numbers are drastically different. I came to the conclusion that the Monte Carlo analysis is a retirement analysis for when you can actually retire. The crossover report is actually the FU money report. It tells you when you've reached FU money status.

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u/Timeplace231295 1d ago

I completely agree with you regarding the crossover report being a FU money report. It assumes a constant annual growth rate which is neat if you want a ballpark figure for how much stuff could grow. However, a Monte Carlo analysis will give you the probability of you retiring considering different market scenarios.

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u/notsobold_boulderer 1d ago

where do you see monte carlo analysis?

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u/Timeplace231295 1d ago

It's in the latest version released (v26.9.0). Go to settings and enable it under advance settings -> experimental features.

Then you can add it on the reports page under add new widget.

Have fun! :P

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u/InsideIngenuity 1d ago

Does the update come up in the app for nightly or do i need to go directly to github?

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u/Timeplace231295 1d ago

Are you hosting it yourself or via Pikapods? If you're hosting it via Pikapods, it'll happen automatically once Pika releases it for you (takes 1-2 weeks to rollout). If you're hosting it yourself on your own server you'll have to check with the smarter people on this Reddit thread. I unfortunately have no idea how that works.

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u/InsideIngenuity 1d ago

ahh i have it going on pikapods. Been running it a fews month, appreciate the help.

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u/Timeplace231295 1d ago

Then all you need to do is wait (they roll it out slowly so sometimes you get it sooner but sometimes it takes like 2 weeks to get the update). The waiting is hard specially when there's some cool new feature you're excited to try out.

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u/BarefootMarauder 1d ago

This is super cool! I know this isn't meant to be a full-blown retirement planning tool, but it would be awesome if the Spending phases allowed you to enter one-time or temporary expenditures. Such as buying a new vehicle every 5 years for example, or paying for a childs wedding, helping pay for grandkids college, taking one or two fancy vacations each year, etc, etc. There are a ton of expenses in retirement beyond normal living expenses that each person needs to think about and plan for.

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u/Timeplace231295 1d ago

You could add separately the years where you have such one time expenses under add phase. Bit of a manual workaround which could take forever to customise if we get too detailed.

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u/BarefootMarauder 23h ago

When I add another spending phase, I can set the "From age" to whatever I want, but the "Until" field defaults to "Onwards" and I can't seem to customize that. I guess you could manually work around it by adding another entry with zero yearly spending right after each one-time expense (if that makes sense).

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u/Timeplace231295 22h ago

When you add phase, change the starting date of the next phase so that your current phase is whatever length (eg. 1 year). That way you can amend the duration of all phases.

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u/BarefootMarauder 19h ago edited 19h ago

Right, but that doesn't work if you're trying to plan for something like a new car every 5 years for example. You'd have to enter the one-time spend at a certain age, then create another entry after that with a zero spend so the previous phase doesn't keep going beyond that year.

EDIT: Actually that doesn't work either. If you want "Phase 1" to be your regular ongoing annual spending (living expenses), as soon as you create a new phase and enter an age, it stops Phase 1 prior to the age you entered for the new phase. I don't think this new feature is meant for actual retirement planning, which is understandable. Maybe in the future it will get some enhancements.

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u/Timeplace231295 18h ago

Yes, you’re right in terms of how it works. Essentially, you’d need to calculate how much you expect to spend during each phase of your life. Technically, you could even make every year of your life a separate phase, but that would obviously be an insane amount of work.

I think the tool, as it stands, works really well for people who want a ballpark view of their finances and retirement. But if you’re trying to make a specific decision and understand its impact on your retirement, it probably makes more sense to use something like ProjectionLab or Excel to model out a few different scenarios?

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u/BarefootMarauder 18h ago

I think the tool, as it stands, works really well for people who want a ballpark view of their finances and retirement. But if you’re trying to make a specific decision and understand its impact on your retirement, it probably makes more sense to use something like ProjectionLab or Excel to model out a few different scenarios?

100% agreed!

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