Monte Carlo Simulation
Probability in a retirement plan5 sections
Monte Carlo runs your plan through 1,000 different market scenarios, each with randomly varying returns, instead of assuming one fixed rate every year.
A base projection shows what happens in an average world. Monte Carlo shows the range of worlds, from strong markets to poor ones, and how the plan holds up in each.
That distinction matters because a 7% average return can produce very different results depending on the order the good and bad years arrive in.
Named after the Monte Carlo casino in Monaco, because the technique relies on repeated random sampling, much like rolling dice thousands of times.
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