Monte Carlo Retirement Forecasting, Explained
A Monte Carlo forecast replaces a single 'you'll have $X' line with a range of outcomes, by simulating many possible market paths. It's a more honest way to plan — and it surfaces a risk a straight-line projection hides entirely.
Why a Single Line Lies
A straight-line projection assumes the same return every year. Real markets don't work that way — they swing. Two people with identical average returns can end up very differently depending on the order those returns arrive, especially near retirement.
How Monte Carlo Works
Monte Carlo runs your plan hundreds or thousands of times, each with a different randomized sequence of yearly returns drawn from realistic assumptions. The result isn't one number but a distribution — the spread of where you might land.
Reading the Percentile Bands
Forecasts are shown as percentiles: a median (50th) path with a shaded band between, say, the 10th and 90th percentiles. An '80% range of $A–$B by 2056' means four out of five simulated paths landed between those figures. The width of the band is the point — it tells you how much uncertainty you're carrying.
Sequence-of-Returns Risk
The order of returns matters most when you're drawing down savings. A few bad years early in retirement can do lasting damage even if the long-run average is fine. Monte Carlo makes that risk visible; a single-line projection cannot.
FAQ
Is Monte Carlo better than a regular projection?
It's more realistic about uncertainty. A single line is easier to read but implies false precision; Monte Carlo shows the range of plausible outcomes. Lodestar shows both.
Does Lodestar do Monte Carlo forecasting?
Yes — Lodestar shades a Monte Carlo confidence band around your net-worth forecast and reports the likely range by a given year. It reacts to the specific moves you toggle.
Are the results guaranteed?
No. They're probability-based estimates, not guarantees. Lodestar provides education and tools, not advice.