Step 12 of 12: A Monte Carlo Analysis of Your Future
How to use Step 12
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Step 12: Monte Carlo Simulation
Show projection assuming Social Security reduction
Forecast Assuming Social Security Benefits Are Not Reduced in 2033
Social Security Trust Fund: What the Government Has Reported
According to the Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance (OASI) Trust Fund, the program's financial reserves are projected to become depleted in 2033. Under current law, Social Security is a pay-as-you-go system; if the trust fund reserves are exhausted, the program cannot pay out more in benefits than it collects through ongoing payroll taxes. The Social Security Administration estimates that upon depletion, continuing tax revenues will be sufficient to pay approximately 77% of the scheduled benefits, resulting in an automatic, across-the-board reduction of roughly 23% for all beneficiaries.
It is important to recognize that this represents a legislative possibility based on current statutes, rather than a certainty, as Congress has historical precedent for intervening to restore solvency before depletion occurs. Use the Yes/No toggle on this page to model the potential impact on your personal financial plan if Social Security benefits are reduced.
Source: Social Security Administration, Annual Report of the Board of Trustees of the Federal OASI and DI Trust Funds. The 2033 depletion date and 77% pay-out figure reflect the most recent Trustees' Report projections.
750 independent simulations of your 25-year retirement horizon.
Each run draws a fresh random sequence of annual market returns.
Starting Portfolio: $0
Mean Annual Return: 5.0%
Annual Volatility: 12.0%
Retirement Start: Age 65.0
Plan End: Age 90
Year 1 Net Portfolio Draw:
+$0/yr
$0/mo gross spending goal (from Step 6, in today's dollars) minus $0/mo fixed income — spending grows 3.0%/yr; fixed income held flat
0.0%
Probability of Success
0.0% of 750 simulations maintained a positive balance through Age 90.
Your plan has meaningful shortfall risk — review spending or timeline assumptions.
Distribution of Ending Balances at Age 90
Each bar = a range of final portfolio balances at Age 90.
Dark bars = positive outcome · Amber bar ($0) = portfolio depleted before Age 90.
Of the 750 scenarios
that ran to $0 before Age 90, this chart shows exactly when those portfolios
depleted. Most shortfalls, when they occur, appear late in the plan horizon — well after
you have had years to adapt spending, reduce discretionary draws, or revisit your timeline.
Each bar = number of scenarios that first reached $0 at that age.
Bars concentrated to the right mean shortfall risk, when present, arrives late in retirement.
90% of simulations ended with at least this amount
$0
Median 50th Percentile
Half of simulations ended above this; half below
$0
Optimistic 10th Percentile
10% of simulations ended with this amount or more
$0
Assumptions:
750 simulations ·
Returns: nominal, normal distribution, mean 5.0%, std dev 12.0% ·
Fixed income $0/mo (SS + pension + other, held flat — no COLA applied in Monte Carlo) ·
Gross spending goal $0/mo in Year 1 (your Step 6 monthly income goal, in today's dollars), escalating 3.0%/yr through Age 90 ·
Returns are independent year-to-year ·
Ending balances are in nominal (future) dollars
The Real World Isn't a Straight Line
Steps 8–10 used a straight-line projection — your expected return
arriving in equal installments every year. Step 12 is a stress test:
same inputs, but 750 simulations each with a different random return sequence.
If your plan survives most of them, you have high-confidence outcomes.
How It Works
750 complete 25-year retirements simulated.
Each year's return is drawn randomly — mean 5.0%, std dev 12.0%.
Some simulations get strong early gains; others face an early crash. Both outcomes are represented.
Sequence of Returns Risk
The biggest retirement risk is not your average return — it is when bad years strike.
A 20% loss in Year 1 is far more damaging than the same loss in Year 20, because early losses
permanently shrink the portfolio you draw from.
This is called Sequence of Returns Risk — invisible in a
straight-line projection, fully captured here.
How to Read the Bar Chart at Left
Each bar = a range of ending balances at Age 90.
Dark bars — portfolio survived through Age 90.
Amber bar ($0) — portfolio depleted before Age 90.
Bars clustered right = robust plan. Significant amber on the left = revisit spending or timeline.
Inflation is modeled. Gross spending starts at $0/mo
and grows 3.0%/yr through Age 90.
Fixed income ($0/mo) is held flat,
so the net portfolio draw widens each year. Ending balances are in future (nominal) dollars.
Why This Differs from Step 11
Step 11 shows one deterministic path — 5.0% every year like clockwork.
Step 12 uses the same 5.0% average but replaces the straight line with
750 random paths. Because volatile compounding has an inherent drag,
the median Monte Carlo outcome typically runs 15–20% below Step 11 —
this is mathematically correct, not an error.
The Step 11 figure corresponds roughly to the 65th–70th percentile here
(above-average luck). The Median row is the realistic answer;
the Conservative row is the stress-test floor.