Not only are we living longer, but we are living healthier lives. When planning for retirement, what age should one project as the end-of-life year? When running out retirement projections using the Monte Carlo calculations within the Quantext Portfolio Planner software, I use 100 as the end-of-life year when testing the probability of running out of money. There are many assumptions that go into this calculation, Here are a few.
- Projected retirement age
- Current portfolio value
- Construction of portfolio
- Inflation rate
- Projected growth rate of S&P 500
- Required income during retirement years
- Level of acceptable risk
To view what a projection might look like, we can take the recent portfolio we are using in the optimization study.
Assumptions: Here is a screenshot of the basic assumptions used for this calculation.
Projections: Based on the portfolio we have been using for the optimization study, below is the Monte Carlo calculation for retirement. Note the 50% chance of running out of money by age 96. Using the life expectancy age of 100, this portfolio is cutting it a little close. I prefer to not push poverty by seeing a 20% to 30% chance of coming up short by age 100. This portfolio, with the associated assumptions, is not too far off the mark.