Monte Carlo Retirement Planning All simple retirement calculators work like the chart below. They divide your life into an "accumulation phase" when you're working and making contributions, and a "distribution phase" which begins when you retire and lasts as long as you think you will. The idea is to see how much annual income your investments will yield when you're retired.

Introduction Standard Deviation Lowered Expectations Uncertainty Monte Carlo Calculator Books & Links

Annual Income Available During Retirement:

Pre-Retirement:     Principal   $ Contributions:   $ r:   % Years:         During Retirement:     r:   % Years:

What's missing here is volatility: fluctuations in the return rates that raise the risk that your account won't peak as high, or last as long, as this "smooth" picture suggests. This article is an introduction to investment volatility: how to understand its effects, and how to use an improved style of retirement calculator to include volatility in your planning. (Note: if you prefer, you can skip ahead to the Monte Carlo retirement calculator and then read the "theory" pages later.)

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