How to Use a Monte Carlo Retirement Calculator (And What the Numbers Actually Mean)

Disclaimer: This guide is for educational purposes only and does not constitute financial, tax, or investment advice. Retirement planning involves complex decisions affected by tax law, market conditions, and personal circumstances. Consult a qualified financial advisor before making retirement decisions.

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Most retirement calculators tell you “you need $2.5 million.” End of story. But that number assumes the market returns exactly 7% every single year for 30+ years—something that has never happened in history.

A Monte Carlo simulation is more honest. It runs your plan through 1,000 different futures—some with early crashes, some with sustained booms, some with nasty inflation—and tells you what percentage of those futures worked out.

This guide walks you through our Monte Carlo Retirement Calculator input by input, explains what each choice means, and shows you how to interpret the results.

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Step 1: Set Your Age and Retirement Target

Current Age

Your starting point. The calculator uses this to determine how many years you have for accumulation (saving and investing before retirement) and how long the retirement phase needs to last.

Retirement Age

When you stop contributing and start withdrawing. A few things to consider:

• Before 59.5: You’ll need brokerage or Roth contributions (not earnings) to fund living expenses, since traditional 401(k)/IRA accounts charge a 10% penalty for early withdrawal
• 59.5-72: The “sweet spot” for Roth conversions—your income is likely lower than during your career but RMDs haven’t started yet
• 73+: Required Minimum Distributions (RMDs) begin, forcing taxable withdrawals from traditional accounts

For most high earners, something in the 55-65 range is realistic. The calculator works with any age.

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Step 2: Enter Your Portfolio and Contributions

Basic Mode

If you don’t know your exact account breakdown, enter your total portfolio value and total annual savings. The calculator assumes a reasonable split: 40% traditional, 30% Roth, 30% brokerage.

Advanced Mode (Recommended)

Toggle “Advanced” to enter each account separately. This matters because different account types have different tax treatment and access rules:

Account Type	Tax on Contributions	Tax on Growth	Tax on Withdrawal	Access Before 59.5
Traditional 401k/IRA	Deductible (pre-tax)	Tax-deferred	Ordinary income tax	10% penalty
Roth IRA/401k	After-tax (no deduction)	Tax-free	Tax-free	Contributions anytime; earnings after 59.5
Brokerage	After-tax (no deduction)	Capital gains when sold	Capital gains on gains only	No restrictions

A common high-earner allocation for annual contributions:

• Traditional 401(k): $23,000 (max employee limit)
• Roth IRA: $7,000 (via backdoor Roth)
• Brokerage: Whatever else you can save

The more accurate your inputs, the more meaningful the tax calculations in the simulation.

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Step 3: Set Your Spending

Enter your current annual spending in today’s dollars. The calculator adjusts for inflation automatically.

Be honest here. This is the number that drives everything. Common mistake: people enter their post-tax take-home pay instead of actual spending. If you earn $300K but save $80K, your spending is around $150K after taxes and savings—not $300K and not $220K.

For high earners, $80K-$200K is the typical range. If you’re unsure, check your credit card and bank statements for the last 12 months.

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Step 4: Expected Return and Inflation

Expected Return (Nominal)

The default of 8% represents a diversified stock/bond portfolio before inflation. This is a long-run average. In any given year, actual returns will swing wildly—that’s what the simulation models.

Portfolio Type	Historical Nominal Return	Suggested Input
100% US Stocks (S&P 500)	~10%	10%
80/20 Stocks/Bonds	~9%	9%
60/40 Stocks/Bonds	~8%	8%
Target Date Fund	~7-8%	7-8%

Lower this if you’re conservative. Raise it if your portfolio is equity-heavy. Don’t go below 5% (that implies a very bond-heavy portfolio) or above 11% (unrealistic long-term).

Inflation Rate

The default of 3% reflects a slightly above-average long-run inflation assumption. Historical US average is ~2.5%, but recent years have been higher. The simulation adds random variation around this mean each year.

Why Both Matter

The calculator uses nominal return and inflation separately (rather than a single “real return”) because both vary independently year-to-year. A year with 12% returns and 8% inflation is very different from a year with 4% returns and 0% inflation—even though both have the same 4% real return. The Monte Carlo simulation captures this.

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Step 5: Social Security

Enter your monthly Primary Insurance Amount (PIA)—the benefit you’d receive at full retirement age (67). You can find this on your Social Security statement at ssa.gov/myaccount.

For high earners, the maximum PIA in 2026 is approximately $4,018/month. If you’ve earned above the Social Security wage base ($176,100 in 2026) for 35+ years, you’re near this cap.

Claiming Age (Advanced Mode)

This is one of the highest-impact decisions in the calculator:

Claiming Age	Benefit vs. FRA (67)	Monthly (at $3,000 PIA)	Breakeven Age
62	-30%	$2,100	~79
64	-20%	$2,400	~79
67 (FRA)	0%	$3,000	—
70	+24%	$3,720	~82

For most high earners, delaying to 70 is optimal. You have other assets to bridge the gap, and the 8%/year guaranteed increase from 67-70 is hard to beat. Try changing the claiming age in the calculator and watch the success rate shift.

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Step 6: Advanced Settings

Withdrawal Strategy

This is the most important advanced choice. It determines how much you pull from your portfolio each year in retirement.

Fixed % (4% Rule)

You withdraw a set dollar amount in year one (equal to your spending target), then adjust it for inflation each year. You take the same real amount regardless of whether the market is up 30% or down 25%.

Best for: People who want predictable, stable income and can tolerate the risk of running out in bad scenarios.

Watch for: If the success rate is below 85%, consider lowering your spending or switching to guardrails.

Guardrails (Guyton-Klinger)

You start with the same spending as the fixed approach, but adjust based on how your portfolio is doing:

• If your current withdrawal rate rises above a ceiling (default: 120% of initial rate), you cut spending by 10%. This happens when your portfolio drops and you’re withdrawing a larger percentage.
• If your current rate drops below a floor (default: 80% of initial rate), you raise spending by 10%. This happens when your portfolio grows and you’re withdrawing a tiny percentage.
• Spending never drops below 80% of your original real spending.

Best for: People with some spending flexibility who want higher success rates and the ability to increase spending in good times. This is the strategy most financial planners actually recommend.

Watch for: In the worst scenarios, spending can drop to the floor. Make sure 80% of your target spending is still livable.

Variable Percentage Withdrawal (VPW)

Each year, you withdraw a percentage of your current portfolio based on your age. The percentage rises over time (because your remaining time horizon shrinks). At 65, you might withdraw 5%. At 80, maybe 10%. At 90, 20%.

Best for: People who are comfortable with fluctuating income and want to maximize total lifetime spending. VPW essentially never fully depletes your portfolio—the question is whether spending stays adequate, not whether you run out.

Watch for: In bad market years, VPW spending can drop significantly. The calculator shows a spending floor of 50% of initial spending to prevent extreme hardship.

Return Volatility (Standard Deviation)

The default 15% means that in any given year, about 68% of returns fall between -7% and +23% (mean 8% plus or minus 15%). About 95% of years fall between -22% and +38%.

• Lower volatility (10%): Models a more conservative, bond-heavy portfolio. Narrower fan chart, fewer extreme outcomes.
• Higher volatility (20-25%): Models a more aggressive or concentrated portfolio. Wider fan chart, more boom-and-bust scenarios.

Plan Through Age

Default is 95. If you have a family history of longevity, consider 100. If you have health concerns, 90 may be more realistic. This is the age through which your money needs to last.

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Step 7: Buy, Borrow, Die (Advanced)

This toggle models the strategy wealthy individuals use to avoid capital gains taxes on their brokerage accounts. Instead of selling appreciated shares (taxable), you borrow against them (tax-free).

When to Enable This

• You have (or expect to have) $500K+ in brokerage accounts at retirement
• You’re comfortable with securities-based lending (available at Schwab, Fidelity, Interactive Brokers, etc.)
• You understand the margin call risk in down markets

What the Inputs Mean

Loan Interest Rate (default 6%): What the brokerage charges on your securities-based loan. Real rates vary from SOFR + 1% to SOFR + 3%, currently around 5-7%. Higher rates make BBD less attractive.

Max Loan-to-Value (default 50%): How much you can borrow relative to your portfolio value. At 50% LTV with a $2M brokerage portfolio, you can borrow up to $1M. Lower LTV = safer but less borrowing capacity.

How to Read the BBD Results

• Margin Call Frequency: In what percentage of simulations was a forced sale triggered? Above 30% means the LTV is too aggressive for the volatility you’re modeling.
• Net Estate Value: Gross portfolio minus loan balance. This is what heirs actually inherit (with stepped-up basis on the assets).
• Cap Gains Tax Saved: Estimated lifetime capital gains tax you avoided by borrowing instead of selling.

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Reading the Results

Success Rate

The headline number. What percentage of 1,000 simulations had money remaining at your end age.

Success Rate	Interpretation
95%+	Very safe. You’re likely underspending—consider increasing lifestyle or gifting.
90-95%	Comfortable. Standard target for most planners.
80-90%	Acceptable if you have flexibility (can cut spending in downturns).
70-80%	Concerning. Consider working longer, saving more, or reducing spending.
Below 70%	High risk. Significant changes needed.

Remember: “success” means your portfolio didn’t hit zero. In many successful simulations, you might end with several times your initial balance. The success rate doesn’t capture how much money you have left—just whether you have any.

The Fan Chart

This is the centerpiece of Monte Carlo analysis. Here’s how to read it:

• Gold line (median, 50th percentile): The “most likely” trajectory. Half of simulations ended higher, half lower.
• Dark gold band (25th-75th percentile): The middle 50% of outcomes. Your result will likely fall somewhere in here.
• Light gold band (10th-90th percentile): Captures 80% of outcomes. The wider this band, the more uncertain the outcome.
• Below the 10th percentile: The worst 10% of scenarios—severe bear markets, high inflation, bad luck on sequence of returns. If the 10th percentile goes to zero, that’s your failure scenario.

Vertical markers show key ages:

• Retire: When accumulation ends and withdrawals begin
• SS: When Social Security income starts
• RMD: When Required Minimum Distributions begin (age 73)

Summary Cards

• Median at End: Your portfolio balance in the 50th percentile scenario at your end age. A positive number means in the typical case you leave money behind.
• 10th Percentile: The portfolio balance in the pessimistic (but not worst-case) scenario. If this is zero, 10%+ of simulations ran out of money.
• Withdrawal Rate: First-year spending divided by portfolio at retirement. Under 4% is generally considered safe for a 30-year retirement.

IRMAA Warning

If the calculator detects that your projected income in your early-to-mid 60s may exceed IRMAA thresholds, it flags this. IRMAA surcharges can add $2,000-$10,000+ per year to Medicare premiums. The fix: convert traditional IRA balances to Roth before age 63 (IRMAA uses a 2-year income lookback).

Roth Conversion Window

If there are years between your retirement age and when Social Security/RMDs begin where your taxable income is low, the calculator highlights this window. These are the best years to convert traditional balances to Roth at low or zero tax brackets.

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Common Scenarios to Model

Scenario 1: “Can I Retire at 55?”

Set retirement age to 55 and see what success rate you get. If it’s below 85%, try:

1. Increasing annual contributions by $10K
2. Delaying Social Security to 70 (watch the success rate jump)
3. Switching from Fixed to Guardrails withdrawal strategy
4. Reducing spending by 10%

Scenario 2: “What if the Market Crashes Early in Retirement?”

This is called sequence-of-returns risk, and it’s exactly what Monte Carlo captures. Increase volatility to 20% and watch the fan chart widen. If the 10th percentile line goes to zero within 15 years of retirement, you’re vulnerable.

Guardrails help here—they automatically cut spending in bad years, giving your portfolio time to recover.

Scenario 3: “How Much Does Delaying Social Security Help?”

Switch between claiming at 62 vs. 67 vs. 70 and compare success rates. For most high earners, the jump from 62 to 70 adds 5-15 percentage points to the success rate—it’s one of the single biggest levers.

Scenario 4: “Is Buy, Borrow, Die Worth the Risk?”

Enable BBD with default settings (6% rate, 50% LTV) and compare:

• Does the success rate improve? (Usually yes, because you’re paying interest instead of capital gains tax)
• What’s the margin call frequency? (Below 20% is manageable; above 40% is aggressive)
• What’s the net estate value? (Often higher with BBD due to tax savings)

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What Monte Carlo Can’t Tell You

Monte Carlo simulation is a powerful tool, but it has limitations:

1. It doesn’t predict the future. A 90% success rate doesn’t mean your plan will work—it means it worked in 90% of randomly generated scenarios.

2. It assumes returns follow a normal distribution. Real markets have “fat tails”—crashes more severe than a normal distribution predicts. The -50% to +60% clamp in our calculator captures most of this, but truly extreme events (Great Depression, hyperinflation) are underrepresented.

3. It doesn’t model behavioral risk. The biggest threat to most retirement plans isn’t market returns—it’s panic selling in a downturn, overspending in early retirement, or lifestyle inflation. No calculator can model human behavior.

4. Tax law will change. The calculator uses current tax brackets and rates. Over a 30-year retirement, tax law will change multiple times. Use results directionally, not precisely.

5. It’s only as good as your inputs. Garbage in, garbage out. If your spending estimate is 30% too low or your return assumption is 2% too high, the results will be misleading.

The right way to use Monte Carlo: as a stress test, not a crystal ball. Run it annually with updated numbers. If your success rate drifts below your comfort zone, you know it’s time to adjust.

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Next Steps

1. Run the calculator: Monte Carlo Retirement Calculator
2. Maximize tax-advantaged savings: Maximizing Retirement Contributions
3. Understand RSU impact on retirement: RSU Tax Strategies