The Base Plan and the Maximization report help you avoid investment risk by assuming by default that you invest in near-certain, low-yielding assets equivalent to 30-year inflation protected bonds. Minimizing return rate risk in this way coupled with eliminating longevity risk by using the default maximum age of 100, presents you with a report that, when sticking to these two default assumptions, bills itself as a near-certain equivalent plan.
The Living Standard Monte Carlo reports help you to evaluate how much risk this otherwise safe plan is exposed to given how your savings are actually invested. These two reports show graphically how your household’s living standard could increase or decrease annually as your investments, actual or proposed, do well or poorly.
Living Standard Monte Carlo is available in Premium and Professional versions of MaxiFi. Conventional Monte Carlo analysis leaves spending levels static as entered by the user and calculates probabilities that retirement assets will last through to the end of the plan. MaxiFi's Living Standard Monte Carlo, on the other hand, retains the near-certain probability of the Base Plan, however allows the annual living standard (or equivalent household discretionary spending) to vary year over year thus generating living standard trajectories that illustrate the impact that varying market investment probabilities will create on your annual living standard. Traditional Monte Carlo analysis presumes spending is static in the face of a market that is tanking or uneven and presents the probabilities that your plan will fail or not fail. MaxiFi's Living Standard Monte Carlo allows your annual spending (living standard) to change each year (simulating realistic spending behavior) as markets fluctuate thereby retaining the near-certain probability that your plan will not fail.
- How does Monte Carlo Risk Analysis work?
- Upside Investing