A discretionary spending trajectory is displayed as a path or line on a chart that shows your annual spending. In the base plan, this trajectory line is typically flat. This is because in the base plan there is no variation in the plan's return rates year over year. In the Monte Carlo reports, the return rates change in a random way from one year to the next and this produces a trajectory that varies from one year to the next.
In building a trajectory, MaxiFi, one year a time, draws returns at random on each year's investments based on your investment strategy. It then uses the resulting investment income for each year as well as each year's calculated spending to determine the next year's asset holdings. It continues in this manner for each of your household's future years, recording along the way, your discretionary spending.
These trajectories are grouped according to their lifetime value and MaxiFi shows you five of these 500 trajectories it created. The 95th percentile trajectory is the one that is valued higher than 95 percent of the other 499. The 5th percentile trajectory is the one that is valued higher than only 5 percent of the 500. We don't worry about living on a trajectory that is in the 75th or 95th percentiles, but we would be concerned if the spending levels on the 5th or 25th percentiles revealed levels that we would find unacceptably low.
When viewing these discretionary spending trajectories, we generally focus on the 5th and 25th because even though they are less probable than the 50th, we want to imagine how we'd feel about experiencing our economic life on one of those unfortunate trajectories and if it's unacceptable to us, make adjustments to our asset allocation and/or spending behavior.