Can I Retire Now? Monte Carlo says… 

Transcript
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Hi, my name’s Tyler.
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I’m one of the certified financial planners here at Cornerstone Wealth Strategies.
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Got an important topic today.
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You might be wondering yourself, can I retire now?
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I’m gonna talk about a statistical measure that we use in financial planning to hopefully answer that question for you.
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So, this is some planning software.
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It’s eMoney.
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Or we call it Wealth Vision here at Cornerstone.
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I just want.
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To talk a little bit about the graph that you’re looking in, but we want to hone in on that statistical measure that I talked about.
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So looking at this graph, this is somebody’s overall retirement, clients we’re looking at now are retiring at age 60. So you can see that monument there. The rest of it is all filled in with sources, right?
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So, the assets that you have to hopefully supplement that.
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income. The different colors you’re looking at just to touch on that. As you can see, you got Social Security, which is that darker color at the bottom.
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These two clients have a pension, which is that teal color.
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You see, the yellow is withdraw from assets. They have a mortgage at the beginning that’s getting paid off. That’s why those bars are a little bit higher and at age 75 they have some required distributions.
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So the statistical measure that I’m talking about is referred to as a Monte Carlo analysis.
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This software is going to run 1000 different market scenarios.
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It’s based on variance.
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So the fluctuation of your portfolios and it’s going to throw random samples at it to stress testing.
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Why is that important?
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Is ultimately the longer that you have, the more stress that it’s going to have as you make withdraws, right? So as you can see, these bars are a little bit bigger earlier on.
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What that Monte Carlo’s going to do is simulate maybe a bad, bad, bad.
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Good, average. And it’s going to do a random probability analysis across as you withdrawing from your assets.
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It’s a good way to hopefully try to predict that market puts your mind at ease.
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So what number are we focusing here on this page? Probability of success is 99%.
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Here that means it passes 99% out of those thousand scenarios that it’s throwing at it.
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So and on average you have 3.2 million left at the at the end of plan, you’re going to want that number to be a little bit larger, can’t be 0 ultimately because.
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You’re gonna have to have a bucket at the end of the rainbow, so to speak.
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So, how does this work in overall financial planning software?
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Let’s take let’s take a look at a couple examples.
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So you might come in and you’ll wonder, ok,
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Well, if I spend a little bit more money, what does that look like, right?
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So this is a decision-making process and it could be maybe some travel as as I’m going to show you, it could be a large purchase that can all be simulated if you can dream it, we can model it.
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So let’s look at overall spending and how that’s going to affect.
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Hey, Tyler, what if I spend a little bit
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More at the beginning of retirement and then at age 75, maybe a little bit less?
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Well, you have 96% probability of success.
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Anything really above 90 with the assumptions we have in our financial planning software, you know ultimately is is pretty darn good.
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So that is an example.
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Now, what if we click and say, well, I want to travel travel for five years?
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At $10,000 a year, that bump that’s bumps that down to 95%.
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Really why it doesn’t change it that much just to add a little context there is because you’re not extrapolating expenses over the life of the plan, right?
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Are that will inflate.
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Our inflation rate in this situation is 4%. A lot of a lot of times on our clients mind is health events.
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I just want to throw that in there real quick.
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So here is a long-term care need actually for one person the client and you’re going to see that need during this time right here.
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So we’re actually starting at age 80 and ending at 85.
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We don’t like to do it right at the end of the plan because it doesn’t stress as much.
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We do it a little bit earlier, but there’s there’s a scenario.
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Could see that we’re at 97% probability of success. I want to touch on one more thing on Monte Carlo.
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that we have in.
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It’s also important to note if we look at the longevity risk, what that 97 percent is representing is actually the last year. So the two numbers you’re looking at here is the probability that two people are alive at age 90, or the probability that one person so.
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In this financial planning software, it’s pointing out that.
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Year of your overall financial plan. So with that that’s a little bit about a Monte Carlo analysis and how you stress test your plan and hopefully make that part of your decision making process.
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You know, hey, can you retire now?
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Yeah, if you got any questions, please let us know.
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So I just wanted to share a little bit about our team. So you can see in the top bar there you have wealth advisor and financial planners. You know ultimately if you have questions about anything that I discussed today, anybody is more than capable to get in depth a.
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Little bit more about our financial planning process or Monte Carlo analysis.
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We actually have an attorney on staff, Beau Ruff and Cameron’s a wealth advisor and our trader as well.
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So again, we work as a team here at Cornerstone and ultimately, you know, feel free to pick up the phone and we’d be happy to answer your questions.
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So with that, thank you very much for attending.
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And have a great day.