Definition
Retirement readiness is quantified as the probability that a portfolio sustains planned withdrawals through a specified time horizon. Monte Carlo simulation generates this probability by counting successful paths across many randomized scenarios.
Monte Carlo Context: Chubby runs 100 forward-looking paths with GARCH(1,1) volatility modeling. The survival rate represents the percentage of paths where the portfolio never depletes before the target date.
Key Metrics
Savings Multiple Analysis
The savings multiple is the ratio of accumulated assets to annual spending. A 25x multiple corresponds to a 4% withdrawal rate.
10x by age 50— On track for traditional retirement at 6515x by age 55— Early retirement (55-60) becomes feasible25x at any age— Financially independent at 4% SWR33x at any age— Conservative 3% SWR (longer horizons)
Multiplier Formula: Required savings = annual_spending * (1 / withdrawal_rate). At 4% SWR: $60,000 * 25 = $1,500,000.
Savings Rate Impact
During accumulation, savings rate dominates investment returns in the first 10-15 years. This is counterintuitive but mathematically inevitable: when your portfolio is small, even a 20% return on $50k is just $10k — less than a $15k annual contribution.
The Crossover Point: Around year 12-15, investment returns begin contributing more than new savings. Before crossover: focus on income and savings rate. After crossover: returns compound dramatically and the portfolio "runs away" from you in a good way.
Approximate years to financial independence by savings rate:
10% savings rate— ~40 years (traditional timeline)25% savings rate— ~30 years50% savings rate— ~15-17 years75% savings rate— ~7-8 years
Assumes 7% real return, 4% SWR target.
Survival Rate Interpretation
Monte Carlo survival rates represent the fraction of simulated scenarios where the portfolio sustains withdrawals. But understanding the shape of failure matters as much as the probability:
- Below 70%: High depletion risk — significant probability of running out
- 70-80%: Marginal — requires flexibility and contingency planning
- 80-90%: Reasonable — some buffer for adverse sequences
- 90%+: Strong — robust against most market scenarios
Diminishing Returns of Certainty: Going from 90% to 95% survival requires roughly the same additional savings as going from 80% to 90%. Going from 95% to 99% requires even more. At some point, the marginal year of work buys very little additional security — this is the "one more year" trap.
A related insight: in most Monte Carlo runs, the median outcome leaves substantial wealth at death. Failure scenarios cluster around sequence of returns risk in the first decade, not insufficient total returns. This means flexibility matters more than extra savings.
Spending-Based Planning: Income replacement ratios (70-80%) are less precise than spending-based projections. Track actual expenses rather than income percentages for accurate simulation inputs.