Monte Carlo simulation (the FIRE chart)

A Monte Carlo simulation runs your plan through hundreds or thousands of possible market futures instead of a single average. Rather than one tidy line, you get a range of outcomes and a sense of how likely each is. It is the honest way to answer “will my money last?”, because the real answer is a probability, not a promise.

Why a single average misleads

A flat “7% every year” never actually happens. Real returns are lumpy: a few great years, some flat ones, the odd crash. Two plans with the same average return can end very differently depending on the order of the good and bad years, especially early in retirement when you are drawing money out. That is sequence risk, and a single average line hides it completely. Monte Carlo puts it front and centre by shuffling the order thousands of times.

How to read the chart

Each run is one possible history of your portfolio. Stacked together, they form a fan of outcomes. The middle line is the median (p50), the typical result; the upper edge (around p90) is a lucky market, the lower edge (around p10) a poor one. The headline number is usually the success rate: the share of simulated futures where your money lasts the whole retirement. A 90% success rate means the plan survived in about nine of ten simulated histories.

What it can and can’t tell you

A simulation is only as good as its assumptions: expected return, volatility, inflation and how long you live. It assumes the future broadly resembles the modelled range, so it cannot foresee something genuinely new. Treat the success rate as a planning signal, not a guarantee. Its real value is comparison: see how much retiring a year later, saving a bit more, or trimming spending moves the odds, rather than chasing a single perfect number.

Where it shows up

• FIRE

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