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Monte Carlo FIRE Simulator

FREE

Stress-test your retirement plan against 500 randomized market scenarios. See the probability your portfolio survives.

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What Is Monte Carlo Simulation?

Monte Carlo simulation is a computational method for modeling the probability of different outcomes when the input variables are uncertain. In retirement planning, the biggest uncertainty is market returns — they are not a fixed 7% every year. Some years return 25%, others lose 15%.

Instead of assuming a single average return, Monte Carlo generates a random return for each year of your retirement, drawn from a normal distribution based on historical data. It runs this process hundreds or thousands of times, producing a distribution of outcomes — from worst case to best case.

Sequence-of-Returns Risk Explained

Two retirees with identical portfolios, identical average returns, and identical withdrawal rates can have completely different outcomes depending on the order of those returns. A major market crash in the first three years of retirement, combined with withdrawals, can permanently impair the portfolio — even if the market recovers later.

This is called sequence-of-returns risk, and it is the single biggest threat to a retirement plan that looks fine on paper. Monte Carlo simulation captures this risk by randomizing the sequence of returns across each scenario.

When to Use Monte Carlo

Monte Carlo is a refinement tool, not a starting tool. If you have not yet calculated your FIRE Number or determined your savings rate, start with the Coast FIRE Calculator or the Universal FIRE Calculator.

Monte Carlo is for the person who has a plan in place and wants to ask: "Given the randomness of real markets, how confident should I be that this plan actually works?" At that stage, knowing "I have a 94% success rate versus an 87% success rate" is a meaningful distinction that can change your asset allocation, retirement date, or spending assumptions.

Frequently Asked Questions

What is Monte Carlo simulation for FIRE planning?▾
Monte Carlo simulation runs thousands of randomized market scenarios to test whether your retirement plan survives. Instead of assuming a fixed 7% annual return, it generates a different return each year based on historical market volatility (mean return and standard deviation). The result is a success rate — the percentage of scenarios where your money lasted through the entire retirement period.
How many simulations do I need?▾
500 simulations give you a reasonable estimate of your success rate. 1,000 simulations narrow the confidence interval. 10,000 simulations are used by professional financial planners for high-confidence results. The law of diminishing returns kicks in after about 5,000 — the success rate barely changes beyond that point. This tool runs 500 simulations for free.
What success rate should I target?▾
Most financial planners consider 90%+ a strong plan, 80-90% acceptable, and below 70% risky. The original Trinity Study found a 95% success rate with a 4% withdrawal rate over 30 years using historical data. Your target depends on your risk tolerance — if you have flexibility to cut spending or return to work, a 75-80% rate may be acceptable. If your plan has no backup, aim for 90%+.
What is sequence-of-returns risk?▾
Sequence-of-returns risk is the danger that poor market returns in the first few years of retirement devastate your portfolio, even if average returns over 30 years are fine. Example: a 30% market drop in year one of retirement, combined with withdrawals, leaves less capital to recover. Monte Carlo simulation captures this risk by randomizing the order of returns across thousands of scenarios.
What standard deviation should I use?▾
The historical standard deviation of the S&P 500 is approximately 18% (0.18). This is the default. A 100% bond portfolio has a standard deviation closer to 6-8%. A 60/40 stock/bond portfolio sits around 12%. If you hold a diversified index fund portfolio, 18% is a reasonable starting point. Higher standard deviation means more volatile outcomes and a wider gap between best and worst cases.
How is Monte Carlo different from the regular FIRE calculator?▾
The regular FIRE calculator uses deterministic projections — it assumes the same return every year (typically 7% real). Monte Carlo introduces randomness. Each year gets a different return drawn from a normal distribution. This means Monte Carlo can show you not just whether you reach FIRE, but how confident you should be about it. The regular calculator is best for planning; Monte Carlo is best for stress-testing an existing plan.
What does the percentile chart show?▾
The percentile chart displays the range of simulated outcomes. The P25-P75 band (darker shading) shows where 50% of all scenarios fall. The P10-P90 band (lighter shading) captures 80% of outcomes. The blue median line is the middle result — half the simulations did better, half did worse. The wider the bands, the more uncertainty in your plan.
Should I use nominal or real returns?▾
This tool uses nominal returns by default (10% expected return, 3% inflation). The inflation adjustment is applied during the withdrawal phase — your annual spending increases with inflation each year. You can adjust both independently in Advanced Settings. The standard 10% nominal return / 3% inflation combination produces approximately 7% real return, which matches the historical S&P 500 average.

Calculate Your FIRE Number First

Monte Carlo stress-tests an existing plan. If you have not calculated your FIRE Number yet, start with the tools below.

Coast FIRE CalculatorUniversal FIRE Calculator

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