How the Projection Works
The calculation runs in two phases. During the accumulation phase, contributions compound monthly at a randomly sampled annual return. During the drawdown phase, the portfolio funds inflation-adjusted withdrawals, with Social Security income subtracted each year before drawing from the portfolio.
Each of the 1,000 scenarios uses a different sequence of annual returns and inflation rates, sampled from normal distributions. This captures the reality that average returns don't arrive in a predictable order — and that the timing of bad years matters enormously in retirement.
Example: Age 35, $50,000 savings, $500/month contributions, 7% return, 3% inflation, $4,000/month withdrawal, 30 years in retirement, $1,500/month Social Security. Net portfolio draw: $2,500/month. Median nest egg at 65: ~$1.4 million. Success rate: ~89%.
Sequence-of-Returns Risk
A portfolio that averages 7% per year can produce very different outcomes depending on whether the bad years come early or late. Two retirees starting with the same balance can have opposite outcomes — one depletes savings while the other doubles them — if the sequence of returns differs.
This is why a single compound-growth estimate (baseline) is optimistic. The Monte Carlo simulation shows how much the outcome varies by running 1,000 different return sequences. The worst-case outcome (10th percentile) shows what happens when bad years cluster at the start of retirement. The best-case outcome (90th percentile) shows favorable sequencing.
Social Security and Other Income Sources
Social Security substantially reduces required portfolio withdrawals. A $1,500/month benefit on a $4,000/month target cuts the portfolio draw from $4,000 to $2,500 — a 37.5% reduction that compounds over decades.
To estimate your Social Security benefit, use your most recent annual statement from the SSA, or use the SSA's online My Social Security estimator. Benefits vary by lifetime earnings record and claiming age. Claiming at 62 reduces benefits; delaying to 70 increases them by roughly 8% per year beyond full retirement age.
Limitations
This estimate does not account for income taxes on withdrawals (which reduce take-home income in traditional 401(k)/IRA accounts), required minimum distributions (RMDs) from age 73, healthcare cost escalation, variable income sources, or changes in contribution rate. Returns are modeled as independent annual draws from a normal distribution — actual market returns exhibit fat tails and multi-year correlations not captured here. Treat the result as a planning guide, not a guarantee.