Portfolio Visualizer
Portfolio Visualizer — Retirement Calculation Steps
Portfolio Visualizer — Retirement Calculation Steps
1. Open Portfolio Visualizer (https://www.portfoliovisualizer.com/) and select the Monte Carlo Simulation tool. In this example we used the legacy tool.
2. Set the initial portfolio value to the starting amount. For a new investor, use approximately $1 rather than $0 if the system requires a positive starting balance.
3. Enter the annual contribution based on the savings rate. For example, $34,000 of income × 15% = $5,100 annual contribution.
4. The Calculation will be done in 3 steps – first ten years working there making contributions, the second 20 years as just S&P500, and the last ten years more conservatively as a 60/40 investment.
5. Step 1 - Set the investment period to the number of years the contribution will be made. In the example, use 10 years.
6. Select the investment that represents the retirement-plan fund - SVSPX. The McDonalds 401K broad U.S. large-cap fund.
7. Select the output percentiles needed for the analysis. Use the 10th percentile to illustrate a lower-end outcome and the 50th percentile to represent the median outcome.
8. Run the simulation and record the projected portfolio value at the end of the first investment period.
9. Step 2 - Carry the ending balance forward as the starting balance for the next period. In the example, use the 10-year ending balance and run another 20-year simulation using the S&P 500 investment for both the 10th-percentile and 50th-percentile results.
10. Step 3 - Change the portfolio allocation for the final retirement period to be more conservative. In the example, use a 60% S&P 500 (SPY – State Street S&P500 ETF) / 40% bond allocation (BOND – Pimco Active bond fund) for the final 10 years.
11. Use the previous period’s ending balance as the new starting balance, run the final 10-year Monte Carlo simulation, and record the resulting 10th- and 50th-percentile values.
12. Summarize the results: Ten years of working and saving at 15%, plus another 30 years investing and compounding interest, with a 90% certainty based on historical data, the balance will be at least $X – and on average this should grow to be about $Y.