Week 45 Day 6: Running Your Own Simulation: Free Tools and How to Use Them

Quick guide: (1) Go to cfiresim.com. Enter: portfolio value, annual spending, allocation (stocks/bonds), retirement length. Hit 'Submit.' You will see a chart showing every possible historical 30-year retirement and whether your plan survived. (2) Go to portfoliovisualizer.com -> Monte Carlo Simulation. Enter: portfolio value, allocation, withdrawal amount, time horizon. Choose 'Forecasted Returns' for forward-looking estimates. You will see success rates and a range of outcomes. (3) Compare the results and adjust your plan if needed.

Tool-by-tool guide: (1) cFIREsim (cfiresim.com): Methodology: historical backtesting using actual U.S. market data from 1871-present. Best for: seeing exactly which historical periods would have killed your plan. Inputs: portfolio size, annual spending, stock/bond allocation, retirement duration, Social Security start date/amount. Output: success rate, chart of all historical scenarios, which specific start years failed. Limitation: U.S.-only data, does not account for future conditions that may differ from history. (2) FIRECalc (firecalc.com): Methodology: similar historical backtesting. Best for: quick sanity check. Simpler interface. Inputs: portfolio, spending, years. Output: success rate, graph of portfolio trajectories. (3) Portfolio Visualizer (portfoliovisualizer.com): Methodology: Monte Carlo with customizable return assumptions. Best for: forward-looking analysis with user-specified expected returns. Inputs: allocations (specific funds like VTI, BND), contributions/withdrawals, expected returns (historical or custom). Output: a range of outcomes (10th percentile, 25th, 50th, 75th, 90th), success probability. (4) Boldin (boldin.com): Methodology: comprehensive retirement planning with Monte Carlo. Best for: holistic planning including Social Security, taxes, Roth conversions, pension. Inputs: all financial details (accounts, income sources, expenses, tax details). Output: success rate, detailed year-by-year projections, scenario analysis. Limitation: free tier is limited. Paid tier (approximately $120/year) for full features. Recommended workflow: Start with cFIREsim for a quick historical reality check. Then use Portfolio Visualizer for Monte Carlo with conservative inputs. If you want comprehensive planning, use Boldin for the full picture.

The democratization of retirement simulation tools has made sophisticated financial planning accessible to individual investors. However, tool selection and input specification require careful judgment. Key considerations: (1) Return assumptions. Most free tools default to historical returns (approximately 10% stocks). Override this with conservative forward-looking estimates (7-8% stocks, 3-4% bonds) for more realistic planning. cFIREsim's historical approach avoids this issue by using actual past returns, but is limited by the U.S. survivorship bias and the small number of independent historical retirement periods. (2) Inflation modeling. Some tools assume constant inflation (2.5-3%). More sophisticated tools model stochastic inflation (varying randomly from year to year). In high-inflation environments, the constant-inflation assumption may be optimistic. (3) Tax treatment. Most free tools ignore taxes entirely (simulating pre-tax returns and withdrawals). This overstates spendable income by 10-30% depending on the account mix. Boldin and some advanced tools incorporate tax modeling. (4) Correlation structure. Some Monte Carlo tools assume independent returns across time. In reality, returns exhibit volatility clustering and regime effects. Block bootstrapping tools (available in some academic software) preserve these dynamics. (5) Behavioral realism. No tool models the behavioral reality: in a real bear market, you may panic and sell, deviating from the simulated plan. Building discipline (automation, guardrails, pre-commitment) is as important as the simulation results. The meta-lesson: run multiple tools with conservative assumptions, and if your plan works across all of them, you have a robust retirement plan.