Monte Carlo Calculator

Published: August 31, 2012 at 5:01 pm

Last Updated on

When you make a financial plan/calculation you usually assume some inflation rate and interest rate. However, there is no guarantee that these rates will be the same as the ones you assumed. If actual inflation was lower and actual interest rates higher, great! Well you know that is a pretty rare scenario. What is likely to happen is inflation could be higher and interest rates lower, maybe because of the economy, markets falling etc. etc.

There is nothing you can do about it … except perhaps mentally prepare for it.  The Monte Carlo calculator does just that.

Monte Carlo is famous for gambling and the calculator does the same. It gambles with inflation and interest rates. By gamble I mean it randomly varies these rates a large number of times (I have used 50,000 trials) and calculates the most probable number of years a retirement corpus will last by using a ‘amount which one can save’ as input. It also gives the ‘amount which one should save’ to increase the chances of the retirement corpus lasting your lifetime.

The calculator is easy enough to use. The instructions are reasonably clear.

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New version:  Stress Test Your Retirement Plan (Aug. 2014)

Download the Monte Carlo Calculator (Dec. 2013: Excel 2007 version, 9 MB with macro to stop and start calculations.)
Download the Monte Carlo Calculator (Oct. 2012: Excel 2002 version, 28 MB)

(This is a dropbox link. Clicking on this will take to  DropBox’s website)

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Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
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2 Comments

  1. Sir, I think there is a mistake in the text, I think the cells A42,A43,A44 and A15 should be on per year basis. The text says per month. I am assuming 50k overall expense/month and keeping 15000 savings per month for 30 years, The results says the corpus will only last 2-3 years.

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