Use Monte Carlo simulation to assess risk in Lifetime Planner
This topic is for a feature currently in development. There may be changes before it is released.
Lifetime Planner can help you assess the risk level of your financial plan by running a simulation with variable investment returns. Instead of projecting a single outcome based on a fixed rate of return, the simulation models a range of possible outcomes so you can see how your plan performs under different market conditions.
The simulation is provided for informational purposes only and does not constitute financial advice. Consult a qualified financial advisor for personalized guidance on your financial planning decisions.
Before you begin
You must complete the initial Lifetime Planner setup before you can run a simulation. This includes entering your financial information, goals, and assumptions in the planner.
How the simulation works
Quicken uses a technique called Monte Carlo simulation to test your plan against a wide range of investment return scenarios. The simulation draws from a baseline of real (inflation-adjusted) US investment returns across all asset classes for the years 1928 through 2023. Quicken scales the median return to match the investment return rate you specify in your plan and applies a standard deviation of approximately 12%.
Quicken recomputes your plan 200 times during the simulation. In each iteration, Quicken randomly selects a historical return rate for each year of your plan and applies it as the return on your investments. The result is a range of outcomes that reflects the natural uncertainty of investment performance over time.
Understanding the simulation results
The simulation displays three lines on the graph, each representing a different outcome level for each year of your plan.
90th percentile — The value for each year below which 90% of the simulation outcomes fall. This represents a relatively optimistic scenario.
Median — The value for each year where half of the outcomes are higher and half are lower. This represents the middle-of-the-road outcome.
10th percentile — The value for each year where only 10% of the simulation outcomes resulted in a value at that level or lower. This represents a relatively pessimistic scenario.
Together, these three lines give you a sense of the range of possible outcomes for your plan. A wide spread between the 90th percentile and the 10th percentile indicates greater uncertainty, while a narrow spread suggests more predictable results.
Interpreting the results: The 10th, 50th, and 90th percentile results are probability-based results calculated by applying a historic pattern of variability in investment returns to your plan. You should use judgment in interpreting these results. Note that the 50th percentile result may be somewhat different from the deterministic calculation due to random sampling and the specific pattern of historical data used as a baseline.
Run a simulation
To run a simulation on your Lifetime Plan:
Open Lifetime Planner.
Select the Use simulation to model plan outcomes checkbox.
Review the graph to see the 90th percentile, median, and 10th percentile projections for your plan.
To return to the standard projection, clear the Use simulation to model plan outcomes checkbox.
Tips for using the simulation
Pay attention to the spread. A wide gap between the 90th percentile and 10th percentile lines suggests your plan is sensitive to market variability. If the spread is wider than you are comfortable with, consider adjusting your investment return assumptions, savings rate, or retirement timeline.
Focus on the 10th percentile for conservative planning. If you want to plan for a more pessimistic scenario, use the 10th percentile line as your baseline. This shows outcomes where only 10% of simulations performed worse.
Run the simulation periodically. As your financial situation changes or you update your plan assumptions, run the simulation again to see how those changes affect your projected outcomes.
Remember that simulation shows possibilities, not predictions. The simulation models a range of outcomes based on historical data. It does not predict the future or account for major life changes, market conditions that fall outside historical patterns, or specific personal circumstances.