@MikeM - Hi there Mike- I think that msf has pretty well covered the general response to your questions. Because Monte Carlo simulation was not widely available during our working years, I designed (took me a while, I'll tell you) a "predictive" spreadsheet which I integrated into the general financial spreadsheet which I had used for some years (and still use) to keep track of our various investments.
The "predictive" section took account of all resources which would be available to my wife and I after retirement: pensions, SS, Medicare, and income or value increase in investments of equity vehicles, bond vehicles, and real estate. Likewise we had excellent data which had been accumulated over a number of years with respect to anticipated expenses, broadly classified as "basic" (unavoidable), discretionary, and emergency.
Each of those variables was referenced to large tables which were set up to independently run compounded values over 35 years. Independent inputs for variables included inflation rate, rate of return on equities, bonds and cash (CDs and savings) accounts, and a "financial disaster" input which introduced a general meltdown variable selectable for any given year in the 35 year stretch.
By varying each of those inputs in any desired combination it was possible to see the cascading effect of various disaster scenarios occurring at different selected times. For example, I generally ran cash and bond income at 2% below the inflation rate, which was also a selected variable, and equity income at 2% above. Very conservative. Being a pessimist by nature, I generally ran setups which would cover every bad thing happening that I could imagine.
As it happened, I wasn't too far off in the predictive timing for disaster. Destruction of financial resources will be most influential the earlier that they happen in retirement, as they can set back the entire cumulative compounding effects quite seriously. Indeed, Murphy struck, in 2007/2008, just after retirement.
Nevertheless, the tables worked out pretty well. By pulling down our discretionary expenses (another independent variable input) we survived the chaos in good shape, and were able to carry on with no huge impact to our retirement mode.
Edit/add: I should also mention that we were deliberately in good shape with respect to loans and finance charges: 30 year mortgage
@8% had been paid off ten years early, never any credit card or other interest expenses. (Once the mail was late with a credit card payment and it cost something like $4.2
1. My wife still mentions that occasionally.)
MGJ dismissed this whole effort rather casually with a reference to the "limitations" of a spreadsheet for these purposes, and endless exaltations and paeans as to the superiority and invincibility of Monte Carlo. He's welcome to his opinion: just take it with a large grain of whatever. He seems to be one of those folks who believe that whatever they do is the right and only way, that anything else is highly suspect or at best barely acceptable, and thoroughly enjoy telling you so. I'm sure that you know the type.
Regards
OJ
