Certainty of Lifestyle: Contrasting a Simulation Over a Fixed Period versus Multiple Period Models

90 Pages Posted: 25 Apr 2016 Last revised: 17 May 2016

See all articles by Larry R. Frank Sr

Larry R. Frank Sr

Academy of Financial Services; Better Financial Education; Certified Financial Planner Board (CFP)

Shawn Brayman

PlanPlus Inc.

Date Written: April 22, 2016

Abstract

The purpose of this paper is to demonstrate the differences between the commonly used Monte Carlo simulations that assume a static withdrawal based on a fixed mortality period and initial capital, versus the use of Monte Carlo simulations that re-estimate withdrawal amounts utilizing period life tables for longevity, in addition to the variable remaining capital of each simulation, both for each individual year within the model. Such models may be called Conditionally Adjusted Sequential Retirement Periods models (CASRP). The model approach demonstrates that, although a fixed period simulation has a failure rate at some future age, the multiple period model doesn’t run out of funds unless catastrophically spent. This paper explains why funds are available at superannuated ages and demonstrates methods that remove the fear of failure (running out of money before life) to give more control and insight to retirees over the future of their funds. The authors find there is a difference between a single fixed period Monte Carlo simulation, and a model made up of a series of connected simulations.

The model approach results in a series of solutions at each age, rather than a series of computations that result in a single solution from a traditional fixed period Monte Carlo simulation.

Keywords: single period simulations, multiple period models, CASRP

JEL Classification: D14, D81, D90, G11, G17, J11, J14

Suggested Citation

Frank Sr, Larry R. and Brayman, Shawn, Certainty of Lifestyle: Contrasting a Simulation Over a Fixed Period versus Multiple Period Models (April 22, 2016). Available at SSRN: https://ssrn.com/abstract=2769010 or http://dx.doi.org/10.2139/ssrn.2769010

Larry R. Frank Sr (Contact Author)

Academy of Financial Services

La Crosse, WI 54601
United States

HOME PAGE: http://academyfinancial.org

Better Financial Education ( email )

300 Harding Blvd Suite 103D
Roseville, CA 95765
United States
916-303-7777 (Phone)

HOME PAGE: http://www.BetterFinancialEducation.com

Certified Financial Planner Board (CFP) ( email )

1700 Broadway
Suite 2100
Denver, CO 80290-2101
United States

Shawn Brayman

PlanPlus Inc. ( email )

55 Mary St W
# 200
Lindsay, Ontario K9V 5Z6
Canada

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