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Financial Sustainability Review

The Financial Sustainability Review is based upon a rigorous statistical technique known as “Monte Carlo Analysis”.  It is designed to quantify the probability, that given uncertain future events, you can achieve a specific goal. 

Commonly, clients want to know if they have sufficient financial resources to retire without running out of money before they die.  The answer depends upon how much wealth you have accumulated, the difference between your retirement living expenses and your retirement income, the pattern of future portfolio returns, and your longevity.  The difficulty is with these last 2 items – we don’t know what the pattern of future portfolio returns will be and we don’t know how long each client will live.  But we do have some insight on both of these based upon statistical averages and can use this information to arrive at a “Probability of Success”. 

“Probability of Success”

“Probability of Success” is a measure of the likelihood that you will be able to successfully live out your life without depleting your entire investment portfolio.  The Probability of Success is designed to factor in the inherent uncertainty regarding the future performance of your investment portfolio.  Investment portfolios do not consistently earn X% every year.  In fact, even well diversified portfolios will lose money from time to time, and may even lose money over a period of multiple years as was the case during the difficult years from 2000 through 2002.  An analysis that assumes a constant positive annual return will lead to a dangerously optimistic conclusion.  The Probability of Success analysis is statistical in nature.  It uses a random sequence of investment returns over 1,000 lifetimes to calculate the percentage of times that a person having your portfolio’s attributes, along with your projected cash flows, successfully lived out his or her life without running out of money.

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