Methodology

When Retirement Buddy says a plan has an 85% probability of success, it means this: we simulated 2,000 possible futures for your portfolio, and in 85% of them the money outlasted the plan. It is not a forecast, and it is not a promise. It is a count of how often a plan like yours survived across a wide range of market outcomes.

A 95% probability is not obviously better than an 85% one. A plan that never fails in simulation is usually a plan that underspends for thirty years to insure against a future that does not arrive.

Each run draws a fresh sequence of annual returns and inflation, applies your contributions while you are working and your withdrawals once you are not, and carries the balance forward year by year until the end of the plan. One simulation per plan on the Free tier. The path count is the same on every tier.

The numbers behind that, stated so you can judge them:

• 7% average annual return, with 15% volatility — roughly a diversified portfolio with meaningful equity exposure.
• 3% average inflation, with 2% volatility.
• 2,000 simulated paths per projection.
• Every path runs to age 90.
• Social Security modelled as beginning at 67, full retirement age.

Returns are drawn randomly rather than averaged. This is the whole point: averaging returns hides the risk that matters most.

Two retirees can experience identical average returns over thirty years and end up in completely different places, purely because of the order those returns arrived. A bad first five years, while you are drawing down, does damage that a good final five years cannot undo — you sold shares to live on at the bottom, and those shares are not there to recover.

Because each simulated path has its own randomly ordered sequence, the unlucky orderings are represented in the results. A projection built on average returns cannot show you this, which is the main reason we do not build one.

The limits are as important as the mechanics, so they are stated plainly:

• Your actual investments. The simulation models a portfolio at a risk level, not the specific funds you hold.
• Long-term care. A multi-year care event is among the largest risks to a retirement plan and is not modeled as a random shock.
• Your real tax situation. Tax treatment is modeled by account type. State taxes, and the particulars of your return, are not.
• Behavior under stress. The simulation assumes you follow the plan. Most people do not sit still through a 40% drawdown.
• Structural change. Changes to Social Security, tax law, or healthcare policy over a thirty-year horizon are not forecast.

Retirement Buddy is an educational planning tool. It is not a registered investment advisor and does not provide financial, investment, tax, or legal advice — see the full disclaimer.

That means the projections have to earn your trust on their merits rather than on a credential. The way to do that is to show the assumptions and be straight about the limits, so you can judge for yourself how much weight a number deserves. Every model of the future is wrong. A model that tells you where it is wrong is still useful.