Using Monte Carlo Methods for Retirement Simulations

ArXiv ID: 2306.16563 “View on arXiv”

Authors: Unknown

Abstract

Retirement prediction helps individuals and institutions make informed financial, lifestyle, and workforce decisions based on estimated retirement portfolios. This paper attempts to predict retirement using Monte Carlo simulations, allowing one to probabilistically account for a range of possibilities. The authors propose a model to predict the values of the investment accounts IRA and 401(k) through the simulation of inflation rates, interest rates, and other pertinent factors. They provide a user case study to discuss the implications of the proposed model.

Keywords: Monte Carlo Simulation, Retirement Prediction, Inflation, Interest Rates, Portfolio Valuation

Complexity vs Empirical Score

• Math Complexity: 3.5/10
• Empirical Rigor: 4.0/10
• Quadrant: Philosophers
• Why: The paper uses basic probabilistic simulations and standard financial models without advanced mathematics or complex derivations, and the provided excerpt lacks implementation details, datasets, or backtesting results.

  flowchart TD
    A["Research Goal: Predict Retirement Portfolio<br>Using Monte Carlo Simulation"] --> B["Key Inputs & Parameters"]
    B --> C["Monte Carlo Simulation Process"]
    C --> D["Key Findings & Outcomes"]
    
    subgraph B ["Data/Inputs"]
        B1["Market Volatility<br>& Interest Rates"]
        B2["Inflation Rates"]
        B3["Investment Accounts<br>IRA & 401(k)"]
    end

    subgraph C ["Computational Process"]
        C1["Generate Random<br>Market Scenarios"]
        C2["Simulate Portfolio<br>Value over Time"]
        C3["Aggregate Probabilistic<br>Distributions"]
    end

    subgraph D ["Outcomes"]
        D1["Probabilistic Retirement<br>Timeline Prediction"]
        D2["Risk Assessment<br>for Portfolio Longevity"]
        D3["Informed Financial<br>Decision Making"]
    end