Average Spending Shortfall

[ready53]

When I do a Flexible Retirement Planner run I consistently get a Green Light with a 100% Probability of success, but at the same time, I get an Average Spending Shortfall ranging from 0% to 11% over multiple runs. The Median Ending Portfolio is always fairly substantial (~ $2M). I'm using a 3.5% average return with an 8% standard deviation and a Conservative Spending Policy. What could be the meaning of the Average Spending Shortfall in this situation ?

[jimr]

The average spending shortfall is a measure of the severity of any failures that the simulation encounters.

Even if only one of the 10,000 simulation runs fails, you can still get a substantial shortfall percent. That's because this number is the average shortfall across only the failures. If there's one failure and that failure happened after 90% of the plan was completed, you'll get a 10% shortfall percent, even though the other 9999 simulation runs completed successfully and were 100% funded.

If you look at the detailed output view at the number in parenthesis in the right-most column, you can see the number of simulation failures that happened in each year of the plan.

My guess is that even though the simulation is showing 100% success, that's probably rounded up and there were a few failures. If you get less than 50 simulation failures, the result will still show a 100% probability of success due to rounding.

[ready53]

Thanks for your response. That's what I suspected and you now confirmed it.