Astoria has received a number of inquiries from financial advisors regarding the probability that their clients will be able to accomplish their retirement goals. As it is one of our firm’s unique skillsets, Astoria is able to leverage our quantitative capabilities, data, and technology to assess these probabilities. In this report, we utilize various Monte Carlo Simulations to illustrate which scenario produces the highest probability of success for a hypothetical client’s retirement goals.
Inputs and Assumptions
A client has $300,000 in their retirement account and will invest in one of the following options for the next 5 years:
A portfolio of 20% stocks and 80% bonds
A portfolio of 40% stocks and 60% bonds
A portfolio of 60% stocks and 40% bonds
Activate a distribution of $25,000 (about $2,083 per month) in 5 years
Adjust for inflation
Stay invested in each scenario for 30 years
Please note that past performance is not indicative of future results and results going forward will vary depending on returns of stocks and bonds going forward.
For the purpose of these Monte Carlo Simulations, we are using the Statistical Returns Model via our backtesting software, Portfolio Visualizer.
Using the parameters highlighted above, the probability of success rises as we increase the percentage of stocks and decrease the percentage of bonds in the client’s portfolio. This is attributed to the greater returns that stocks have historically produced relative to bonds. Therefore, we would suggest the client invests his or her assets in a portfolio of 60% stocks and 40% bonds (Simulation C as seen below).
Alternatively, if the client’s tolerance for risk cannot be increased, we would suggest that the client withdraws less money per annum.