Portfolio Survival Probability Simulator Calculator
Calculate growth with the Portfolio Survival Probability Simulator. Enter principal, rate, compounding frequency, and time to see total balance, interest
Formula
Survival Rate = Successful Simulations / Total Simulations x 100
Each simulation grows the portfolio using geometric Brownian motion (annual return = mu - 0.5*sigma^2 + sigma*Z) and subtracts inflation-adjusted withdrawals each year. A simulation succeeds if the portfolio value remains positive through the entire time horizon. The survival rate is the percentage of simulations that succeed out of thousands of trials.
Worked Examples
Example 1: Standard Retirement at 4% Withdrawal
Problem: A retiree has $1,000,000, withdraws $40,000/year (4% rule), expects 7% return with 12% volatility, 3% inflation, 30-year horizon.
Solution: Run 2,000 simulations with GBM model\nWithdrawal rate: 4.00%\nReal return: 7% - 3% = 4%\nYear 1 withdrawal: $40,000\nYear 30 withdrawal (inflation-adjusted): ~$97,000\nTotal withdrawn over 30 years: ~$1,902,000\nMedian final portfolio: ~$1,500,000\nSurvival probability: ~88%
Result: Survival Rate: ~88% | Median Final: ~$1.5M | 4% withdrawal rate
Example 2: Conservative Early Retiree
Problem: Early retiree at 50 with $2,000,000, withdraws $60,000/year (3%), expects 6% return, 10% volatility, 2.5% inflation, 40-year horizon.
Solution: Run 2,000 simulations\nWithdrawal rate: 3.00%\nReal return: 6% - 2.5% = 3.5%\nYear 1 withdrawal: $60,000\nYear 40 withdrawal: ~$160,000\nLower withdrawal rate increases survival\nSurvival probability: ~92%
Result: Survival Rate: ~92% | 3% withdrawal rate | 40-year horizon
Frequently Asked Questions
What is portfolio survival probability and why does it matter?
Portfolio survival probability measures the likelihood that your investment portfolio will sustain your planned withdrawals throughout your entire retirement or spending horizon without running out of money. This is the central question in retirement planning because running out of money in your 80s or 90s would be catastrophic with no ability to return to work. The simulation runs thousands of scenarios with varying market returns to determine what percentage of cases your portfolio survives the full period. A survival probability of 90% or higher is generally considered acceptable, while below 80% suggests you may need to reduce spending, increase savings, or adjust your investment strategy.
How does inflation affect portfolio survival?
Inflation erodes the purchasing power of your withdrawals, requiring you to increase the dollar amount withdrawn each year to maintain the same standard of living. If you withdraw $40,000 in year one and inflation averages 3%, you need $41,200 in year two, $42,436 in year three, and so on. By year 30, your annual withdrawal would be approximately $97,000 in nominal terms just to maintain the same purchasing power. This exponentially growing withdrawal demand is why inflation is called the silent killer of retirement plans. Even moderate 3% inflation doubles prices in 24 years. The simulator accounts for this by increasing annual withdrawals by your specified inflation rate each year.
What does the survival curve tell me that a single probability number does not?
The survival curve shows the probability of your portfolio surviving to each specific year, revealing the timing pattern of potential failures. A portfolio might have 85% overall survival probability, but the curve shows whether failures cluster early (suggesting the portfolio is fundamentally underfunded) or late (suggesting it works for most reasonable scenarios but struggles in extended horizons). If the curve drops steeply around years 20-25, you know that is your danger zone and can plan accordingly with backup strategies. The curve also helps with partial planning: even if 30-year survival is only 80%, the 20-year survival might be 95%, informing decisions about annuity purchases or other hedging strategies for later years.
How can I improve my portfolio survival probability?
Several strategies increase survival probability. First, reduce the withdrawal rate: dropping from 4% to 3.5% can increase survival from 80% to over 90%. Second, maintain a diversified portfolio with some equity exposure for growth, as all-bond portfolios actually fail more often due to inflation erosion. Third, implement dynamic withdrawal strategies that reduce spending in down markets. Fourth, delay Social Security to increase guaranteed income. Fifth, consider purchasing a partial annuity to cover essential expenses with guaranteed income. Sixth, maintain a cash reserve of 1-2 years of expenses to avoid selling stocks during downturns. Seventh, consider part-time work in early retirement years to reduce portfolio drawdowns during this critical sequence-of-returns risk period.
What is sequence of returns risk and how does it affect survival?
Sequence of returns risk is the danger that poor market performance occurs early in your withdrawal period when your portfolio is largest and most vulnerable. Two retirees can experience identical average returns over 30 years but have vastly different outcomes depending on the order of those returns. Bad early returns combined with withdrawals permanently deplete the portfolio base, leaving less capital to benefit from later good returns. This is why Monte Carlo simulation is superior to simple average-return calculations: it captures the variability in return sequences. The simulator reveals this through the range of outcomes: some paths succeed brilliantly while others with the same average return fail because the bad years came first.
Should I use nominal or real (inflation-adjusted) returns in this simulator?
This simulator is designed to use nominal returns with a separate inflation rate input, which is the more accurate approach. When you enter 7% expected return and 3% inflation, the simulator grows your portfolio at rates centered around 7% while simultaneously increasing your withdrawal amount by 3% annually. This correctly models the real-world dynamic where your portfolio earns nominal returns but your spending needs increase with inflation. If you instead used real returns (already inflation-adjusted) of 4%, you would set the inflation input to 0% and keep your withdrawal amount constant. Both approaches should produce similar results, but the nominal approach better captures the interaction between volatile nominal returns and steadily increasing inflation-adjusted spending.