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Wade Pfau's New Book - Retirement Planning Guide Book (2021)

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@smatthews51 In Pfau's new book on pages 91-92 he talks about using Monte Carlo simulations to compare success rates for the 4% rule. He indicated that you will get different results if the simulations incorporate the low interest rates of today. How are interest rates used in PRC's Monte Carlo simulations?

Pizza Man

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They aren't, directly. It relies totally on the ROR's and standard deviations that you associate with your asset classes. So, if you have an asset class tied to interest rates, then they're included to the extent specified via your asset allocations; otherwise, they're not included. With that said, though, all PRC analysis methods use the ROR associated with your cash account (specified on the asset allocation page) but it doesn't vary any during Monte Carlo analyses.