Disclosures:

Results Not Guaranteed. Past and simulated performance is not indicitive of actual performance. The IFA Retirement Income Calculator uses 10,000 Monte Carlo Simulations based on normal distribtuions of mean and standard deviations from back-tested 89 year data of IFA's Index Portfolios (see ifabt.com for important disclosure information). Initial inflation rate of 3% is based on 89 years of Consumer Price Index data. Simulation distributions are ploted for the 75th, 50th and 10th percentiles of each year in a simulated retirement scenario based on user assumtions.

Overview

This report is offered as a tool for helping individuals understand key factors in investing. The charts and graphs in the following pages are based on a Monte Carlo simulation method, which produces a range of estimated portfolio outcomes an investor may experience over a designated period. The scenarios are presented in terms of statistical probabilities, and the Monte Carlo method uses random number generation to create scenarios from the inputs provided by the individual. These inputs include age and time horizon, initial wealth, cash flow periods (savings and withdrawals), and average annual return and standard deviation (volatility) in various portfolios.

Specifically, the user designates a portfolio risk level, and the program generates returns from a normal distribution with a mean and standard deviation that are based on long-term historical data (at least 50 years).

As you read the report, keep in mind that Monte Carlo is not offered as a tool for forecasting market performance or determining a sustainable withdrawal rate during retirement. It does not reflect historical returns of any portfolio mix or asset class, and should not serve as a guide or substitute for ongoing management of wealth. The technique should be viewed as a framework for testing a variety of assumptions about investing and developing realistic expectations of possible outcomes.

Methodology

The Monte Carlo tool uses Monte Carlo simulations to generate normally distributed annualized portfolio returns based on the annual mean and standard deviation of the portfolio entered by the user. Monte Carlo generated portfolio returns are used to simulate the performance over time of an account. Each account is opened at year X with an initial investment of $W. The account is invested in a selected portfolio for Y number of years. Then withdrawals start. They are made at an annual frequency until the account is empty or until year Z. If the account becomes empty before year Z, final wealth equals zero, and survived periods equal the number of periods in which the account value (before withdrawal) is positive. If the account value is positive (before withdrawal) at year Z, survived periods equal Z-X years, and final wealth equals the final value of the account.

Disclaimer

Index Fund Advisors does not take the position that future returns can be forecast from past returns. Past performance does not guarantee future results. Nevertheless, compared to the alternative of speculating what future returns will be, IFA posits that long-term historical data provides a sounder basis for modeling investment outcomes over long periods of time (20 years or more). IFA is aware of other factors that may influence future returns such as current interest rates and other valuation measures. Nevertheless, IFA chooses to utilize only the historical data because attempting to model the other factors introduces an element of human judgment that IFA would prefer to avoid.

The projections or other information generated by the Monte Carlo tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. The Monte Carlo tool only presents a range of possible outcomes and does not represent a forecast or prediction of actual expected investment or financial outcomes. The accuracy of the model’s (estimated) output is solely dependent upon modeling assumptions and the information supplied by the individual and used by the advisor. There are limitations inherent in model results. In particular, model results do not represent actual trading or advisory fees and may not reflect the impact that material, economic or market factors may have had on an advisor’s decision making, if the advisor were managing actual client money. The performance and outcomes of the simulated accounts may vary with each use and over time as the client(s) investment objectives change, portfolio values change, the target portfolio allocation is revised, and/or other changes are implemented. Past performance is not an indication of future results, and there is always the risk that an investor may lose money. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This report is distributed for educational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products or services described.