**Meaningful measures of simulated
performance**

The Problem The Solution: TIP$TER Case Studies Sample Reports Download TIP$TER TIP$TER User Guide Support

**It's not how well-off
you will be when you die; it's how well you live!**

What is the best way to measure the simulated performance of a financial plan? Your terminal wealth – the amount of money you leave behind to others when you die?

Or is the best way
to measure the simulated performance of a financial plan the *average
retirement budget *that those simulations support?

Many financial simulators assume that the purpose of financial planning is to amass as much wealth as possible to leave to others when you die. Those simulators emphasize statistics about your "terminal wealth" at the end of the simulation and produce graphs that show you how the size of your simulated portfolio varies over time.

But hardly any
simulators produce graphs showing you how your *retirement budget *
varies over time. That is, in part, because most simulators assume you
would maintain a fixed retirement budget, no matter how good or bad your
simulated portfolio performs.

TIP$TER, by default, assumes that your would maintain a variable retirement budget, one that would increase to take advantage of unanticipated good performance, and decrease to defend your portfolio – and your financial security – from unexpected poor performance. (For more information on TIP$TER's variable retirement budget parameters, see the next section).

So TIP$TER
graphs *both *the simulated size of your retirement budget, over time,
and the corresponding size of your portfolio.

Moreover TIP$TER's
signature measure of simulated performance is the *average retirement
budget* a simulation trial supports, and more particularly, the *median
*of those average retirement budgets across multiple simulation trials.

For
every simulation trial,
TIP$TER computes the average size (weighted by your life expectancy data –
see below) of your retirement budget. TIP$TER then ranks the
simulation trials by these average retirement budget values. TIP$TER
also identifies, and displays, the series of retirement budgets (along with
the corresponding portfolio sizes) supported by the 5%, median, and 95% *
so-ranked *simulation trials.

**Outcomes are
actuarially-adjusted**

TIP$TER factors actuarial statistics into almost all of its calculations. For example, the simulated probability of you outliving your portfolio (i.e., the "Shortfall Risk") is weighted by the probability that you or your spouse, if any, would be alive at that time to suffer the shortfall. The Shortfall Risk also includes the probability that you or your spouse, if any, would live past your targeted portfolio duration.

TIP$TER also calculates a "life-weighted" average retirement expenditure amount from a simulated series of withdrawals, so that early withdrawals are weighted more heavily than withdrawals near the end of the simulated time span. TIP$TER also uses mortality statistics to project how much you are likely to leave your heirs if you pursued your specified retirement plan.

Next: True-to-life simulation of retirement budgets

Previous: Uses transparent, realistic equity return models