Expected average annual retirement budget:
TIP$TER’s simulation engine calculates the expected average annual retirement budget that your diversified portfolio would support. TIP$TER simulates your portfolio thousands of times. Each simulation produces a series of annual retirement budgets over the life of your portfolio, based upon your “Retirement Spending Plans” inputs and the simulated performance of the stock portion of your portfolio. After completing these simulations, TIP$TER identifies the median (or middle-ranked) retirement budget for each year of the life of the portfolio. TIP$TER then calculates the “life-weighted” average of this blended series of median retirement budgets. That is, the median retirement budgets are each given a weight proportional to the probability that the investor or investor's spouse, if any, will be alive to spend it. TIP$TER then displays the computed average as “Expected Average Annual Retirement Budget.”
Put another way, the displayed value is the average, weighted by the joint survival probability of the investor and his/her spouse, of the median retirement budget/year for each year of the simulation. Approximately 50% of the simulations produced a life-weighted average retirement budget greater than or equal to this value. Approximately 50% of the simulations produced a life-weighted average retirement budget less than or equal to this value.
NOTE: The displayed value will often be slightly different from the life-weighted average of the median series of retirement budgets – which is a slightly different statistic. TIP$TER displays the life-weighted average of the median series of retirement budgets on the “Draw” chart when you select “Choose your own Percentile” on the simulation charts, and select the 50 percentile series.