TIP$TER is a free patent-pending financial planner, retirement calculator, and portfolio simulator. It is designed to develop a plan of savings and an appropriate asset allocation (between stocks and inflation-adjusted bonds) to meet one's financial goals.
TIP$TER computes the sustainable retirement budget that the amortization of all of an investor's current and future anticipated assets and income sources (e.g., Social Security, pensions, reverse mortgage, etc.) would support, assuming that the investor invested all of his assets in government inflation-indexed bonds. (See sample figure). Then, against this least-risk baseline, TIP$TER simulates the range of retirement budgets that a more conventional portfolio, divided and annually rebalanced between inflation-indexed bonds and stocks, would support. (See sample figure).
TIP$TER simulates the stock portion of a planned portfolio against 1692 rolling intervals of a looped set of 141 years (spanning Jan. 1871 to Dec. 2011) of real S&P 500 return data. The historical data is first scaled to match your expected forward looking long-term annualized real return for the stock market, and then used to simulate your portfolio. TIP$TER also provides other simulation models (including Monte Carlo) with which to stress-test a financial plan.
TIP$TER's approach to financial planning distinguishes it from virtually every other financial planning simulator. TIP$TER is, fundamentally (and unlike other planners), structured upon the two most important concepts in finance: the risk-free rate and the expected risk premium. See What is a Reasonable Equity Risk Premium? By focusing on the expected risk premium, TIP$TER's simulations are inherently forward looking and anchored in economic reality. By contrast, as discussed in the "Problem" section, many simulators unrealistically assume double-digit returns in perpetuity. Also, by comparing the simulated performance of a mixed portfolio to a baseline portfolio that grows with the risk-free rate, TIP$TER gives investors and financial planners something the other simulators fail to do – meaningful insight into choosing a stock/bond asset allocation.
TIP$TER also generates sharp, graphically-rich reports that you can generate for yourself, or that professionals can generate for their clients.
Don't simulate a financial plan on the faint hope that future stock market performance will resemble the halcyon performance of the past. Anchor your equity return expectations in reality. And compare those projections to a low-risk, inflation-indexed-bond-portfolio baseline.