Three Core Ways to Project Retirement Success — and How They Compare
If you’ve ever asked, “Will I run out of money in retirement?” — you’re not alone. It’s one of the most common (and most important) questions people ask.
To answer it, financial planners and DIY’ers use different types of retirement projections. Each method takes a slightly different approach, and depending on which one you use, your results — and your peace of mind — can look very different.
In this guide, we’ll walk you through the three main ways to project retirement success:
Straight-Line Projections (The Spreadsheet Method)
This is the classic retirement projection and often people start here.
Straight-Line Projection can be as simple as running a projection of investment growth and estimated expenses or as complex as including assumptions on future income like social security, advanced tax methodology, and estate planning.
The Straight-Line Projection Method provides a simple to understand output in a graph showing your money rising or falling over time. If it hits zero before you die — that’s a problem.
Good ✅
Not So Good ❌
Straight Line Projections are great for quick estimates and testing ideas. However, their big flaw is that they assume life is smooth.
In life and in retirement, while we try to reduce the bumps along the way, markets will inevitably crash, inflation may be higher than expected, and health might not be what you expected.
The Funded Ratio
The Funded Ratio is similar to the Straight-Line Projection but with a twist.
This method adds up everything you’ll likely need in retirement like expenses for housing, food, fun (adjusted for inflation), then compares it to everything you have (your investments, future incomes like Social Security, etc.). These projections are done using fixed assumptions similar to the Straight-Line Method.
The expenses are called liabilities and the things you have are called assets.
But rather than looking at asset projections to determine success, it simply divides the assets by the liabilities. The resulting ratio then gives you your answer:
- Over 1.0 = You’re more than covered
- Exactly 1.0 = You’re right on track
- Below 1.0 = You may need to adjust
Spending $90,000 per year results in an 86% funded ratio.
You need to either increase your assets or decrease your spending.
Spending $60,000 per year results in an 110% funded ratio.
You can spend more in retirement or leave a larger legacy.
Spending $76,000 per year results in an 100% funded ratio.
You are on track to fully utilize your future assets and income
It’s fairly easy to see if you are on track with these charts. Mine have a little more data than others which can be as simple as the ratio. It is also interesting to see how large income assets like social security can be or how various expenses can accumulate over a lifetime.
However, the downside of this is that it is still based on straight line assumptions and does not include variability.
Monte Carlo Simulation
Real life is unpredictable — especially the stock market. Returns can be great or there can be long periods of drawdown.
The Monte Carlo Method uses simulations to help you plan for that uncertainty by running your retirement through hundreds or even thousands of possible market outcomes, from great returns to major downturns.
Instead of showing one fixed result, Monte Carlo allows you to analyze the results of all of the scenarios to draw out conclusions.
It’s like a financial stress test — helping you see not just if your plan works on average, but how well it holds up in tough times.
Most commonly, it will give you a success rate: “In 90% of the scenarios, your money lasted through retirement.” What this means is that out of 1,000 trials, 900 were successful but 100 ran out of money by the target age.
This number is a summary of the output which looks like many projection lines as show here.
But these charts are often simplified to this type of view which summarizes likely ranges.
Monte carlo is great at projecting how variability can impact your plans. Good monte carlo projections can also help design a plan that is more resilient by structuring retirement income and assets more appropriately in times when they are needed most.
The downside to monte carlo is that it is more difficult to understand and the results feel less certain.
What does a 90% chance of success mean? What about the other 10%?!? Should you be concerned about that?
These are great questions and a conversation that is unique to each client.
I have written a few articles on Monte Carlo:
Should You Aim for 100% Success in Monte Carlo Retirement Simulations? – Gilbert Wealth
From Risk to Resilience: How to Build a Strong Plan for an Uncertain Future – Gilbert Wealth
How Flipping Coins Helps You Make Better Financial Decisions – Gilbert Wealth
So… What Should You Use?
Honestly? The best answer is: a mix of all three.
- Start with straight-line to get a basic feel for how things look.
- Use funded ratio to get a quick “on track or off track” score.
- Bring in Monte Carlo when you want to see the full range of what could happen — and how likely it is that your plan will hold up.
By combining them, you get the best of both worlds: clarity and realism.