Retirement planning 28 July 2026 7 min read

Monte Carlo for your pension: why one retirement number lies

Most retirement calculators hand you a single, confident figure: "you'll have £742,000 at 90." It looks precise. It is also, in a real sense, a fiction, because it assumes your investments grow by exactly the same percentage every single year. Markets have never once done that. Here is what a Monte Carlo simulation shows instead, and why "your plan works 88% of the time" is a more honest answer than any single number.

The problem with a straight line

A standard projection takes your growth assumption, say 5% a year, and applies it flawlessly from now until your end age. The result is a smooth curve and a single ending balance. The trouble is that the average hides everything that actually matters.

Two retirees can both experience a 5% average return over 30 years and end up in completely different places, because the order of those returns differs. The one who hits a bad run early, while drawing an income, can run out of money. The one who gets the same bad years later often sails through. Same average, opposite outcome. A single-line projection cannot show this, because it has no ups and downs to get in the wrong order.

What Monte Carlo actually does

A Monte Carlo simulation runs your exact plan many times over, thousands of times, and each time it deals out a different, random sequence of yearly returns around your growth assumption. One run might go +18%, -9%, +4%, -22%, +11% and so on. The next run gets a completely different shuffle. Excelergy runs 2,000 of these paths.

Then it counts. In how many of those 2,000 futures did your plan meet your spending every single year without running dry? If the answer is 1,760, your probability of success is 88%. That is the headline the planner gives you, and it is a fundamentally different, more useful statement than "you'll have £742,000."

A single projection answers "what happens if returns are exactly 5% forever?" Monte Carlo answers "how often does this plan survive real market ups and downs?" Only the second question is the one you actually care about.

How to read the fan chart

Below the success percentage, Excelergy draws a fan chart. Instead of one line, you get shaded bands showing the spread of outcomes across all 2,000 runs:

• The middle line is the median, the outcome with half the runs above it and half below.
• The darker band is the 25th to 75th percentile, the middle half of all futures.
• The lighter band is the 10th to 90th percentile, a wider "most of the time" range.

The fan almost always widens as it goes right, and dramatically so over decades. That flare is not a bug, it is the honest truth: the further out you look, the less certain the number, because small differences in early returns compound into enormous differences later. The planner also prints three end balances, the poor-market (10th percentile), median, and strong (90th percentile) outcomes, so you can read the range as pounds, not just a picture.

What 88% does, and does not, mean

An 88% success rate does not mean you have a 12% chance of ending up destitute. In most "failure" runs the money simply runs short in the final years, when a small spending cut, a downsizing, or the State Pension would plug the gap. The number is a stress gauge, not a prophecy. Useful ways to read it:

• Above ~90%: robust. Your plan holds up through most of the bad sequences history can throw at it.
• Around 75-90%: workable, but worth knowing your levers, a slightly later retirement, a little more saved, or flexible spending, all push it up fast.
• Below ~70%: fragile. The plan relies on markets behaving, which is exactly what you cannot count on.

The point is not to chase 100%, which usually just means you are underspending and will die with a large unspent pot. The point is to see the trade-off clearly and choose it deliberately.

Volatility: the dial that matters

The one input that drives Monte Carlo is volatility, how much yearly returns bounce around your average. Excelergy lets you set it. As a rough guide: a global equity portfolio sits around 12-15%, a balanced pension nearer 8-10%, and cash close to zero. Turn volatility up and the fan widens and the success rate usually falls, because a wilder ride means more chances to hit a damaging early slump. This is the honest cost of chasing higher returns, laid out in numbers.

Where Excelergy draws the line (for now)

Transparency is the whole point of this tool, so here is exactly what the current version does and does not do. It applies a single volatility to your pension and Stocks ISA together, treating them as one growth engine. It holds inflation and your Cash ISA at their assumptions rather than randomising them. And if you have set a one-off stress-crash, it switches that off during Monte Carlo so the shock is not counted twice. Randomising inflation and modelling separate asset classes with their own correlations are refinements on the roadmap, not silent omissions.

None of that changes the core lesson, which is the most important idea in retirement planning and the one most calculators hide: your plan is a range of possibilities, not a single number, and the sequence of returns matters as much as the average.