# EU, Monte, David Blanchett discussed on The Ray Lucia Show

### Automatic TRANSCRIPT

And to create this scenario his firm use monte carlo simulations a risk indecision analysis technique that evaluates the outcome of portfolios overtime using a large number of samples this mathematical process goes on uh considers variables such as initial portfolio value withdrawal rate inflation expected return standard deviation among other liberals which may affect portfolio outcome now remember he's plugging in historical inflation and historical spending as it relates to that inflation and this is where i disagree because of what we just cover the spending will not go up at the same rate of inflation the spending inflation rate may be higher but the nominal spending will be lower and if he has spent two and a half percent less each year and you factor in inflation at three percent you'll need to increase your income by a half a percent per year right not percent com pounded forever even though if you're spending three or four percent less because of the lowering of spending in your later years here actual net after inflation spending declines until you get into the last several years of your life when healthcare goes through the ceiling that's why we've dubbed it i'd have endeavoured i can't take any credit for this i was the guy at the morningstar david blanchett wrote about their retirement smile where you're spending goes down it flattens out and the very last year's it starts to go up like a smile think about that and utilizing this analysis tool he found the chances of running out of money during retirement today is more than ten times greater than it was 10 years ago for the scenario of the individual retiree in two thousand and five eu's the seven and a half percent expected rate of return 5 percent withdrawal rate and adjusted for three percent inflation the result was a two point four percent failure rate this means only one in forty people would have run out of money during.