The number one question people ask as they approach retirement is: “Have we saved enough?” Can we retire confidently without running out of money?
In today’s podcast, we’ll explore how having a solid retirement plan can help you understand your likelihood of success—and the probability of avoiding a catastrophic financial shortfall.
I
Articles, Links & Resources:
Retirement Budget Calculator
Stanislaw Ulam
Monte Carlo Method
Michael Ulam
History of Monte Carlo Method
Stanislaw Ulam Biography
Transcript:
455 The Solitaire That Changed the World
Announcer: Welcome back America to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. And now here is your host, Jason Parker,
Jason Parker: America. Welcome back to another round of Sound Retirement Radio.
You’re listening to episode number 455. The title is The Solitaire That Changed the World. The number one question people ask as they approach retirement is, have we saved enough? Can we retire confidently without running out of money? In today’s podcast, we’re gonna explore how having a solid retirement plan can help you understand your likelihood of success and the probability of avoiding a catastrophic financial shortfall.
Before we get started, I’d like to start the day by renewing our mind, and I’ve got this verse for us from First Timothy chapter four, verse eight. For physical training is of some value. Godliness has value for all things holding promise for both the present life and the life to come. In the early 17 hundreds, a pirate spotted an enemy ship approaching.
He turned to his crew and he said, bring me my red shirt. His crew looked puzzled and said, why a red shirt? The pirate replied, because if I’m wounded in battle, the enemy won’t see me bleeding. A few weeks later, he spotted 10 enemy ships on the horizon. He turned and he said, bring me my red shirt and my brown pants.
Oh man, that joke really cracks me up. But let’s get into today’s episode. He was the kind of uncle that every family has charming, successful, always with a story to tell. He may have even shared a dad joke from time to time. He worked as an architect, made good money and he liked to live a little, but everything changed on a vacation overseas when he stepped into a grand old casino.
Velvet walls, soft lights, champagne glasses, clinking in the background that night, lit something up in him. The shuffle of the cards, the dash of the dice, the rush of a win. It was electric. At first it was just fun, but before long it turned into something more. He believed he could beat the system. He became obsessed, convinced he saw patterns that no one else could.
So he borrowed money from family. For one last trip. He was sure this time he’d walk away a big winner. The family doesn’t talk about what happened next, just whispers. But his story didn’t end there. It left a mark on a young man in the family, a nephew quiet. Brilliant a mine built for patterns, probabilities, and problems too big for most people to even comprehend.
Years later, while working on one of the most secret and dangerous projects of his time, the young man fell ill and required surgery. The recovery was slow, bored, and restless. He passed time with a simple game of solitaire, and that’s when the idea struck. What if you played out not just one hand of solitaire, but hundreds?
What if you track the outcomes of all those games? What if you used randomness itself to solve problems? Too complex for equations? Could playing hundreds of rounds of solitaire? Tell us about the probability of winning. I. The method took shape with the help of computers that were just beginning to emerge.
He knew that they could simulate these thousands of trials, but during World War II, while working on the Manhattan Project, this new method needed a code name, and that’s when he remembered his uncle, the gambler, the man who chased probabilities. And so this revolutionary technique was named, not after science or math, but after a casino where his uncle liked to visit.
Monte Carlo, a method born during the slow process of recovery from surgery and powered by curiosity about a game of solitaire, a technique now used in physics, architecture, engineering, and yes, even in retirement planning a. So the next time you’re at a summer barbecue party talking about retirement planning, you can impress your friends and tell them how the name of the Monte Carlo simulation came to be.
It all started with a gambling uncle, a game of solitaire, and a brilliant nephew who asked a good question. Some of the details in the story have been embellished, but at its core it’s true. A quiet recovery. An uncle who just had to go to the Monte Carlo Casino and a simple game of cards sparked the creation of one of the most powerful mathematical tools we still rely on today.
I’ve come to think that sometimes being forced to slow down is really an invitation to pause, reflect, and think more deeply than we otherwise might. I. And now the Monte Carlo method is available inside the retirement budget calculator. Many of you already use the calculator and you know that for a long time we’ve offered a deterministic approach to modeling different market conditions.
You can test your plan using historical returns. Bad timing scenarios based on real sequence of return data from the s and p 500 and intermediate term treasury bonds, or by assuming a constant rate of return, like a 4% annually to see how your cashflow plan performs under fixed assumptions. But increasingly, users have asked for something more dynamic.
A way to incorporate probability and assess how a plan might perform across thousands of potential futures. In response, we’ve added Monte Carlo analysis to the retirement budget calculator. The retirement budget calculator can run up to 1000 simulations of your retirement plan using your actual budget, projected taxes, historical market volatility, and assumptions about rebalancing the simulation randomly.
Samples from historical annual returns from 1978 through 2024. Based on your selected asset allocation, which could be 50% stocks, 50% bonds, 60% stocks, and 40% bonds, or 70% stock and 30% bonds. It runs multiple iterations using your current budget inputs and portfolio generating a range of potential outcomes.
Results are displayed across percentiles, the 10th, 25th, 50th. 75th and 90th percentiles providing insight into how your portfolio might perform under varying market conditions. The 10th percentile represents a more pessimistic outcome where only 10% of simulations performed worse, making a useful reference for potential worst case scenarios.
In contrast, the 90th percentile reflects a more optimistic outcome with only 10% of simulations performing better, highlighting a potential best case scenario. The 50th percentile represents the median outcome where half of the simulations perform better and half perform worse. You can think of these percentiles like a weather forecast.
The 10th percentile is a stormy weather. It’s tough market conditions, it’s pessimistic. The 50th is calm seas. A typical outcome in the 90th is sunshine with the wind at your back and unusually strong market performance. But we didn’t stop there. We also now calculate a retirement confidence score. A simple, intuitive way to gauge how resilient your plan is.
We run 1000 simulations using randomly generated market returns, and then measure how many of those scenarios successfully fund your lifestyle throughout your expected longevity. For example. If 100 of those simulations show your plan running out of money, that means 900 succeeded giving you a 90% retirement confidence score or a 90% chance that your plan stays on track.
You could also think of it this way. There’s a 10% chance that we’re gonna need to make some adjustments as you move through retirement. Whether you’re already retired or still planning ahead, Monte Carlo analysis gives you a new level of clarity, helping you make more confident decisions in an unpredictable world.
The next time you log into the retirement budget calculator, head over to the Retirement optimizer. This time, instead of clicking on the future view, check out the Monte Carlo tab. We may not be building nuclear bombs like they were during the Manhattan Project. But if your plan looks like it might run out of money, it’s better to know now than to have your financial future blown up later.
Announcer: Thank you for tuning in to Sound Retirement Radio. For articles, links, and resources from today’s show, visit sound retirement planning.com. If you enjoy the podcast, share it with a friend and give us a five star review. Ready to kickstart your retirement planning head over to retirement budget calculator.com.
Need assistance with. Investment management explore our services@parkerfinancial.net. Information and opinions expressed here are believed to be accurate and complete for general information only and should not be construed as specific tax, legal, or financial advice for any individual and does not constitute a solicitation for any securities or insurance products.
Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, its representatives or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance related discussions are subject to the claims paying ability of the company.
Investing involves risk. Jason Parker is the president of Parker Financial LLC, an independent fee-based wealth management firm. Located at 9 2 3 0 Bayshore Drive Northwest Suite 2 0 1, Silverdale, Washington. For additional information, call 3 6 0 3 3 7 2 7 0 1 or visit us online@soundretirementplanning.com.
