Regardless of how old you are, you are probably thinking about retirement and making sure you have enough money to sustain your lifestyle. Let's assume that all of us are doing so by investing in the stock market. What are the mathematical techniques we could use to estimate our retirement nest egg? One way to do this is to use a consistent, average market return over the last 90 years or so and a consistent annual investment. What are the limitations of that approach? Below is a graphic that shows annual stock market returns since 1921. Clearly, the market has not experienced consistent returns over the past 97 years!! The take-away is:
Retirement Nest Egg ($) = f(annual investment, stock market return)
You have control over the amount you invest but don't control market performance. How does a simulation assist us in addressing retirement planning?
Video: https://www.youtube.com/watch?v=7Ux-FB4OpTs
