Personal Finance (Not Investing) • Change in Empower Dashboard Personal Capital's Retirement Forecast

...the change is the result of adjusting the return, risk, and correlation assumptions used in the Monte Carlo simulation. Previously, the asset class performance was based on long-term historical returns, but going forward it will be based on Morningstar’s forward-looking assumptions. This resulted in a small bump in probability of success as the US and International Equity essentially now have a slightly higher assumed return and slightly lower standard deviation (measure of volatility).

This was done as the previous methodology had some drawbacks, notably that assumptions tended to go up in bull markets but down in bear markets, which from a valuation perspective may be counterintuitive. Morningstar has a robust global capital markets team with capabilities to provide more thoughtful predictions leveraging current interest rates and valuations. Because the Retirement Planner takes a multi-decade view, we are using Morningstar’s “unconditional very-long-term” assumptions, which do change year to year but are more consistent than their shorter-term assumptions.

I hope this was helpful. Even though it seems strange to see the chance of success go up in a seemingly artificial way, know that there are other part of the Retirement Planner are still set conservatively. We still reduce assumed performance by 1% to be conservative and also use a base inflation rate of 3.5% for expenses.

Statistics: Posted by gavinsiu — Wed Mar 13, 2024 6:22 am — Replies 2 — Views 198