Adding Randomness

Overview

In order to make retirement models robust, and to be able to answer more sophisticated questions about retirement requires adding randomness to the model.

Random Variables

• Years of Retirement - the number of years of retirement is unknown. The lifespan of any individual is unknown. THis typically means that one can only calculate the probability that a given portfolio will last for the remaining life of the retiree.
• Random Asset Returns - probably more unpredictable than the lifespan of the individual are the returns that that individual will achieve with their savings.