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
A simple straight calculation of retirment needs often ignores the randomness in the problem. It is generally thought that the following variables need to be modeled as random in order to get a more robust result.
- 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.