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Hoadley Retirement Planner
Retirement Planning Software

The Hoadley Retirement Planner uses Monte Carlo simulation to examine the range of possible outcomes of a savings and investment strategy and the likelihood of being able to achieve standard of living goals during retirement.

The key to effective retirement planning is to avoid focussing solely on expected returns. Instead, the risks of a given strategy should be explicitly modelled to highlight the probability of being unable to meet planned expenditures during retirement.  If the risk is unacceptably high then changes should be made to the plan --  such as altering the investment portfolio's asset allocation mix to reduce volatility --  to improve the odds of success. 

The Hoadley Retirement Planner lets you model both the risks and returns of a long term savings and investment plan taking into account planned expenditure during retirement.  Because the Monte Carlo simulation is very fast (around one second for 20,000 iterations),"What if" scenarios can easily be prepared to see the impact of varying key inputs such as inflation, expected return, volatility, and spending during retirement. 

Unlike most retirement planning software applications which simply calculate an expected median balance for each year of the plan as if these returns are a sure thing, the Hoadley Retirement Planner lets you drill down by year to reveal the expected distribution of the balances. Highlighting the range and probability of outcomes should be a key objective of any retirement plan.
 

To use the Hoadley Retirement Planner you first define one or more investment accounts and specify their initial balances.  Usually at least three accounts would be defined, covering taxable, tax deferred and tax free investments.  But these categories are not fixed and other types of accounts can be set up by configuring the way investments and withdrawals from accounts are to be taxed.

Other inputs, all of which can vary over time, include annual contributions to investment accounts, expected average investment returns and volatilities, other income, such as pensions and annuities expected during retirement, and anticipated expenditure levels during retirement. Dollar inputs, such as annual savings or retirement spending, can be optionally indexed for inflation.
 

Strategic asset allocation, which determines the overall portfolio return and volatility, is the most important part of any retirement plan.  To help the user with this process the Retirement Planner includes a "Performance Estimation" worksheet.  The worksheet provides a simple way of examining various asset allocation strategies from conservative to aggressive.  The overall portfolio return and volatility is calculated for each asset allocation strategy and compared with the most "efficient" combinations of assets from an efficient frontier constructed from the same inputs. 

There is no silver bullet for arriving at an appropriate strategic asset allocation. But the performance estimation worksheet can be a valuable aid in understanding the implications of asset allocation decisions on portfolio returns and volatilities, and in selecting an efficient mix of asset classes -- the highest return per unit of risk  --  commensurate with the investor's risk tolerance.
 

Funds or plans which follow a "glidepath" strategy (eg lifecycle or target-date funds) where the strategic asset allocation is varied over time -- usually to reduce the proportion of higher risk asset classes as the retirement date approaches -- are easily handled by the Retirement Planner.

Recently, however, a number of researchers and advisors have challenged the conventional wisdom of glidepath asset allocation strategies. Given the widespread, almost unquestioning, adoption of the glidepath approach to retirement planning, a set of examples is included with the Retirement Planner so the risks and returns of adopting a glidepath strategy can be easily compared to other strategies such as those based on constant asset allocation.

Detailed notes included with the Retirement Planner cover how to run glidepath simulations and how to relate the results to key findings from recent research in this area.
 

The Median portfolio balances chart shows the balance of each investment account over the life of the plan.  All outputs are adjusted for inflation and shown in today's dollars.

To reveal the uncertainty (risk) associated with the plan, each bar on the chart, which represents the balances for each account as at a specific age, can be expanded to show the probability distribution of these balances.  The account balance distribution chart (example below) is the key to understanding the risks (both downside and upside) of the plan. 

The example below is a cross section of the same retirement plan shown above for the bar representing the median balance at age 64.  It clearly highlights the wide range of possible outcomes (from $373,000 to above $1,998,000 in the example below) at age 64.  The higher the volatility of the portfolio, the lower the median balance and the wider the range of outcomes.

The distribution chart can also be shown as a cumulative probability chart. This lets you see at a glance the proportion of balances expected to be below a specific value.  For instance the chart below, which is the cumulative version of the chart above, shows that at age 64 there is a 20% chance of the total of fund balances being below $715,000.

The probability of the plan failing is also calculated by the software.  This represents the likelihood of being unable to fund all expected expenditure during retirement.

Finally a summary for each year of the plan can be displayed showing cash in and out and the total portfolio balance at the end of each year of the plan.  Yearly portfolio balances are split into three percentile groups: 10th percentile (there is a 10% chance that your balance will be equal to or lower than the 10th percentile at a given age); median (ie 50th percentile); and 90th percentile (there is a 10% chance that your balance will be greater than the 90th percentile).
 

The Hoadley Retirement Planner requires Microsoft Excel (32-bit or 64-bit) running under Microsoft Windows.  For detailed systems requirements, including supported versions of Windows and Excel see systems requirements.

The Hoadley Finance Add-in for Excel version 10.1p or later must be installed before using the Hoadley Retirment Planner.
 

The Hoadley retirement planning software is free but requires the full version of the Hoadley Finance Add-in for Excel.

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