Percentiles show the distribution of outcomes across Monte Carlo iterations. The 10th percentile means 90% of scenarios did better — it represents the near-worst case. Retirement Lab displays bands from 10th to 90th percentile so you can see best-case, worst-case, and typical portfolio trajectories at a glance.
A percentile is a value below which a given percentage of Monte Carlo simulation outcomes fall. In retirement planning, percentiles transform thousands of individual simulation paths into interpretable bands that visualize the range of possible portfolio outcomes over time.
How It Works
After running all iterations, the simulation sorts portfolio values at each time point and extracts key percentiles:
| Percentile | Meaning | Use |
|---|---|---|
| 10th | 90% of scenarios did better | Near-worst case |
| 25th | 75% of scenarios did better | Pessimistic but plausible |
| 50th (median) | Half did better, half worse | Typical outcome |
| 75th | Only 25% did better | Optimistic scenario |
| 90th | Only 10% did better | Near-best case |
The range between the 10th and 90th percentiles is the 80% confidence interval — 80% of all simulated scenarios fall within this band.
Why It Matters for Retirement Planning
Percentile bands provide information that a single success rate number cannot:
- Shape of failure: Does the 10th percentile portfolio deplete in year 15 or year 28? Both count as "failure" in the success rate, but the planning implications are vastly different.
- Upside potential: The 75th and 90th percentiles show how much wealth might accumulate in favorable scenarios — relevant for legacy planning or deciding whether to increase spending.
- Spending decisions: If the median outcome shows $2 million remaining but the 10th percentile shows depletion, a dynamic spending strategy that adapts to actual portfolio performance is clearly preferable to a static withdrawal.
The visual fan chart of percentile bands — widening over time as uncertainty compounds — is one of the most powerful tools for understanding retirement risk. It shows at a glance how much the range of outcomes grows as the time horizon extends.
Frequently Asked Questions
- What percentile should I focus on for retirement planning?
- Most planners focus on the 10th or 25th percentile — the worst-case scenarios. The median (50th percentile) tells you the typical outcome, but retirement plans fail in the tails, not the middle. If your 10th percentile portfolio value stays above zero through the end of your planned retirement, your plan has roughly a 90% success rate.
- What is the difference between a percentile and a confidence interval?
- A percentile is a single threshold (e.g., '90% of outcomes fall above this value'). A confidence interval is a range between two percentiles (e.g., 'the 10th to 90th percentile range contains 80% of outcomes'). Retirement Lab displays both: the percentile bands show the range of outcomes, and the success rate summarizes the key threshold.