How Retirees Can Lose as the Gamification of Monte Carlo Analysis Proliferates

Barron’s published a great article in which Jeff Brown and Income Lab co-founder Johnny Poulsen argue that gamification of Monte Carlo probability of success results “may be creating misdirected incentives in retirement planning.”

Here a few of the main points:

• Gamifying toward a 100% probability of success means restricting income—and ultimately standard of living—to accommodate a worst-case scenario that is (a) highly unlikely to occur and (b) could be better managed with minor changes in spending habits along the way.
• Instead of relying on oversimplified and gamified probability of success, advisors should consider using retirement planning tools that help individuals arrive at realistic income levels and adjustment plans.

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Justin Fitzpatrick, PhD, CFA, CFP

Justin Fitzpatrick is President and Co-Founder of Income Lab, retirement income planning software used by thousands of financial advisors. He developed the guardrails-based approach to retirement income distribution after a decade in financial services at Jackson and seven years in academia at MIT, Harvard, and UCLA. His research on adjustment-based planning has been published on Kitces.com, ThinkAdvisor, AdvisorPerspectives, and FinancialPlanning Magazine.

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