Instead of assuming one fixed return, this runs 1,000 simulations with randomized market years to estimate the probability your savings last through retirement. It captures sequence-of-returns risk a simple projection hides.
A standard retirement projection assumes one fixed return every year, say 7%. But markets don't work that way. They swing, and the order of good and bad years matters enormously. A Monte Carlo simulation runs your plan through 1,000 different random sequences of returns, so you see not just an average outcome but a probability your money survives.
The biggest danger in early retirement is a market crash in your first few years. Withdrawing from a shrinking portfolio locks in losses you never recover from. Two retirees with the same average return can have wildly different outcomes purely based on when the bad years hit. Monte Carlo captures this by testing thousands of orderings.
The headline number is the percentage of simulations where your money lasted the full period. Many planners aim for 80% to 95%. Push too high and you may be underspending a retirement you worked hard for; too low and the risk of running out grows. The right target depends on how flexible your spending can be if markets disappoint.