How to read a retirement projection (and spot red flags)
A retirement projection shows one possible future. Learn to read the numbers, understand confidence levels, and avoid common traps.
What a projection actually shows
A retirement projection estimates how your portfolio might behave over time. There are two main types: deterministic (single path) and Monte Carlo (probabilistic). Monte Carlo runs thousands of paths and is far more honest about uncertainty.
Key numbers to read
| Number | What it means | What to look for |
|---|---|---|
| Success rate / Probability of success | % of simulated paths that don’t run out of money | 80–95% is reasonable. >95% often means over-saving. <80% means tight. |
| Median ending value | Middle outcome (50% better, 50% worse) | Useful sanity check. Don’t focus only on the mean. |
| 25th–75th percentile | The “likely” range | Focus here more than best/worst. |
| 5th percentile / Worst-case | A bad but plausible outcome | Ask if you could survive this with flexibility or buffers. |
| Shortfall year (if any) | When paths typically run short | Earlier shortfalls (years 1–10) are most concerning. |
| Withdrawal rate | Starting % withdrawn | 3.5–4.0% for most; lower for long horizons. |
| Real vs nominal | Inflation-adjusted or not? | Real (today’s money) is correct for lifestyle planning. |
Check the assumptions first
Before trusting results, verify the inputs. They’re the biggest driver.
| Assumption | Good range | Red flag |
|---|---|---|
| Inflation | 3–4% long-term | Missing, or <2% for multi-decade plans |
| Real return (after fees) | 4–5% for balanced portfolio | 6–8% real (very optimistic today) |
| Fees | 0.1–0.6% | Missing or >1% |
| Asset allocation | 40–80% equities | 100% equities with no explanation |
| Spending | Based on tracked spending | Using gross income; no healthcare buffer |
| Horizon | To 90–95 for early retirees | Too short (to 80) |
| Taxes | Acknowledged/modelled | Completely ignored |
Spotting red flags
- “100% success rate” — usually hides downside or uses mean-only returns.
- Only “best case” shown — honest tools show the full range.
- No inflation adjustment — misleading for long horizons.
- No sequence risk shown — bad early returns are the killer.
- Unrealistic returns — 8–10% real with no caveats is implausible.
How to interpret the results
- Start with success rate. Under conservative assumptions, aim for 80–95%.
- Look at the worst plausible case. Could you survive the 5th percentile by cutting discretionary, working part-time, or using a cash buffer?
- Test sensitivity. Try +1% inflation, -1% return, or +₹1–2 lakh/year healthcare spend.
- Check sequence risk separately. Use the Sequence of returns tool to see good-early vs bad-early.
- Focus on resilience, not precision. A plan that survives stress is better than one that looks perfect on a single line.
Bottom line
Don’t read a projection as a forecast. Read it as a stress test. Focus on probability, resilience, and flexibility over hitting an exact number.