How to Run a FIRE Simulation and Stress-Test Your Plan

To run a FIRE simulation, you enter your portfolio, annual spending, asset mix, retirement length and other income into a tool that replays your plan through many possible market paths. Historical backtesting uses every real starting year on record. Monte Carlo uses thousands of randomized ones. The output is a success rate, the share of paths where the money lasted, plus a spread of ending balances. Use it to find where your plan breaks, then add flexibility until you’re comfortable with the result.

This guide shows you how to set the inputs honestly, how to read the result without panicking at it, and what to change when the number comes back low. It’s education, not a recommendation about your particular plan.

Why a single average return isn’t enough #

Most calculators assume a steady return, 7% every year. Real markets never deliver that, and in retirement the order of good and bad years matters as much as the average.

Here’s a real example built from actual S&P 500 total returns (NYU Stern data). Take a $1,000,000 all-stock portfolio. Withdraw $40,000 in the first year and raise it 3% every year after that. Then run the actual returns from 2000 through 2025, which averaged 8.0% a year compounded:

• In the real order (starting with the 2000 to 2002 crash, then 2008): the portfolio runs out in year 24.
• In reverse order (same 26 returns, good years first): it ends with about $4.4 million.

Same average, same spending, and in one order the money runs out while in the other it ends with $4.4 million. That’s sequence of returns risk, and a simulation exists to show you how exposed your plan is to it. Real retirees usually hold bonds and adjust spending, which softens both outcomes, but the point stands. Our deeper look at sequence of returns risk covers the defenses.

Step 1: Gather honest inputs #

A simulation can only be as good as what you feed it.

• Investable portfolio. Retirement accounts, taxable brokerage, HSA, and cash earmarked for spending. Leave out your home unless you truly plan to sell it.
• Annual spending. Base it on what you actually spend, not a hoped-for budget, and add things that come less than yearly: cars, roofs, dental work. Before 65, include health insurance at a realistic, unsubsidized price as well as the subsidized one.
• Asset allocation. Your stock/bond/cash split. Most tools also let you choose U.S. versus international.
• Retirement length. For early retirees, plan to 95 or 100. Retire at 40 and that’s 55 to 60 years, nearly double the 30 years classic studies used.
• Other income, with start dates. Social Security (get your estimate at ssa.gov), pensions, rental income, part-time work. Each one reduces what the portfolio has to cover once it starts.

Step 2: Choose historical backtesting or Monte Carlo #

Use both if you can. If a plan passes history but fails Monte Carlo at your chosen assumptions, or the other way around, that tells you where it’s fragile. Free web tools cover both methods; we compare several in the best free FIRE calculators.

Step 3: Set the assumptions that move the result most #

• Returns. If the tool asks for an expected return, use something below history rather than above it. The S&P 500’s inflation-adjusted return from 1928 through 2025 averaged about 6.8% a year compounded, and a diversified portfolio with bonds will expect less.
• Inflation. U.S. inflation averaged about 3% a year over the same span, but run a scenario at 4% to 5% for a decade to see how much it hurts.
• Fees. A 1% advisory fee on a 4% withdrawal plan means you’re really withdrawing 5%. Enter fees if the tool supports them.
• Taxes. Many simulators ignore taxes. If most of your money is in traditional 401(k)s and IRAs, raise your spending input by your expected effective tax rate.

Step 4: Read the success rate correctly #

A 90% success rate means 90% of simulated paths ended with money left. The 10% that “failed” usually did so late, in year 45 of a 50-year plan, and only because the model assumed you kept spending the same inflation-adjusted amount while your balance fell for decades. Real people cut back long before that.

So don’t aim for 100%. A plan that survives every possible path usually means working several extra years to guard against a disaster you could handle with a 10% spending cut. Many planners treat 80% to 95% as a reasonable zone, provided you have a plan for the bad paths.

Look at the median, too #

The median ending balance often tells a surprising story. In most historical paths, a retiree who started at a 4% withdrawal rate ended with more money than they started with, sometimes several times more. If your median outcome is enormous, you may be able to spend more, retire sooner, or build in raises for good years.

Look at the worst 10% #

Check when the bad paths start going wrong. If failures cluster in paths with a crash in the first five years, that points you to the fix: a cash or bond buffer for those years, or a spending floor you can live on.

Step 5: Change one thing and run it again #

Test adjustments one at a time so you know which one helped:

1. Spending flexibility. Tell the tool you’ll cut 10% to 20% after a big drop. Most plans improve sharply.
2. Guardrails or variable withdrawals. Switch from fixed inflation-adjusted withdrawals to a percentage-of-portfolio method such as variable percentage withdrawal.
3. Part-time income. Add $15,000 to $25,000 a year for the first five to ten years (Barista FIRE). Early income protects the years that matter most.
4. A lower starting withdrawal rate. For 40- to 50-year retirements, many researchers suggest starting closer to 3.25% to 3.5% than 4%. See whether the 4% rule holds up for 40 years.
5. Delayed Social Security. For many people, a larger inflation-adjusted benefit later reduces the late-life risk.

Where Retire Goals fits #

Retire Goals runs a Monte Carlo simulation on the saving side of the plan. Each goal is put through hundreds of randomized return sequences on your phone, and you get the probability of finishing at or above your target, with a plain verdict: very likely, on track, could go either way, or needs a bigger push. Volatility is inferred from the return you expect, and the same plan always produces the same number. The free version shows the probability. The one-time Pro upgrade adds the pessimistic, median and optimistic range on every goal.

For the spending side, its Will My Money Last calculator takes your portfolio, first-year spending and an expected return, and simulates the drawdown month by month with yearly inflation raises. It reports how many years the money covers and what you could spend to make it last thirty. It uses a single expected return rather than random paths, so pair it with a historical backtester when you want to test specific bad decades.

Frequently asked questions #

What is a good success rate for a FIRE Monte Carlo simulation? #

Many planners are comfortable in the 80% to 95% range for early retirees, as long as there’s a plan to cut spending or earn some income on bad paths. Chasing 100% usually means over-saving for scenarios you’d adjust to anyway.

What is the difference between backtesting and Monte Carlo? #

Backtesting replays your plan through actual past market sequences, so it includes real events like 1929, the 1970s and 2008. Monte Carlo builds thousands of random sequences from assumed averages and volatility, which tests more combinations but depends heavily on those assumptions.

Should I include my house in a retirement simulation? #

Usually not. Home equity doesn’t pay for groceries unless you sell, downsize or borrow against it. Include it only if a sale is part of the plan, and then as a one-time cash inflow in the year you expect it.

How do I account for Social Security in a FIRE simulation? #

Enter it as income starting at the age you plan to claim, using the estimate from your my Social Security account. If you retire very early, your estimate may assume you keep working until claiming age, so lower it to reflect years with no earnings.

How often should I rerun my simulation? #

Once a year, and after any big change: a market crash, a new expense, a move, or a change in when you’ll claim Social Security. Each rerun tells you if you’re still on track or need an adjustment.