Tuesday, February 21, 2006

401(k) Forecaster

So I've been meaning to get around to creating this for a while. The idea spawned from my search for a 401(k) calculator that didn't just assume one given future. By that I mean, I wanted a calculator that didn't calculate the return on my investment based on just one average annual return. I wanted a calculator that showed me lots of different futures, based on the standard deviation, a.k.a. the risk, of what I've invested my money in. I want to see the most pessimistic futures, you know the ones where all my investments bite the dust, as well as the most optimistic futures where everything is rainbows and bunny rabbits, as well as everything in between. So in that sense, I wanted a forecaster, not a calculator, similar to the hurricane landfall maps you see on the Weather Channel where the most likely landfall is that red wedge in the middle while wider is an orange wedge and even less likely is the widest yellow wedge. So last week I threw together this 401(k) forecaster that shows you the 10th through 90th percentile of the probable futures. The graph is based on several factors:

  • what you'll be putting into your 401(k),

  • what you're investing in and how it is expected to grow,

  • and what you'll be withdrawing once you retire.


So now you've looked at it and are wondering, what do all the lines mean? Well, you can read the graph several ways:

  • you have a 90% chance of doing better than the 10th percentile line,

  • 50% chance of doing better than the 50th percentile line,

  • and a 10% chance of doing better than the 90th percentile.


I think from that you start to see the pattern. Play around with the variables to see how different things change your forecasted outcome. Don't miss that you can right-click on the graph to print it and change the view. You can also drag on the graph to change the view window (though the logarithmic scale seems to be buggy, try it with the log scale turned off, under Chart Info). The graph is drawn using the free open-source library JFreeChart.