Our Methodology

Most retirement calculators show you a final portfolio balance. That number is meaningless. What matters is: How much can I spend each month, in today's dollars, with confidence?

Sagery inverts the traditional approach. Instead of asking “Will my $2.3M portfolio last?”, we ask “What income stream will this portfolio sustainably generate?” We convert your assets into after-tax monthly purchasing power across multiple market scenarios—bull markets, bear markets, and genuine tail risks. This gives you the clarity David (and every prudent retiree) deserves.

Why after-tax? Because a pre-tax $5,000/month projection is useless if taxes consume $1,200 of it. We calculate federal brackets, state taxes, RMDs, and Roth conversions. The number you see is the money you can actually spend.

What Is a Monte Carlo Simulation?

A Monte Carlo simulation runs 1,000+ synthetic market futures to show you the range of possible retirement outcomes. Each simulation:

• Randomly samples annual returns from a statistical distribution
• Applies your withdrawals and tax calculations
• Tracks your portfolio month-by-month until age 100 (or depletion)
• Records your sustainable monthly income for that scenario

Why This Matters

A single “average” return (say, 7% annually) hides catastrophic risks. Sequence of returns matters. A 40% crash in year 1 of retirement is devastating—you withdraw when prices are low, locking in losses. Monte Carlo shows you this explicitly: the 10th percentile outcome (1 in 10 bad luck), the 50th (median), and the 90th (best luck). You're not betting on average; you're hedging against the bad scenarios.

The Four Simulation Models

Sagery offers multiple statistical models. Each makes different assumptions about market behavior:

Percentile Interpretation

After 1,000 simulations, we rank outcomes by your sustainable monthly income:

• 10th percentile: Your income in the worst 10% of market scenarios (roughly 1 in 10 bad luck)
• 25th percentile: Bottom quarter—conservative, but still optimistic
• 50th percentile (median): The middle outcome. Half the time you'll be better off, half worse
• 75th percentile: Upper quarter—lucky markets
• 90th percentile: The best 10%—windfall scenarios

David's rule: Expect the 25th–50th percentile, hope for higher, prepare for the 10th.

Key Assumptions in Our Model

• Mean Equity Return: 7% nominal (historical S&P 500 long-term average)
• Mean Bond Return: 3.5% nominal
• Equity Volatility (Std Dev): 15% annually
• Inflation: 3% annually (adjusts withdrawals and tax brackets)
• Correlation (stocks–bonds): 0.15 (weak; they move somewhat independently)
• Rebalancing: Annual (maintains target allocation)

Federal Income Tax Brackets (2026)

We calculate federal tax using 2026 IRS brackets (updated annually). Here's the logic:

Income Categories & Sources

Different income types are taxed differently. We track:

• Wages / Job Income: 100% ordinary income, subject to federal brackets
• Social Security: 0%, 50%, or 85% taxable (depends on combined income threshold)
• Traditional IRA / 401(k) Withdrawals: 100% ordinary income
• Roth IRA Withdrawals: 0% taxable (tax-free in retirement)
• Taxable Brokerage (Capital Gains): Long-term rate (0%, 15%, 20% for gains held 1+ year)
• Qualified Dividends: Long-term capital gains rates (0%, 15%, 20%)

State Income Tax

State tax varies by residence. You select your state; we apply the 2026 tax code:

• No State Tax States: AK, FL, NV, SD, TN, TX, WA, WY (0% rate applied)
• Flat Tax States: IL, IN, KY, MA, MI, NC, PA (single % rate)
• Progressive Tax States: CA, NY, OR, VT, etc. (brackets like federal)
• Special Rules: Some states exempt retiree income (federal pension, military), others tax all ordinary income

Required Minimum Distributions (RMDs)

At age 73 (changing to 75 in 2033), federal law requires you to withdraw a percentage of pre-tax retirement accounts (traditional IRA, 401(k), etc.). The formula:

Our engine calculates RMDs automatically and forces withdrawals to satisfy them. This impacts your tax bracket and Roth conversion strategy.

Roth Conversion Analysis

A Roth conversion moves money from a traditional IRA to a Roth IRA. You pay taxes now, but withdrawals in retirement are tax-free. Our engine evaluates:

Early retirees (before Social Security) often face low tax brackets—ideal conversion years. Our tool flags these opportunities.

Tax Disclaimer

This is a planning estimate, not tax advice. Sagery models retirement income and applies simplified tax rules. Tax law is complex, with edge cases, deductions, credits, and state-specific rules we cannot fully replicate. Always consult a tax professional (CPA or tax attorney) before making major decisions like Roth conversions, charitable giving, or withdrawal sequencing. We are software engineers, not tax experts.

1. Fixed Withdrawal (4% Rule)

The simplest strategy: withdraw 4% of your starting portfolio in year 1, then adjust for inflation each year.

2. Inflation-Adjusted Withdrawal

A variant where you withdraw a fixed percentage of remaining balance each year. This adapts to portfolio growth or decline:

3. Dynamic Withdrawal (Guardrails)

Most sophisticated: adjust your withdrawal based on portfolio performance. If your portfolio is up, spend more. If it's down, tighten the belt.

4. Tax-Smart Sequencing

The most tax-efficient approach: withdraw from accounts in order of tax efficiency, minimizing lifetime taxes:

Sagery defaults to tax-smart sequencing + inflation adjustment, with guardrails as an optional mode. You choose.

Primary Insurance Amount (PIA)

Your Social Security benefit is calculated from your 35 highest earning years. The formula uses three “bend points” (2026 figures):

This is why your benefit is progressive: lower earners get a higher percentage replacement, higher earners a lower percentage. It's a social insurance program.

Claiming Age Adjustment

Your full retirement age (FRA) is based on birth year. You can claim as early as 62 (reduced) or as late as 70 (enhanced).

Break-Even Analysis

Claiming early vs. late is an economic trade-off. We calculate the break-even age:

Our tool calculates this for your specific PIA and age trajectory. If your health is excellent (parent/grandparent lived to 95), delaying often wins. If health is poor, claiming at 62 may be correct.

Cost of Living Adjustments (COLA)

Every year, Social Security adjusts benefits for inflation using the Consumer Price Index (CPI-W). Our default assumption:

Taxation of Social Security

Up to 85% of your Social Security may be taxable, depending on “combined income”:

This means retirees with substantial other income may owe tax on Social Security. Our engine calculates this interplay precisely.

Every number we show rests on assumptions. Here are ours, exposed for scrutiny. You can adjust all of these.

How Sensitive Are Results to These Assumptions?

Not equally. Equity return assumptions drive 60–70% of variance in outcomes. A 1% change in return (6% vs. 7%) can shift your sustainable income by 5–10%. Inflation assumptions matter next (10–15% sensitivity). Tax assumptions are more stable because tax law changes slowly.

David's advice: Test your plan under pessimistic assumptions: 5% equity return, 4% inflation, higher taxes. If it still works, you have a robust plan.

We are rigorous. We are also honest about what we cannot do.

What Sagery Does NOT Model

• Major Life Events: Divorce, death, disability, long-term care costs, inheritance. These are non-statistical and require personal judgment.
• Behavioral Changes: We assume you stick to your withdrawal plan. In reality, psychology matters—people panic-sell in bear markets, overspend in bull markets.
• Regulatory Changes: Social Security reforms, tax law overhauls, RMD rule changes. We use 2026 law; Congress may change the rules.
• Individual Tax Optimization: We model brackets and RMDs, but miss edge cases like Medicare premium thresholds (IRMAA), net investment income tax (3.8% NIIT), alternative minimum tax (AMT), and state-specific retirement income exemptions.
• Exotic Investments:We assume a stock / bond portfolio. We don't model real estate, commodities, private equity, or cryptocurrencies.
• Sequence-of-Returns Risk (Partially):Our Monte Carlo captures this better than simple average-return models, but we don't model behavioral responses (e.g., “I'll cut my withdrawal if markets crash 40%”).

Market Returns Are Not Guaranteed

Past performance does not predict future results. Our historical returns (7% equity, 3.5% bond) are based on 100+ years of U.S. market data. Future returns could be higher or lower due to:

• Changes in global GDP growth, productivity, inflation expectations
• Shifts in market valuation (P/E ratios influence future returns)
• Geopolitical shocks (wars, pandemics, fiscal crises)
• Demographic changes (aging population, labor supply)

Tax Is Simplified

We calculate federal and state income tax using bracket-based logic. We miss:

• Credits (child tax credit, saver's credit, etc.)—most don't apply in retirement
• Deductions beyond standard (charitable, medical, mortgage interest)
• Edge cases (net investment income tax, IRMAA premiums, Medicare payroll tax)
• Tax-loss harvesting strategies
• State-specific retiree exemptions

Use Sagery for scenario modeling. Hire a CPA for tax filing.

This Is Not Financial or Tax Advice

Sagery is an educational tool. We model retirement income under various assumptions. We are not licensed financial advisors, tax professionals, or attorneys. Do not rely solely on our output for major financial decisions. Consult qualified professionals (CFP, CPA, tax attorney) before implementing Roth conversions, withdrawal strategies, Social Security claiming decisions, or significant portfolio changes. Your situation is unique; our tool is generic.

Data & Calculation Errors

We test rigorously, but software is imperfect. If you spot an error in our calculations, formulas, or assumptions, please report it immediately. Transparency is our core value.