Retrian’s retirement risk analysis methodology is based on analytical techniques and mathematical modeling of components involved in the risk valuation process.

• Uncertainty models of returns for each asset class
• Model of correlation between returns of asset classes
• Glide path (annually changing asset allocation) models for an individual and family
• Inflation model
• Model of correlation between inflation and asset class return
• Salary growth model
• Contribution model
• Retirement spending model
• Longevity model
• Dynamic model of a family’s financial asset ownership
• Unemployment model
• Pension model
• Social security benefit model
• Investment tax model
• Retirement income tax model

• Market risk
• Inflation risk
• Longevity risk
• Unemployment risk

In the current online version, some of these models are presented in a simple form, but their complexity can be increased if needed without additional analytical research.

This methodology brings to financial risk analysis the engineering and scientific approaches that have been used for decades to evaluate the probability distribution of outputs of complex engineering systems. Knowledge of such a distribution allows us to evaluate the necessary risks relatively simply.

This methodology does not use the Monte Carlo simulation technique because our models take into account several hundreds of inter-correlated random variables in order to evaluate risk of a single retirement scenario, including the pre-retirement phase.

Retrian’s retirement calculators, based on our in-depth analytical research, perform this job in fractions of a second. They return results for impact an sensitivity types of analysis in a form of multiple easy-to-analyze charts. Performing this task in real time is impossible using Monte Carlo simulation.

The use of glide paths (dynamic asset allocations) requires to account for the large number of random variables reflecting the real-life conditions more accurately.

For example, the accumulation and spending phases of 35 year-old person’s retirement project can last for 60 years combined. The number of mutually correlated random variables describing annual asset class returns and inflation is (N+1)*60, where N is a number of asset classes that constitute the portfolio. On top of that, we need to consider random variables describing longevity, salary growth, and unemployment factors that have their own annual dynamics.

Considering annually changing returns of asset classes and inflation makes our combined model of pre- and post-retirement significantly more realistic than the models that are used in most retirement calculators currently available online. These usually use overly simplistic models that consider 3-5 random variables or less.

Our software design and analytical approach allow increasing the modeling complexity of your retirement projects. This means that many new factors that affect retirement risk can be easily added without additional analytical research.

Another important technique that is used in our approach is aggregation. It allows combining different cash flows or several glide paths in the same uniform structure in such a way that the analytical approach remains applicable. This approach is used in analyzing family retirement plans.

In most cases, working with uncertainty requires making assumptions. “Designing” assumptions for capital market returns is one of the key activities for many financial institutions when they make asset allocation decisions. These assumptions usually come as a result of serious and expensive research.

Retrian’s retirement calculators require such assumption as well. We provide you a number of templates that use publicly available capital market assumptions produced by respectable financial institutions. You can use these assumptions as is or modify them based on your own knowledge and preference.

Finally, we provide you by sensitivity analysis tools (the Expert level) that show how results of your calculations may be affected by changes of made assumptions.