Can Your Retirement Plan Survive The Unexpected?

On this episode of The Dentist Money Show, Matt and Will break down the Monte Carlo simulation, a mathematical method that uses probability to estimate a range of possible outcomes in uncertain situations. They explore the surprising history behind Monte Carlo simulations, explain why the simulations are used to evaluate risk instead of predict the future, and discuss how dentists can apply this framework to retirement planning, compare financial trade-offs, and make more confident decisions in the face of uncertainty. Whether you’re years away from retirement or starting to think about your exit strategy, this episode will help you better understand how to plan for the unknown.

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Podcast Transcript

Matt Mulcock: Welcome back to the Dentist money show where we have Dentist makes smart financial decisions. I am Matt and I am joined here with the brain brain. Will, how are you? We’re doing it. This is, this is the chair I sit in. Now I get to just throw nicknames out left and right. There you go. I’ll take pinky for sure. Classic show. I still quote that show, ⁓ quite a bit, which whenever, you know,

Will: just going with that nickname, huh? You’re pinky and I’m the brain now. Yeah. Yeah, I’ve heard you quote it. What was the… I feel like there’s a line you use a lot. I can’t remember what it is, but…

Matt Mulcock: Well, from pinky the brain, think it’s now I’m questioning myself as I go through this. ⁓ but I believe what they, one of the things they say in that show all the time, was, ⁓ what you want to do today. And it’s like what we do every day. World domination or like take over the world. Yeah. So if you ever talk to like, I I quote this with my kids all the time or like your friends, like what do you want to do today? It’s like same thing we do every day. Try to take over the world. Yeah. Right.

Will: world domination. World domination. Yeah. Yeah. Dominate. I kind of like the energy. Yeah, it’s a good attitude. Attack the day, world domination.

Matt Mulcock: a good attitude. Exactly. Exactly. Will, how are you feeling after the weekend? We were just chatting about this. How’s the energy right now?

Will: I 10 out of 10. Actually, I’m probably have a, I’m running on empty, but we’re good.

Matt Mulcock: I’m sorry. Tell the good people why you’re running it empty. There’s a good reason here.

Will: I had a very fun weekend, spent the weekend golfing ⁓ with friends in this beautiful state of Washington, a place called Gamble Sands. you know, it turns into late nights hanging out with the buddies and early mornings golfing all day outside. And so there’s very minimal sleeping and a lot of golfing, which I, you know, I’m not complaining, but it does hit you hard on a Monday morning.

Matt Mulcock: We were just saying the hardest part about this kind of stuff is you have this and I love you do this every year, right? You grow out with the boys every year. You do two or three straight days of golf and you run both. You burn from both ends of the candle as they say, but then you come home to five children and a wife and then you’re like exhausted and she’s like, tough crap, dude. Get going. Yeah. Like it was a bad. Yeah.

Will: Yeah. Yeah. Yeah, yeah. Am I supposed to feel bad for you? Yeah, like I’m sorry you’re tired.

Matt Mulcock: So it’s like, it’s going to take you two weeks to recover from this trip. So you were just running on energy drinks the whole time, basically. Yeah. Nice.

Will: Right, yeah, it’s all good. 100 % yeah, I already got one in me this morning, so.

Matt Mulcock: You’re like, it’s a triple day. It’s a triple, a triple monster day. Uh, that’s awesome. I’m glad you had a good time and you still, you’re still bringing your A game for the, for the podcast though. Yeah. So speaking of world domination, we’re talking, uh, nuclear weapons today.

Will: Absolutely, world domination. That’s a crazy thing, crazy segue. I like it. Yeah, that was good.

Matt Mulcock: didn’t even plan that, but nuclear weapons gambling and retirement plans. We’re going to connect these dots of how the, those are all connected. Why don’t you set the stage for us on that.

Will: Yeah, this episode could get crazy, right? I wonder if the listeners are maybe like, what in the heck are they going to talk about? So ⁓ today we’re going to do a deep dive into something called a Monte Carlo simulation. And it’s something that we use all the time in our day-to-day jobs. ⁓ most of our clients have.

Matt Mulcock: What are they talking about? Yeah.

Will: seen or heard of this in some way, shape or form, ⁓ but it’s a really powerful tool that us as advisors can use. But I think it’d be good to set the stage for how we got here, right? And like you said, tie it into the history of the Monte Carlo simulation and where it came from and why it’s useful. ⁓ So Monte Carlo, do you know where that is, Matt? You have.

Matt Mulcock: Not in the US.

Will: Nope. It’s in like Monaco, France, I think. Maybe I should have fact checked this before we got online, but it’s in, it’s, it’s a famous area where the richest of the rich go to gamble and bet on various things. think races and whatnot. yep.

Matt Mulcock: Let’s find out. Monaco ⁓ sits on the Mediterranean coast, Western Europe, French Riviera, just northeast of Nice, France. There you go.

Will: There you go. Beautiful. I would like to visit one day. And so, ⁓ the reason that the, you know, this, the eventual simulation and we’ll get there, it doesn’t actually start by being called the Monte Carlo simulation, but the reason that it pertains to that specific area is because that specific area is famous for gambling, right? Casinos roulette, lots of games of chance, blackjack. And absolutely. Yeah. It’s a great movie. Yeah.

Matt Mulcock: Yeah. We’ve seen Casino Royale. Classic.

Will: 2021 lots of good gambling movies. So

Matt Mulcock: Yeah.

Will: But with that being said the whole premise of the Monte Carlo simulation relies on probabilities of outcomes, right and just like any game that you’re playing with in the casino the more experienced gamblers ⁓ Understand probabilities of outcomes more than anyone else. There’s a really awesome book called thinking and bets that we’ve read ⁓ which kind of relates to

Matt Mulcock: Yeah, that’s great, Andy Duke.

Will: The idea of retirement planning to gambling in a way. I think she was like a professional card player, right? Poker player. Yeah.

Matt Mulcock: Still is, think professional card player. Her brother’s even equally or more famous than her from a gambling or like a poker player. So it comes in a really, big name on the gambling side.

Will: Yeah. You know, when you watch the world series of poker and it’s showing like, I mean, I don’t watch it often, but whenever it’s just like randomly on and I’m looking at it, they always show the two cards that the person has in their hand. And then they show like the flop and you know, the cards that come and with each card that comes out that the dealer puts down, there’s a percentage down there that kind of like changes and it shows the percentage that they think that person has to win the hand.

Matt Mulcock: Yeah, yeah.

Will: And the computer is doing it and it’s modeling like all the different outcomes. It’s, it’s, it is a Monte Carlo simulation. It’s modeling all the different outcomes of what cards are left in the deck and what could be played. Right. So that’s where the name come from. It’s to set the stage. This is, a Monte Carlo is, is literally a ⁓ probability of outcomes simulator. And so yeah, go ahead.

Matt Mulcock: Yeah. I just, like this setup because I think we were talking about this even before we went on. When you’re, when you’re playing in a game that is unsolvable, like there’s never going to be a right answer gambling any type of poker is the same way. There’s never like a right answer. Same thing with retirement planning. So I’m really glad we started here because this is the lens in which we try to get All of our clients and any dentist out there listening, we try to get them to look through this lens when it comes to, ⁓ this type of thing of retirement planning or financial planning. think a lot of times people want it to be this like hard science. know the answer, or you always know the right answer when really the whole game is how do we increase the odds of success and the probability of success? Monte Carlo is the most scientific way you can do that. But I’m just glad you set the stage there because I think people get confused sometimes of there’s just always a right answer. It’s like, no, actually there’s not. There’s just the game of probability.

Will: Right. Yeah. Yup. think it’s a hundred percent. Like I think back to math class when you would try to solve an equation and they give you like X equals a plus B and they’d give you what X and what B are. And then you’d have to solve for a right. The problem that’s easy. If you know exact variables, then you

Matt Mulcock: Yeah. Yep. Known variables, yeah.

Will: Then you can start solve for it. However, what if the variables change, right? And what if the, what if your X and your B are changing constantly based on who the heck knows what, then you probably want to run a lot of different simulations to how that’s going to affect ⁓ if X is different or if B is different, how that affects the outcome, right? And so, I think the history is kind of fascinating. So maybe I’ll just hit that real quick. And, ⁓ the origin story of this was a mathematician named Stanislaw Ulam. And I guess he got sick one day and he’s considered kind of the father of the Monte Carlo simulation. And so he was playing solitaire while I was sick and he was trying to figure out how to beat it. Right. Like any mathematician would he was like, how can I beat this every time? And they, yeah, like.

Matt Mulcock: Yeah. This reminds me of Rabih, by the way. This is something Rabih would do.

Will: Rather than just playing and losing and be like, dang, I didn’t get it this time. So anyways, he, he, was before kind of computers and he was trying to, ⁓ figure out how often he could win the game. And basically he just said, I’m just going to play this game a hundred times and see what percentage of times I win and what percentage of times I lose. And that was this origin of like, likely am I to win this game given any

Matt Mulcock: Yeah.

Will: hand that I’m dealt how likely am I win this game? He then went on to get put on the Manhattan Project. And he was one of the scientists that was working alongside, yeah, the nuclear weapon. He was working right alongside what’s the famous scientist name? I’m blanking the guy that they made the movie about, but.

Matt Mulcock: on the nuclear. Oppenheimer.

Will: Oppenheimer. Yeah, right. So he was like on his team and they were trying to obviously create an atomic bomb and a hydrogen bomb. they were trying, I don’t know the science behind this, but there was these particles that were very unpredictable and how they would react with each other. And they would basically do something different every time. they were trying to, they, Stanislav Ullam brought his Monte Carlo idea to the scenario. There to the table. And there was another scientist or computer scientist named John von Neumann. And they kind of married this idea of computer, ⁓ modeling with probability outcome modeling. And it was the first time that a computer was used to help predict all of these different outcomes, because before you’re either doing it by hand and it’s impossible. You have to do the same reaction over and over. You have to play solitaire a hundred thousand times in order to get the right probability. But with a computer, the power of a computer, they were able to kind of start solving this puzzle of what’s the highest probability of success we could have if we just run this simulation thousands and thousands and thousands of times. So I think it’s kind of fascinating that that was the birthplace of modern computer Monte Carlo simulations. And it’s used in everything today. It is like, it’s obviously still used in the gambling world. It’s now used in the financial world. It’s AI uses it all the time. It’s used in.

Matt Mulcock: Yeah.

Will: Any like big business is running these simulations to say the probability of success that they’re going to do something, sell a certain product or whatever. So it’s a, it’s a very fascinating topic and we’re obviously going to kind of talk about it in the financial aspect and retirement planning aspect today, but any thoughts on any of that?

Matt Mulcock: Yeah. Like you said, it’s used on everyone. Like, like you have here, like weather forecasting as well. Like you said, I think the key here is anything where there’s unknown variables, which that is life. ⁓ so I think I just highlight anyway, that’s first thing I’d say is that’s actually a very, I didn’t know the true history of it to be honest, to that level. ⁓ it’s really cool to hear that. And again, I can’t help but laugh just thinking about this. ⁓ Stanislaus Ullman, when you were telling that story about Solitaire, I’m like, this is literally Robbie. Um, but no, I think it’s cool. And I think what we’re going to dive into today of how this applies specifically to financial planning and retirement planning. We talk a lot about, as I mentioned earlier, people want this to be a hard science. Like this truly is the most quote unquote hard science part of financial planning that we get. This is the true like spreadsheet type stuff.

Will: It’s Rabih.

Matt Mulcock: that we’re doing all the time that is super critical. And I don’t think, know if we give enough, we talk about enough of like the actual science behind this. So I’m excited to get into like, what are the, what are the applications that we use it for and highlighting what are the limitations of something like this as well.

Will: Right. think one of the most common answers that we give as financial advisors, I think we’ve probably, I you said it a hundred thousand times on the podcast, but the answer is it depends. And that answer is because it truly does depend on a lot of different outcomes. Markets change, inflation changes, spending changes, life expectancy changes. Exactly.

Matt Mulcock: You’re spending.

Will: your job, you know, et cetera, income, we could name, probably we could list off 20 different variables that will change. And we have no idea how they’re going to change. And that’s the X equals A plus B plus C plus D plus E plus F and so on and so forth that we need to know what the different variables and how they’re changing and then model those scenarios out. we just know, I mean, it really is truly impossible to plan for a perfect future in a smooth, predictable pattern. So you need to be able to plan for the best case scenario.

Matt Mulcock: Yeah.

Will: This is why I think you are maybe one who says like long-term goals are a little bit useless. and I mean, maybe directionally they help you, but short-term goals are much more meaningful because you can, you can’t, have more control over a two to five year goal than you do a 30 year goal. So.

Matt Mulcock: Yeah. yeah. It’s overrated. Yep. Yep. Yeah. And I look at this. So I have an interesting, ⁓ personal history with Monte Carlos, where I came from a world prior to coming to Dentist advisors, where it’s all I used, ⁓ in Fidelity. This is all we used and, ⁓ we would use it in ways. We would be trained in ways to use it as a, a way to sell products, right? Like, and then I came to Dentist advisors. And our philosophy initially at Dentist advisors, ⁓ you know, led by our founder was kind of. Anti Monte Carlo because of that, because he came from a world of similar background, ⁓ meaning Reese where same thing he got experience in this use of this tool to sell products. so initially I was real, I went from like one end of the spectrum to the other, like these are, this is stupid. It’s just used to sell products. ⁓ it’s, it’s kind of a worthless tool. I’ve since evolved from there to find more of a middle ground to acknowledge that’s all it is, is a tool. It is a tool. So the tool itself is not inherently good or bad. It’s just a tool. How you use it actually matters. And I’ve seen it now used again as a way to sell products and you can do it very effectively or use the right way can be a way to ⁓ help. And we’ll get into this of like what stage of your life does this become the most valuable? But I think the most valuable tool that, or use of it is being able to flip the kind of proverbial switches on some scenarios to show the change of probability, like actually mapping things out in your life. Because to your point, there’s a lot of what ifs, and this is a great tool to show how does it, like how do these what ifs impact your life in a mathematical sense?

Will: Yeah, a hundred percent. I think like the point is to not, like you said, understood to have any sort of certainty, but to have a confidence level that you’re moving in the right direction. And it is because you’re modeling this large range of success. So just to kind of get into the nitty gritty of what it is for finance, like you’re quite literally modeling how likely you are to run out of money by the time you die. So if you’re a 30 year old and you’ve got

Matt Mulcock: Yep. Yep.

Will: 20 more years, 30 more years, 40 more years of working, you model in like what’s gonna happen to your income over the next 30 years? That’s a big question mark. We don’t know the answer to that, right? And so for a 30 year old, the various range of outcomes could be massive. Like you could end up with a very high probability of success. So it’s gonna be tougher to model your life for 70 years than it would be for somebody who’s near.

Matt Mulcock: Yeah.

Will: To retirement to model out of maybe a 30 year timeframe where your income is now more predictable. It’s either plateaued or you’re on a withdrawal strategy at this point from your assets. So to your, you alluded to it, but to your point, I think it’s just important to hit right now. It’s not super useful in a case for somebody who’s early on in their career. I mean, it might point you in the right direction, but it’s not going to be this end all be all future crystal ball that you’re going to look in. And if anything, it will allow you to start. Like you said, seeing what levers you can pull to evaluate how resilient your financial plan can be under, you know, with certainty, with uncertainty that’s going to come and evaluate trade-offs. love, we always talk about trade-offs, right? That’s, you know, should I do this job, even though it means that I’m going to have this work-life balance or should I, you know, this job pays more, but I have to drive further and this job pays less, but it’s closer. Like there’s always a trade-off in every decision you make no matter what. It’s very rare that you have a decision that checks every single box. So you can model a lot of those decisions into these, you know, into this simulation for better lack of a better word, I guess that’s probably exactly what it is, a simulation. And it can show you, okay, if you decide to do this, then here’s what we can expect your future will look like.

Matt Mulcock: Yeah, that’s exactly what it is. Yeah. Yeah. Yeah. I’ve used this a lot, ⁓ for clients in the, the, you know, it’s the proper stage of life to your point. Well, 35 year old, 30 year old, it becomes less valuable. It just does because there’s too many, there’s too much time, too many unknowns. Anyone who tells me at 30, they know what they want to do at 65 or at 50 or at 40. You’re, you’re lying to yourself and that’s okay. You don’t even know what you’re going to do in five years from now, let alone 30. So I think it’s really, really difficult to have this be something that’s super useful for a fresh out of school or just starting their career dentist. But it is super valuable in my mind for that 50 to 55 year old dentist who is seven to 10 years out from exiting. Or if you’re 45 and you’re seven to 10 years, whatever, if you’re within a decade of exiting, I think it’s a very valuable tool and I love what you’re saying. It is a trade-off simulator. That’s how you can think of it. I love that characterization that you made of, well, what if I sell my practice at X valuation and cash it all out versus what if I partner and then my income is this? What if I sell my building? What if I keep my building and I rent it for this? What if I sell to a DSL? Like there’s so many different things that you could do.

Will: What a homeowner three days or two days or one day or change my house, go move houses or downsize or gift my kids. mean, there’s that when we go into actually build them for clients, there’s hundreds of different toggles. Like you said, you can turn on and off based on, know, what you think you want.

Matt Mulcock: What exactly? Yep. Yep. Yep. Exactly. So I think it can be extremely valuable to, and it’s one piece of the puzzle. I love the example you gave too, of just this like, you know, there’s things that it can’t necessarily model in the sense of how are you going to fill with a commute every day? Like that’s more of a life thing, but this can help solve or fill up or fill in one piece of the puzzle of probability on the spreadsheet from a financial side. And that can help. think a lot of dentists we’ve seen this, it can help relieve that side of the, of like the stress of like, okay, now I kind of know mathematically what’s the right way to go or not maybe like the highest probability of success. Now I have to pair that with my actual life. ⁓ so really quick example, ⁓ selling to a DSO at a higher valuation, let’s say, than selling it to your associate, just generally. could model that in and say, if we have their actual numbers, ⁓ okay, here’s the actual simulation and probability of success if you sold that DSO at this valuation. Here’s what it looks like probability, but now you’ve got to go to decide is that what you want because it’s also got a seven-year work back. So it helps solve one piece of the equation a lot of times, but it doesn’t always answer the it depends part of

Will: Well, yeah, I think we use this a lot. It solves the ⁓ quantitative side of the solution, but not the qualitative side.

Matt Mulcock: Exactly. Yep. Yep. Exactly.

Will: yeah, I think that’s awesome. I think just so I’ll give one caveat is I have used it with a couple of young dentists that have very specific plans. Like I have a young dentist, like I am, I have got this 10 year plan and I want to do this, this and this. And it’s, it’s, it is helpful when there is some real concrete, like I want to just see what happens if I execute on this over the next 10 years. And again, it kind of

Matt Mulcock: Yeah, I’ve done the same thing, yep.

Will: marries the short term with the long term to say, if you can do this, then yeah, theoretically you could be air quotes retired by, you know, age 50 or whatever, if you have a lofty goal in that scenario. So it is, it can be very helpful for different ages, mostly helpful for dentists on the second half of their career.

Matt Mulcock: Yep, yep. Yep. I, that’s a good, ⁓ nuance and, and specific kind of caveat there. The more specific you are, the better off it is. I totally agree. ⁓ Totally agree. And I’ve used it for young dentists as well. I just did this right around through this scenario with the client who’s like 39 and still did it because he was so specific in his request of like, want to see scenario a versus scenario B and

Will: Better it is, yeah.

Matt Mulcock: What does it look like probability wise? And I always caveat whenever I present a plan with someone, a Monte Carlo result is there are so many variables that we can’t account for. We’re still guessing a little bit here. We just are.

Will: Yep. Yeah. It’s also like one thing that I love about it when we, know, again, going back to what it is, you’re putting in all the clients data. It’s showing you in what, how many, in what percent that we’ve said this a couple of times, but just to highlight it spits out what’s called a probability of success. And it’s a percentage. And it basically just tells you, I don’t know exactly how many scenarios is running, but it’s thousands and thousands. And it’s telling you in what percentage of those scenarios did you end up not running out of So it could be that you end up with 20 million. It could be that you end up with $1, but in every single one of those scenarios, and it’ll spit out this median number too of like how many, where, you know, some middle number that in the most likely actual scenario, here’s how much you actually die with. And so I do think it’s really powerful to show that and say, well, look, you’re at a 99 % probability of success or a hundred percent probability of success. Let’s start making decisions based on that. Let’s start. framing your life around, well, should we spend some more money? I just recently had a conversation with a client who frankly needs to spend some more money. And you you can show how either reduction these little like little nuances to increasing spending or reducing spending or all those things is going to really dramatically either improve or hopefully, I don’t know, make help you drive these really important decisions so you don’t

Matt Mulcock: Yeah.

Will: get to the end and realize, man, I wasted a lot of time making all this money or I didn’t have enough or whatever. So I think it can just be so ⁓ meaningful on both ends of the spectrum. Not do I have enough, but also do I have too much?

Matt Mulcock: Yeah. Yeah, exactly. I like that Will, because I’ve had similar experiences in that sense of it can help kind of solidify some or allay some of that fear that dentists have perhaps around like, Oh man, am I going to run out of money? This can help solve that. then to your point, maybe make them a little bit more free to spend. The other thing is if you’re a dentist out there thinking, and I’ve heard this, my number one priority is leaving a legacy, a financial legacy. That’s a discussion for another day of like, what’s the best legacy to leave, but Dentist who say I want to leave a financial legacy to my children. This also can help solve for that. What’s the highest probability of success of maximizing the financial legacy that you’re leaving. It’s a really, really powerful tool for something like And then how to do it efficiently.

Will: Right. Yeah. We’ve talked a lot about the financial independence score that we use. ⁓ And I think it’s the retirement readiness number. ⁓ That is a way that we utilize that we think about kind of a, we always use the word quick and dirty. don’t know if that’s the right thing to say. That’s a quick and dirty Monte Carlo simulation. Frankly, I mean, it’s kind of like, you know, we can put together a score to say, are you going to be, we think that a 30 retirement readiness score is basically you’re going to be at a hundred percent probability of success on the Monte Carlo simulation. Of course that’s, it’s a blanket, like fast way to calculate that, but you can also retire on a 20 retirement readiness score. Um, and we don’t really need to get into the details of all that right now, but. it would be, there was going to be multiple episodes on retirement readiness. We can go into that in more detail. Um, but I do think it’s important to show that like, just like a 70 % score doesn’t automatically mean failure. 90 % doesn’t automatically mean safe. It’s just, again, it’s these outcomes you can work. Your future is so unpredictable that we just got to do the best with what we’ve got and try to run, try to run as much positive data through the system and trust it and make the, and make a decision based on it.

Matt Mulcock: Yeah. Yeah. Yeah. I’m glad you brought this up because, ⁓ we created a different approach to this when it, as I was mentioning earlier, when I, when we first got you and Will, you and I got here around the same time to Dentist advisors almost to, yeah, going on almost a decade ago now, which is crazy. but when we got here, the reason why we kind of created a different way to, to do this to help Dentist understand their financial situation was

Will: Within a month, yeah.

Matt Mulcock: Partly because we were kind of anti Monte Carlo. ⁓ and the reason being is we were struggling with this idea of, ⁓ like going to the dentist or going to the doctor and then being like, well, I don’t really know how you’re doing right now, but I’ll tell you how you’re doing in 30 years. And that, I mean, that’s a, that’s a crude example, but it’s kind of what it was doing. That’s kind of the traditional advisor space, ⁓ cause it was built for, you know, re people nearing retirement. We tried, now we’ve created our approach of what you’re talking about retirement readiness and everything that we do in the financial hygiene chart for the OGs. know what is elements of a here and now, ⁓ kind of indicators here and now of like, healthy are you today financially? Not where are you going to be in 30 years? How are you doing right now? And I think pairing these two things together is really powerful.

Will: Right. Yeah. Yeah. I think it’s good. it does, it gives you enough information immediately to frame your life and make short-term decisions. But yeah, like the Monte Carlo simulation will also kind of help with those long-term and short-term decisions. And it’s just another step in the right direction. doesn’t mean it’s right or wrong or one’s better than the other. They’re just used in different scenarios. So.

Matt Mulcock: Yeah, for sure. ⁓ well, let’s, let’s get into more of the, the details around how, how does this actually work? How would we use this in a simulation standpoint for retirement planning and what are variables that we need to be considering?

Will: Yeah, we’ve hit on a couple of them already, but we’ve done this recently more often than not with a lot of clients that are on the second half of their career. Like I said, it’s becoming a tool that we’re utilizing and being excited about. And I think it’s providing a lot of clarity to clients. It’s not a one time, like plug it in and look at it once and then forget about it for the rest of your life. It’s this living, breathing projection that, like you said, we can model lots of different things constantly every month if we something was changing that we needed to model in. so you kind of build it out and then it becomes this ongoing tool that we can use. So I’ve used it with clients who are currently trying to decide, should I sell my business? And like you said, retire now versus retire later. Should I drop a clinical day? What happens if I hire an associate and it drops my income a little bit for the time being, I want to buy a building and it’s going to, I’m going have to liquidate some of my investment portfolio. So many decisions that a dentist comes across every day, large home purchases. don’t know. ⁓ Exactly. mean, right. Yeah. Even think like on there, there’s something that’s like, well, I want to buy a boat or I want to change my car. Like even little decisions can sometimes make a difference. So, inheritances, like there’s, those are just all the top of my head, but like we could name a list of probably a hundred things that a dentist would maybe like.

Matt Mulcock: downsizing a home never happens, but yeah.

Will: I might do this. How’s this going to affect my life? And so we’ve been doing that and each scenario is different. It’s not cookie cutter. It’s, let’s build this out for you based on what we think your goals are. So we’ll usually do an interview with clients to say, tell me how long you think you’re going to live. Tell me your ideal retirement age. Tell me how much money you want to spend. Here’s how much you’re spending now. How is that going to change in retirement if it does? Here’s your debts that we’re going to try to pay off and the different schedules that they’re on. When are we liquidating your business? When are we liquidating real estate? If and when we’re liquidating real estate, the model actually doesn’t automatically include any equity in real estate in the projection. You actually have to go toggle on the fact that you’ll liquidate it or receive passive income from it. So it automatically takes into account all of your investable assets, like your

Matt Mulcock: Yep, yep.

Will: 401ks and IRAs and brokerage accounts, and then you tie a growth rate to it and model it out from there. But it models in social security, it models in required minimum distributions, it models in ⁓ any like income, passive income that you’ll have, and it builds this out all under this cashflow model that shows you how you’re going to get money the rest of your life, what you need to withdraw from a brokerage account, how much you need to pay in taxes, and spits out this cool looking chart that you can…

Matt Mulcock: Hahaha

Will: You can look at and say, wow, I’m actually screwed for now and I need to make some progress or I’m doing a lot better than I thought and my probability of success is much higher. so I just got to keep the train on the tracks now and execute.

Matt Mulcock: Yeah. Yeah. And where I like it is if you are, if you do review it we’ve had this case where it’s like, ⁓ probability, isn’t look great with the current plan. We then can start really that’s where the work begins of like, what, what levers do we have to pull? What trade-offs do we have to make in order to make this? Yeah. Increase the probability. And there’s, there’s only so many things for the most part, it’s going to be like work longer, save more, spend less.

Will: boost this probability.

Matt Mulcock: Like have a higher growth rate, but the only ones you can really control is can I work longer? Can I save more? And can I spend less? Like those are the three big ones. And so we can start building those things out. The other thing that I really like, Will, about this is I just reviewed this, did this with a client pretty recently and we had the interview, you know, went through everything and I’ve worked with these clients for a long time, but we, still do a pre kind of like simulation interview so I can understand what true variables Are we trying to account for? Cause they’re trying to figure out retirement in the next few years. ⁓ and then I started building it out. Well, then I was able to add variables that I know are going to be well, that I know are a high likelihood of being the case. So for example, the age of these clients, they’re on the younger side of a traditional, ⁓ retiree. So they’re going to retire. Their goal is to retire in their like mid to late fifties. Well, I know based on that, I’m like, we need to factor in that you’re more energetic. You’re going to have more time on your hand. We need to fill, fill in over the next 10, 12 years, even higher spending than you have right now. And then have it taper off in your mid to late, you know, mid seventies, cause that’s just what happens. And you’re able to like actually build out those scenarios and show them. It’s not this linear thing like, I spend X number of dollars now. It’s like. No, we have to factor in like real world scenarios here. And it’s a really powerful tool for that.

Will: Yeah, which I think is awesome because it shows the clients that you’re thinking about their life and things that are really unique to them. ⁓ I had a client who has a handicapped child who it’s like, have a whole model in theirs built around this handicapped child and what’s going to happen to that child. You can paint the picture.

Matt Mulcock: Yeah.

Will: with a lot of nuance, like you said, to the specific client situations for these younger clients that might have different outcomes than different older clients. And so I love it because it’s so personal. It’s not just this calculation. It has a little bit of life to the calculation, right? So.

Matt Mulcock: Yeah, totally. I think here’s another one really quick that I think is super powerful that applies to a lot of dentists that we work with is a Roth conversion simulation, meaning a dentist has piled up a ton of money in pre-tax accounts because they most likely should because they have a really high income. But especially for a dentist who’s let’s say like the McClance I just mentioned are retiring in their mid fifties. There’s still a pretty wide gap of time before their RMDs kick in.

Will: Yep.

Matt Mulcock: And their income on paper is coming way down. So we need to start figuring out. And again, this is the science part of this is how do we simulate this out and start converting some of these dollars? How much do we convert based on your other income sources? Like this is the nerdy financial planning stuff that we really like. And it’s really critical when we get into those, those times of, okay, rubber’s hitting the road. actually are trying to retire now.

Will: It’s going to drop. Yeah.

Matt Mulcock: We’re no longer talking directional. Now we’re talking like detailed optimization strategies around things like taxes, withdrawal strategies, social security timing. There’s a lot of variables that we can start to play with. Again, this tool becomes really powerful for that.

Will: Yeah, it is. so true. I love what you said about how there are a couple things that you can control. When you were talking about levers you can pull, spend less, make more, et cetera. One thing just to kind of highlight a very important piece of this is there are a lot of things that you can’t control, right?

Matt Mulcock: the levers. Yeah, yeah, I like this. Yep.

Will: So there’s something that’s a little nerdy to the, you know, the science side of it that is important to understand is the sequence of return risk. ⁓ And it’s, so this is kind of fascinating, honestly, is you could have two people that have the exact same average return over a 30 year period, but their experience could be completely, they could have completely different outcomes based on when the market losses, the market like downturns and upswings occurred. Right? Do you want to explain that a little bit?

Matt Mulcock: Yeah, definitely. We, I’ve seen this so many times, modeled out, ⁓ to be honest, we haven’t really had much risk on the sequence of returns over the last like 15 years. ⁓ but yeah, so to that point, you, you can see this online. You can just Google the sequence of returns to us, but, ⁓ you could have literally person a person B model that over a 30 year period. And we, we used to display this all the time at fidelity. had a whole graph of this. Uh, so a lot of that over a 30 year period, same average rate of return of let’s say, uh, 8%, whatever that doesn’t matter. The number is the exact same for both, uh, person a and person B. They start withdrawing at the same time. Uh, person a, uh, has an inverse actual, uh, uh, return structure over that 30 year then, then person B meaning their

Will: Yeah. Right.

Matt Mulcock: Good years were at the beginning. The good year of returns were at the beginning and then they fell off at the end. And then person B is completely flipped. had the bad years at the beginning, but then they had a lot of good years at the end. But again, over the course of 30 years came out to the same average. What sequence of returns risk basically is, is just bad luck. If you have bad returns at the beginning of retiring and you’re relying on this portfolio and you have, let’s say two or three years of negative rate of return, what’s happening is you’re actually it’s a double edged sword. You’re doubling the impact on that portfolio. You’ll see you’re withdrawing 4%, but you have an 8 % down year. Well, now it’s a 12 % actual hit to that portfolio. And so even if person B had the same average sequence of returns risk would show they would actually run out of money compared to person A where they would actually have a lot of money left over. So summing that up, it’s just bad timing.

Will: Right. And it’s something that you don’t think about when you’re just like, oh yeah, if I just get an 8 % return over the next 30 years, I’m going to be fine. Like I’ll have plenty of money to retire. And it’s a oversimplistic way of thinking about this. Not that it’s not probably going to be okay, but it’s just like a DIY investor that might just be plugging it in a compound interest calculator. That sequence of return risk is not taken into account and it’s not going to, the number you see on the screen likely is not going to be the number.

Matt Mulcock: Exactly. Yes.

Will: It’s maybe a ballpark, but there are some scenarios where it works at, it works against you for sure. The cool, the Monte Carlo simulation is modeling those scenarios. That’s what’s awesome is it is modeling out these, uh, you know, inverse, like you said, where it’s bad years at the beginning and good years at the end. And those are probably like, if you have a 95 % probability of success, 5 % of those are probably if you just have really bad luck, right? That you.

Matt Mulcock: Yeah. Yeah.

Will: I would say if you were a betting person, would almost every single time take a 95 % probability of success if you’re trying to flip a coin for some money or something, right? So not to say that you would ever want to take a 50 % probability of success, but if you’re at 95, there’s got to be something crazy happened to have that 5 % mean you run out of money.

Matt Mulcock: Yep. Yep. Yeah, totally. I, I, I’m just glad we’re talking about this way. It’s such a good thing. Cause we’re, we just don’t talk about this enough of the science part of this. but the other thing I’m thinking of as you go through this and I’m thinking of clients I’ve gone through this with. And you’re talking about like a do it yourself person, which by the way, there’s never been more tools out there to use. So we’re, we’re not sitting here saying, well, we’re not sitting here saying like, this is the secret sauce, right? Like

Will: Right. You have to come to us to, yeah. Right.

Matt Mulcock: That, Hey, we have a Monte Carlo simulator. It’s like, you can find this online. ⁓ but what I think is so valuable here, and I want to, I think, touch on a one major misconception that we hear a lot, which is, ⁓ a ⁓ dentist believing that the work is completed as they’ve reached the top of the first mountain. ⁓ the pervert first mountain that David Brooks talks about, which is your career is coming to an end. I think a lot of people out there, dentists out there think like, ⁓ I’m, I’m good. Like, I don’t really need an advisor anymore. I don’t need to be doing this work anymore in my, in our opinion. And what we’ve seen, I’m confident in saying this. That’s where the real work is actually beginning. Yeah. Job’s not finished. It becomes a completely different game with completely different rules. When you get into what we’d call distribution mode.

Will: As Kobe Bryant would say, jobs not finished.

Matt Mulcock: And that is where it gets so tricky for dentists and psychologically and emotionally challenging of like, who I’m no longer using my human capital to start or to, be living on. Now I’m living off of my financial capital and that is just a completely different ball game. The other thing that I’ll say really quick as we go through this and I’m just thinking like, ⁓ comparing things to a do it yourself or there is so much incredible value. In building a relationship with someone over the course of several years prior to you getting into this mode of like, okay, now we’re actually going to start, like now we’re going to retire and having that person know you of like, okay, I’m just making a name up. All right, John, like you say this, that, or the other, I’ve worked with you for six years. I know how this is going to go based on these patterns. Let’s model this in because like, Being able to have that intimate relationship with someone who’s gonna push back on you, I just think is so invaluable beyond just the money, the math and the metrics and the probabilities.

Will: Yeah, 100%. And I think like, I love what you said about like anyone could go run one of these simulations, you probably plug it into cloud and say, do this, right. But I would also just give a quick jobs not finished to just running the simulation. just just like running the simulation doesn’t fix anything. Like we like we started the podcast with it’s just a tool. And the I said, I use this a lot, but it’s like you got to keep the train on the tracks. You can’t

Matt Mulcock: AI. Exactly.

Will: just run the simulation, like, oh, I’m good. I also highlighted the case where it’s like the client that’s going to have too much money. Like that client needs some more behavioral help around like, you need to do this, this, and this in order for, you know, the projection to change. There’s work that comes from the projection, the Roth conversions, the spending accountability, you know, the actual, you know, accountability to distributions and staying in your seat when there is a reverse sequence of return that goes down 12 % and don’t panic and do something stupid. Like there’s so much nuance to the actual plan portion of this and that’s doing it yourself. Yeah. Run the projection if you want, but I would argue that’s, that’s literally just the first step to this. So.

Matt Mulcock: Yeah. Yeah. It’s a good point. It’s like, you don’t ever solve this. Like meaning you don’t run it once. It’s like stepping on the scale once and be like, okay, I’m good. I solved it. I solved it. Got a good blood test back. My, you know, my cholesterol is low. Like I’m good. I’m good. Never have to review it again. Like this is, this is why we highlight this so much that this is, there’s no such thing as a financial plan that’s worth anything. It’s a financial planning process that is what is valuable. It’s actually.

Will: Pretty good, yes. Yeah, I guess I never have to look at it again.

Matt Mulcock: not only doing this, but doing this over and over again on a regular cadence and then adjusting accordingly. Cause to your point, this throughout this whole thing, this is just a probability measure. So, and there’s endless variables that will constantly be changing in your life and in the actually macro economic environment that we’re constantly having to review this, which is why we’re so proactive with clients is like, this is never done. I like this job’s not finished. Jobs never finished ever. It’s never done ever. So, and then I don’t say that in a sense of like, this should be daunting. It’s you should just know that to know that you don’t run this once through Claude. And then you’re like, okay, let’s move on with my life.

Will: Yeah. And I mean, guess the transition, those you said at the beginning, we’re going to talk about the limitations that those are the limitations that like human behavior is insanely difficult to model. There’s no Monte Carlo simulation for rational human behavior. It’s never going to be able to be predicted. ⁓ that is, that’s the, can’t put a toggle for human behavior on the simulation. just can’t because that’s the

Matt Mulcock: Yeah, yeah. Yeah.

Will: qualitative side of this whole process. Again, this solves the quantitative side or it gives you confidence around the quantitative side. doesn’t solve anything, but it definitely doesn’t solve the qualitative side. Other than, yeah, go ahead.

Matt Mulcock: Yeah. Yeah. Let’s say the ultimate, no, go ahead. Go ahead with the other limitations and then we’ll all circle back.

Will: I was just going to say other limitations would be like that you’re making pretty big assumptions for the most part. Like a lot of the assumptions you make can heavily influence the outcomes and you’re hoping that you make the right assumptions. so usually when we’re running these models, we’re being pretty dang conservative because you don’t want to like have aggressive assumptions that tilt the model in your favor just because it looks nice. That would defeat the purpose. So, oh, I mean, yeah, markets don’t always behave. Success percentages aren’t guaranteed. All these things, right? Like this is just a starting point. ⁓ It’s a tool for improving decision making. It’s not a crystal ball. It’s just something that we’re going to be able to use to help us shout out the OG slogan of our podcast, help dentists make smart financial decisions. This is the tool to help us do that.

Matt Mulcock: Yeah, totally. I think that’s, that is exactly right. I would say what I was going to say is like the ultimate limitation of this, I think is twofold. Number one, it’s easy to gamify. can, you can, ⁓ yeah, like I saw this in my, I’ve been doing this for almost 15 years. Like I’ve seen other advisors I’ve seen, it’s been trained to me in a past life around like, how do you gamify this to show exactly what you want?

Will: Mm-hmm. Yeah, you can do whatever you want. ⁓

Matt Mulcock: To sell exactly what you need. ⁓ and so, ⁓ I saw there’s this kind of idea of like creating complexity to then sell you the answer. that’s what Monte Carlo can actually do. the other, so, so that’s, that’s one kind of fundamental flaw of it, ⁓ is if you try to gamify it, you can, you can get whatever answer you want without our variables, you plug in there. ⁓ I would say I’m trying to think of, I blanked on the other thing I was going to say.

Will: Right.

Matt Mulcock: can gamify. here’s the other one. It’s really easy. And maybe these kind of go hand in hand. It’s really easy to trick yourself that you’re going to be disappointed in the future. So that’s kind of one of the variables that we see. It’s like, yeah, I spend this money now, but like I exactly like I spend $18,000 a month on average over the last four years that you guys have been tracking. However, when I retire, I’m only going to spend 10. So run it under 10. And it’s like, you’re.

Will: But I’m only going to spend this in the future. My mortgage will be gone and yeah. Yeah.

Matt Mulcock: It’s easy to trick yourself to think like the variables I’m dealing with now are not going to be the same in the future. And that’s where, again, if you’re doing this on your own, it’s super easy to just be like, well, yeah, I’m to be more disciplined later. I’m going to eat better on Monday, but it’s Friday. I’m going to go crazy. Like that, that is one of the fundamental flaws. And that’s not even a flaw of the tool. That’s a flaw of how it’s used. So the, the last thing I’ll mention really quick, will is.

Will: Exactly. Yeah, I love that.

Matt Mulcock: The risk of this getting to a place, I already think we live in this day and age of like over optimization of life. I think this can, when taken too far, can take us off the path of living too much in the spreadsheet, we’ll say, versus just living your freaking life and use it as a tool. I love what you said. Use it as a way to make better decisions, but don’t live and die or pretend like you live in the simulation. Like you got to live your life.

Will: Right. Yup. I love it. I think that’s perfect. I think it’s like, don’t focus on this. Like I know there will be people out there like, well, I got to get to 100 % probability of success or like I can’t breathe. Right. And it’s like, don’t live your life around this spreadsheet outcome. ⁓ Model it, see what it tells you to do and then being, adaptable, right. And like, be willing to change and adapt and grow and know that with the right. with the right person in your corner, hopefully a good financial advisor or just the right discipline from you, you can do anything, right? You can model your life to be the exact life that you want it to be.

Matt Mulcock: Yeah, for sure. Yeah. I think that’s great. Just use it wisely and use it for what it’s meant to be used for, which is making good decisions and seeing, I like what you said earlier, understanding the different trade-offs or levers or toggles in my life to model things out retiring now versus later, selling the business versus late now versus later. Like again, super powerful for that. And we use it all the time and we’re going to continue to use it. We’re leaning into it even more now.

Will: Yeah.

Matt Mulcock: And the, but doing it in a way that’s thoughtful and pragmatic and not the end all be all.

Will: I think like the future is maybe more uncertain than ever in a way right now. Like, I don’t know if that’s just a thing that we always feel, but it just feel like there’s all this, you know, new wave of technologies and I don’t know, global situations. And it just feels like who the heck knows where we’re going to be in 10 years from now, right? Like genuinely and what it’s going to look like. like a good financial plan should never eliminate uncertainty 100%. It’s just about like doing, putting one foot in front of the other and making the right decisions in the here and now the short-term things that you can do that will allow you to focus on what the good of that’s going to be in the future and allow you to kind of shore up this hopeful high probability of success for the long run.

Matt Mulcock: Yep. Yeah. Love it. Did we sufficiently link together nuclear weapons and retirement planning and blackjack all three? I think we did. Yeah.

Will: And Blackjack, yeah. Poker, yeah. That was fun. Yeah.

Matt Mulcock: appreciate the, the, the time and energy you put into this will putting this all together and sharing the history of Monte Carlo. ⁓ if you’re out there listening and you’re thinking, just, need help with this, at least to get another set of eyes on things or bounce ideas, or I have no idea. What I’m doing. We hear this a lot. Will from Dentist. It’s they, when they finally call us to at least have a conversation, it’s I’ve always thought I’m doing okay, but I actually don’t know. We hear that a lot. Some version of that of like, think I’m doing everything I’m supposed to be doing, but I’m not really organized. I guess kind of have things all over the place, but it feels like I’m okay. ⁓ we hear that a lot. So if you are in that boat and you need help, or you just want to have a conversation, we’re here to help dentistadvisors.com. Book the free consultation button. We are talked to one of our friendly advisors. If you are lucky, you’ll get well, uh, or any other amazing advisors, uh, can, uh, but we have, uh, we have

Will: Everyone’s better than me, so yeah.

Matt Mulcock: a few advisors on staff that you can talk to, share your stories, see how we can help, uh, dentistadvisors.com Uh, last thing I’ll say is We’re launching our second cohort of Launchpad coming up in September. dentistmoneylaunchpad.com. If you want more information on that, if you’re looking for just more kind of foundational education beyond the podcast, it’s going to be a great, a great eight week course there coming up in the fall. So for now, everyone, thank you for listening. Will thanks for being here and sharing your wisdom till next time everyone take care. Bye bye.

Keywords: monte carlo simulation, financial planning, retirement, probability, risk management, dentistry, investment strategies, decision-making tools

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