In the Monte Carlo section of The Path to Sound Retirement you will see an input labeled Volatility %. The default value is 15%. This single number has a large influence on the range of possible outcomes the simulation produces. Understanding what it represents helps you use the tool more effectively.

What Volatility Actually Means

Volatility is a measure of how much annual returns are expected to bounce around the average (mean) return. It is expressed as a standard deviation. In simple terms:

• A volatility of 15% means that in roughly two-thirds of years, the return will fall within ±15% of the mean return.
• About 95% of years will fall within roughly ±30% of the mean (two standard deviations).

Higher volatility creates wider swings — both good and bad years become more extreme. Lower volatility produces smoother, more predictable paths.

Why the Default Is 15%

Historically, a diversified portfolio of U.S. stocks has shown annualized volatility in the 15–20% range over long periods. A 15% assumption is therefore a reasonable starting point for a stock-heavy retirement portfolio. If your portfolio is more conservative (higher bond allocation), you might lower the number. If it is more aggressive or concentrated, you might raise it.

How Changing Volatility Affects Your Results

When you increase volatility in the calculator:

• The success rate usually falls (more extreme bad sequences become possible)
• The gap between the 10th and 90th percentile outcomes widens dramatically
• The sample paths chart shows much more dispersion

Lowering volatility has the opposite effect: higher success rates and tighter outcome ranges. This is why the tool lets you experiment — small changes in assumptions can reveal how sensitive your plan is to market turbulence.

This article is for educational purposes only and is not financial advice. Always consult a qualified advisor for decisions about your personal situation.