Methodology
How the numbers work
Yield Clarity is more than a calculator. Understanding how forecasts are produced helps you interpret the results and make informed decisions.
FI target calculation
Your financial independence target is the portfolio value required to sustain your desired annual retirement income at your chosen withdrawal rate. For example, £42,000 per year at a 4% withdrawal rate requires a portfolio of £1,050,000. If income values are expressed in today's money, the target is inflation-adjusted to the projected FI date.
Eligible asset selection
Each asset in your portfolio has an 'include in FI' setting. Investments and cash accounts can be included or excluded individually. Property and other assets can be tracked for total net worth while being excluded from the FI calculation. Only FI-eligible assets are used in the forecast.
Contribution modelling
Contributions are modelled as monthly amounts applied to FI-eligible holdings. You can define multiple contribution phases with different amounts and date ranges. Contributions can be set to stop automatically at retirement.
Expenses and inflation
Planned retirement income is your primary expense assumption. Inflation is applied to the FI target (or to withdrawal amounts, depending on the withdrawal strategy) to account for purchasing power erosion over time. The inflation assumption is user-configurable.
Retirement withdrawal strategies
Yield Clarity supports three withdrawal strategies: fixed real income (inflation-adjusted withdrawals maintaining purchasing power), fixed nominal income (constant nominal withdrawals), and percentage of portfolio (withdrawals as a fixed percentage of the current portfolio value each year).
Return assumption selection
The planning return can be derived automatically from your portfolio's historical return data (when available from market instruments), or set manually. When using portfolio-derived returns, the weighted average of each holding's historical return is calculated based on coverage. A fallback default is used when insufficient market data is available. The selected return assumption is always displayed alongside the forecast.
Exchange rate handling
Assets in foreign currencies are converted to your base currency using market exchange rates. Currency conversion is applied at the current rate — the forecast does not model future exchange rate movements. This is a deliberate simplification; currency forecasting would add false precision.
Deterministic (Expected Path) forecast
The expected-path forecast applies the selected annual return rate (converted to a monthly rate) to the FI-eligible portfolio each month, adds contributions, and checks whether the portfolio has reached the FI target. The result is a single projected FI date based on the chosen assumptions. This is useful for understanding how inputs affect the outcome, but it does not capture uncertainty.
Probabilistic (Range & Probability) forecast
The probabilistic forecast runs a Monte Carlo simulation — typically 10,000 independent paths — each generating monthly returns drawn from a distribution calibrated to the selected mean return and volatility. Inflation is also modelled stochastically. Each path records whether and when FI is reached, and whether the portfolio sustains withdrawals through the retirement horizon.
Probability of reaching FI
The probability is the proportion of simulated paths where the portfolio reaches the FI target by the chosen date. For example, a 49% probability means that 4,900 of 10,000 simulated paths reached the target by that date. This is not a guarantee — it is a statistical summary of simulated outcomes.
Likely FI window
The likely FI window spans the dates between which the middle 50% of successful simulation paths reach financial independence. It gives you a realistic range rather than a single point estimate.
Retirement sustainability
After reaching FI, each simulation path continues to model withdrawals, investment returns and inflation through the retirement horizon. The sustainability probability is the proportion of paths where the portfolio does not deplete before the end of the horizon.
Sequence-of-returns risk
Early retirement years are especially vulnerable to poor market returns. Yield Clarity compares depletion probability under normal conditions versus scenarios where the first several years experience below-average returns, showing how much early-year returns matter.
Limitations
All long-term financial projections are models, not predictions. Actual outcomes will differ from simulated ones. Yield Clarity does not model tax, estate planning, social security or pension income, country-specific regulations, or future changes in employment or personal circumstances. The probabilistic model assumes returns are drawn from a log-normal distribution, which may not capture all real-world market dynamics such as fat tails or regime changes. Use these projections as a planning tool, not as financial advice.
Questions about how something is calculated? Get in touch.