Our question is as follows: If we invest a fixed amount each year in a pension fund or an IRP account and continue contributing until retirement, how much will we have accumulated, and how much annual living expenses will we be able to cover? In this regard, we would like to introduce a useful simulation tool.

https://www.portfoliovisualizer.com/monte-carlo-simulation

The basic concept involves considering historical returns, volatility, and other factors related to U.S. stocks, and showcasing backtesting results based on specific investment conditions. This tool also offers Monte Carlo simulation capabilities, allowing us to explore future scenarios. I’m primarily investing in S&P 500 and Nasdaq 100 through a pension account. Thus, for this simulation, we have considered a 50:50 investment ratio in SPDR S&P 500 ETF (SPY) and Fidelity Nasdaq Composite ETF (ONEQ). While Nasdaq QQQ has a larger scale and is more suitable for reference, it’s important to note that the QQQ data used in the simulation is available from the year 2000 onwards. Since the year 2000 experienced the tech bubble and the index was exceptionally high, I thought we would be better to use the data starting point to the year 2004 which is ONEQ. As a result, the Nasdaq average returns would be what we are familiar with.

*Unit: The amounts are in dollars, but for your convenience, you can understand them in tens of thousands of Korean won.

• Portfolio Type: Choose Ticker, and in the Portfolio Assets section, select SPY and ONEQ.
• Initial Amount: This is the initial contribution, and since it needs to be greater than 0, you can enter 1.
• Contribution Frequency: Monthly
• Contribution Amount: 750,000 KRW (9m KRW annually)
• Simulation Period in Years: 20 years
• Tax Treatment: Pre-tax
• Simulation Model: Historical returns
• Use Full History: Yes
• Inflation Model: Historical inflation
• Rebalancing: Not performed
• Others: The Withdraw simulation option is more important, so it’s used as default in the simulation.

After setting the parameters as described above and clicking “Run Simulation,” the following results will be displayed.



The percentile-based results are shown, assuming the average, and the major results for the 50th percentile are as follows:

• Nominal Returns CAGR: 9.79%
• Effective Returns CAGR (Considering Inflation): 7.07%
• Nominal Portfolio Value: 670 KRW
• Effective Portfolio Value (Present Value Basis): 410 KRW
• Safe Withdrawal Rate: 9.26%
• Sustainable Withdrawal Rate: 6.61%



Considering the current inflation rate after COVID-19 and applying historical CAGR returns, the 9.26% safe withdrawal rate seems quite high. If we set a reasonable withdrawal rate of around 6.0%, you could sustain an annual living expense of 24.6 million KRW by selling ETFs on a present value basis (at least until your passing). In good market years, you could withdraw a bit more, and in not-so-good years, you could withdraw slightly less to balance things out. Adding in other factors like national pension and public employee pension, you might expect to have an annual pension of around 40 million KRW.

Once again, a notable observation here is the difference in slope between the 1-10 year range and the 11-20 year range on the graph. Indeed, when it comes to pension investments, time is a powerful factor. If you were to extend that time series to 30 years, the difference in slope between the 1-20 year range and the 21-30 year range would also be significant. Warren Buffett has mentioned that a significant portion of his wealth was accumulated in the past 10-20 years. This doesn’t mean he invested particularly well in those years; rather, some of his investments were made 40-50 years ago, and their value has grown exponentially over time. This once again emphasizes that pension investments should ideally begin as early as possible.

The following graph is a simulation based on the investment conditions I’m currently using.

• Contribution Frequency: Monthly
• Contribution Amount: 3.16m KRW (38m KRW annually)
• Simulation Period in Years: 20 years
• Tax Treatment: Pre-tax
• Simulation Model: Historical returns
• Use Full History: Yes
• Inflation Model: Historical inflation
• Rebalancing: Not performed



• Nominal Portfolio Value: 2.81 billion KRW
• Effective Portfolio Value (Present Value Basis): 1.7 billion KRW



With a 6.0% withdrawal rate set, I could potentially expect an annual income of 100 million KRW (present value basis) plus national pension (at least until your passing). Since a 20-year investment horizon is required, it seems I will need to diligently save money until my mid-50s. If I had started at 25 years old… it’s truly, truly regrettable. To some extent, the only thing I can do to shorten the retirement horizon is to increase my contribution amount. Time is a precious factor when it comes to pension investments.