What Makes the Biggest Difference
in Monte Carlo Success?
If the GMWB is allocated identically to the rest of the portfolio, then the Monte Carlo probability
of success tends to come down because the software predominately sees that the portion
assigned to the annuity now has an additional fee for the insurance rider and has become
somewhat less liquid because the software only takes the allowed withdrawals from the account.
Uninsured 60/40
GMWB on 60/40
Software illiquid and
expensive asset
$1 million
60/40 Portfolio
However, if the annuity is allocated in a way that allows for greater upside potential than the rest
of the portfolio, then there's generally an increase in the Monte Carlo probability of success.
That's one of the many reasons why the investments inside of the annuity are still important,
even when there's a guarantee associated with the contract.
Uninsured 60/40
GMWB on 80/20
Software sees enough performance
to outpace fee
$1 million
60/40 Portfolio
For illustrative purposes only.
For illustrative purposes only.
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