Chris Pedersen · Director of Research
2 Funds for Life Calculator.
Explore the impact of adding US Small-Cap Value to a Target Date Fund — and see how the 2 Funds for Life strategy might change your long-term growth, risk, and retirement income.
About the Calculator
An updated web-based tool from Chris Pedersen.
Chris presented an updated web-based calculator to help investors explore the impact of adding small-cap value to a target-date fund. The calculator lets you adjust variables like age, retirement date, and contribution amounts, providing projections for future savings, risk levels, and survival rates.
Chris emphasized that even a small increase in allocation to small-cap value could lead to better outcomes — including higher savings, improved resilience to market volatility, and potentially higher safe withdrawal rates in retirement.
Launch the Calculator
Run your scenarios.
Start with "I'm Accumulating" or "I'm Retired" to get a quick projection. Then fine-tune any input — allocation, contributions, inflation, rebalancing — and compare the 2 Funds for Life strategy to a standard Target Date Fund.
Model Your Financial Future
This calculator compares a standard Target Date Fund with the 2 Funds for Life strategy. See how adding a tilt to Small Cap Value could impact your long-term growth, risk, and retirement income.
To get started, choose your current path:
Quick Start: Accumulator
Quick Start: Retiree
2 Funds for Life (2FFL) Calculator
Output in Today's $'s
Expected Growth & Decumulation These projections are based on mean (or expected) annual returns and do not account for taxes. Actual returns may vary significantly, and portfolio depletion is possible if withdrawals exceed growth. Real values are adjusted for the specified inflation rate to show purchasing power in today's dollars.
Worst Balance Declines - This chart illustrates the hypothetical worst percentage drawdown (peak-to-trough decline) from - for these asset allocations. For "None/Nudge" scenarios, the drawdown shown reflects the effective (drifted) SCV allocation for that year.
Your Plan & Settings
Scales with income
In '% of Income' mode, contributions automatically scale as the reference income is assumed to grow with inflation.
Advanced Settings
Additional Charts
Target TDF|SCV Allocation Glide Path
This chart shows your target allocation to the TDF and US Small Cap Value over time. When YTR Scaling is enabled, the target SCV allocation decreases as you approach retirement, eventually settling at your fixed allocation percentage for all of retirement.
The dashed line shows the expected (drifted) SCV allocation when using the "None/Nudge" rebalancing strategy.
TDF Strategy Simulation Paths This chart shows the likely range of outcomes from 5,000 simulations. The solid line is the median (50th percentile) and the shaded area represents the range between a pessimistic (10th) and optimistic (90th) percentile outcome.
2FFL Strategy Simulation Paths This chart shows the likely range of outcomes from 5,000 simulations. The solid line is the median (50th percentile) and the shaded area represents the range between a pessimistic (10th) and optimistic (90th) percentile outcome.
Glossary & FAQ
- CAGR (Compound Annual Growth Rate)
- Think of it as the 'smoothed-out' annual return. While real-world returns jump up and down, CAGR represents the single, steady rate your investment would have needed to achieve the same end result over the entire period. It's a more accurate measure of an investment's true performance than a simple average of yearly returns.
- Standard Deviation (Volatility)
- A measure of how much an investment's returns vary from its average. A higher standard deviation indicates higher volatility and risk. For example, an investment with a 10% average return and a 15% standard deviation would typically have annual returns falling between -5% and 25% about two-thirds of the time.
- Worst Drawdown
- The largest peak-to-trough decline in the value of an investment over a specific period. It's a measure of the biggest loss an investor would have historically experienced.
- SWR (Safe Withdrawal Rate)
- The highest percentage of a portfolio's initial value that could have been withdrawn in the first year of a 30-year retirement, with that dollar amount then being adjusted for inflation each subsequent year, without failing in any historical starting period from - . The SWRs in this calculator are determined by finding the single worst-case starting year in the historical data.
- Monte Carlo Simulation
- A computer model that runs thousands of possible futures to estimate a range of outcomes. Unlike a historical backtest which replays the exact past, this simulation generates new random returns each year based on historical volatility. It assumes each year is independent and does not model 'mean reversion' (the tendency for good and bad periods to balance out). This often results in a wider range of potential outcomes and is a conservative way to stress-test a financial plan. The Survival Rate metric in this calculator is a direct output of this simulation.
- 2 Funds for Life Book Approaches
- This calculator includes presets for the three core strategies detailed in the 2 Funds for Life
book, which can be selected from the "Book Approaches" dropdown in the settings menu.
- Easy: A simple approach with a fixed 10% allocation to US Small Cap Value (SCV) and 90% to a Target Date Fund (TDF), using a "nudge" rebalancing strategy (only rebalancing from withdrawals in retirement).
- Moderate: A dynamic approach that allocates 1.5% to US-SCV for every year you have until retirement (e.g., 30% SCV if you are 20 years from retirement), rebalancing annually.
- Aggressive: The most aggressive approach, combining a fixed 20% base allocation to US-SCV with a dynamic 2.5% for every year until retirement, also rebalancing annually.
Why results may differ from the book:
The analysis in the book was conducted using historical market data through 2019. This calculator uses updated data through . This recent period included two significant market events:
1. A period of massive outperformance by US large-cap growth stocks (like the "Magnificent Seven"), which boosted the returns of broad-market funds found in TDFs.
2. The year 2022, in which stocks and bonds fell simultaneously, increasing the calculated "worst-case" drawdowns for nearly all diversified portfolios.
These recent events slightly temper the historical outperformance of SCV and increase the measured historical risk compared to the original analysis. The results in this calculator reflect a more current, though still long-term, view of market history.
Assumptions & Disclaimers
- Important Disclaimer: This calculator is provided for educational and illustrative purposes only and should not be considered financial, investment, tax, or legal advice. The projections are hypothetical and are not guarantees of future performance. Actual investment returns and portfolio values will vary significantly based on market conditions, individual investment choices, and other factors. This tool does not take into account your personal financial situation, risk tolerance, investment objectives, or specific tax circumstances. It also does not include the impact of investment fees. It is essential to consult with a qualified financial professional for personalized advice tailored to your individual needs.
- Expected Returns & Volatility:
- The underlying data for returns, standard deviations, and correlations is based on historical market performance from - .
- Target Date Fund (TDF): Glide path rates are based on a typical TDF's decreasing equity exposure over time.
- 25 years to retirement: %
- 15 years to retirement: %
- 10 years to retirement: %
- 5 years to retirement: %
- At retirement (0 years): %
- 7 years past retirement (-7 years): %
- US Small Cap Value (SCV): A constant expected return rate of % is assumed.
- The main chart projection lines use the arithmetic mean return to represent the expected (average) outcome.
- Inflation: The specified inflation rate is applied annually to real value calculations and to adjust withdrawals if "Adjust for Inflation" is checked.
- Contributions & Withdrawals: For simplicity in the projection model, both contributions and withdrawals are processed as a lump sum at the beginning of each year. When using dollar-based mode, "Real Withdrawals" are specified in today's dollars and inflated annually. When using percentage-based mode, the specified percentage of the current portfolio balance is withdrawn at the beginning of each year.
- Monthly Contribution Growth:
- Fixed (Nominal): Monthly contributions remain the same nominal dollar amount throughout the accumulation phase.
- Scale with Inflation: Monthly contributions increase each year by the specified inflation rate, maintaining their purchasing power.
- Rebalancing:
- Annual Rebalancing: The portfolio is rebalanced back to the target SCV allocation at the beginning of each year.
- None/Nudge: No rebalancing during accumulation. In retirement, withdrawals first reduce any overweight asset to its target, then are taken proportionally.
- TDF Target Date Offset: This setting adjusts the assumed glide path of the Target Date Fund. A positive number (e.g., +10) simulates a TDF that is more aggressive (holds higher equity for longer) than your actual retirement date. A negative number (e.g., -10) simulates a TDF that is more conservative (shifts to bonds sooner). This allows for modeling of various TDF strategies, including those for very long or very short investment horizons.
- Drawdown Data: Worst-case drawdown figures are based on historical back-tested data from - for fixed asset allocations. For "None/Nudge" scenarios, the drawdown shown reflects the effective (drifted) SCV allocation for that year, interpolated from the provided fixed-allocation data. Actual market drawdowns can vary.
- Safe Withdrawal Rate (SWR) Data: The SWR values displayed represent the highest initial withdrawal rate that would have succeeded without failing in any historical starting period for a 30-year retirement horizon, using historical data from - . These values are based on the effective asset allocation (TDF equity glide path combined with SCV allocation) for each year in retirement. This helps to illustrate the impact of sequence-of-returns risk on portfolio longevity.
- Survival Rate: This is the percentage of 5,000 simulated lifetimes where the portfolio did not run out of money before the simulation end age. It is calculated using a parametric Monte Carlo simulation that models the volatility (standard deviation) and correlation of the TDF and SCV assets on an annual basis. Each simulated year, a new correlated random return is generated for each asset based on the provided statistical data.
- Percentage Withdrawal Range Calculations:
When using the "%/yr" withdrawal mode, the "Worst" and "Best" values are derived from the full 5,000-lifetime Monte Carlo simulation. We collect the real (inflation-adjusted) dollar amount withdrawn for every year of retirement across all 5,000 simulations. This entire dataset of potential annual withdrawals is then sorted.
- The 10th Percentile represents a pessimistic annual withdrawal amount, where 90% of simulated outcomes were better.
- The 90th Percentile represents an optimistic annual withdrawal amount, where 90% of simulated outcomes were worse.
- Taxes & Fees: This calculator does not account for taxes, investment fees, or other expenses, which would reduce actual returns.
Three Approaches
Pick your path in the 2 Funds for Life book.
Approach 01 / Easy
Set it and forget it.
A simple approach with a fixed 10% allocation to US Small Cap Value and 90% to a Target Date Fund, using a "nudge" rebalancing strategy (only rebalancing from withdrawals in retirement).
10% SCV · 90% TDF · Nudge rebalancing
Approach 02 / Moderate
Scale with your timeline.
A dynamic approach that allocates 1.5% to US Small Cap Value for every year you have until retirement. If you're 20 years out, you'd hold 30% SCV and 70% TDF — shifting toward the TDF as retirement nears. Rebalanced annually.
1.5% × Years-to-Retirement · Annual rebalancing
Approach 03 / Aggressive
Maximum tilt, maximum growth.
The most aggressive approach — combining a fixed 20% base allocation to US Small Cap Value with a dynamic 2.5% for every year until retirement. At 20 years out, that's 70% SCV and 30% TDF. Rebalanced annually.
20% base + 2.5% × YTR · Annual rebalancing
Notes from Chris
What Chris highlighted in the launch demo.
Target Date Fund Investment Calculator
Chris explained how the calculator implements different approaches to combining target date funds and small-cap value — including a fixed allocation method
and a scaling approach based on years to retirement. It supports the same glide paths described in his book, so you can run custom backtests and explore different investment scenarios.
Fixed contributions, real or nominal
Paul asked whether the calculator handles fixed annual contributions. Chris confirmed it supports both constant dollar amounts and contributions that scale with inflation. You can also approximate equity allocation strategies without the fixed-income component that affects early returns in traditional target date funds.
Target Date Funds vs. the S&P 500
The calculator is slightly more conservative than an S&P 500 projection
because the TDF includes international diversification. Returns are based on data from 1970 to 2025, while safe withdrawal rate calculations go back to 1928 to include the Great Depression. Chris noted the classic 4% SWR is conservative — most people who use it in retirement will likely end up with a surplus.
Why 2 Funds for Life works for young investors
Chris emphasized the strategy's simplicity
and its potential for young investors who prefer hands-off management. Starting early and investing consistently can produce significant financial growth over decades. He even suggested parents use the tool with their children — to motivate early, disciplined saving while teaching about risk and volatility in an interactive way.
The Big Idea
"Even a small increase in small-cap value could lead to better outcomes — higher savings, improved resilience, and potentially higher safe withdrawal rates."
— Chris Pedersen, on the thinking behind the 2 Funds for Life strategy
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