Retinal hemoglobin oxygen saturation (sO2) level is believed to be associated with the pathophysiology of several leading blinding diseases. Methods to properly measure retinal sO2 have been investigated for decades; however, the accuracy of retinal oximetry is still considered to be limited. The Monte Carlo simulation of photon transport in retina to examine how the accuracy of retinal oximetry is affected by local parameters is discussed. Fundus photography was simulated in a multilayer retinal model, in which a single vessel segment with 0.7 sO2 was embedded, at six optical wavelengths. Then, 200 million photons were traced in each simulation to ensure statistically stable results. The optical reflectance and energy deposit were recorded to measure sO2 using both the reflection method (existing retinal oximetry) and a new absorption method, photoacoustic ophthalmoscopy (PAOM). By varying the vessel diameter and melanin concentration in the retinal pigment epithelium, the relative error of sO2 measurement in the reflection method increased with increasing vessel diameter and melanin concentration; in comparison, the sO2 measurement was insensitive to these two parameters in PAOM. The results suggest that PAOM potentially can be a more accurate tool in quantifying retinal sO2.