This is only indirectly related to the normal curve, but it’s too good to pass up.

On a recent re-run of the TV show “Ed” (guest-starring Danny DeVito), Ed’s physician buddy gets a postcard that just says “Packers.” Next day the Packers win. A week later he gets a card that says “49ers.” Indeed, San Francisco wins their game. After another two accurate predictions, Doc is thinking “I don’t know who this guy is, but he’s 4 for 4 and he’s startin’ to freak me out.”

The postcard on Week 5 is a little different. It says “If you want my next prediction, please send $200 cash to John Smith, Box 123, etc.” Ed and Doc’s other friends warn him that this is a total scam, but he sends the money anyway. Ed stakes out the post office and nabs DeVito as he picks up his money.

How does the scam work? Fiendishly simple. In Week 1 Danny sends out 10,000 post cards. 5,000 say “Packers” and 5,000 say “Colts.” Packers win. In Week 2 he sends out 5,000 cards to the Packers group. 2,500 say “49ers” and 2,500 say “Rams.” You see where this is going. After 4 weeks there are 600 people who think he walks on water, and enough of them will send him money that he won’t have to worry about the price of postage.

Remember what the normal curve says about .400 batting averages and decades of successful stock picking: given that a lot of people are trying to achieve these things over a long period of time, these performances are (1) inevitable, and (2) rare. So if someone sends you a postcard that says “Pistons,” please ignore it.

Odds are that you’ll retire some day. When you do, you’ll likely have a couple of income sources (social security, company pension) and some savings (bank account, IRA, 401k, 403b, etc.). Will this combination of resources allow for a comfortable retirement? HOW comfortable? For how long? What if inflation takes off, or the market is stagnant?

Wrestling with these questions myself, I finally put together a spreadsheet that will help to answer them. This spreadsheet will tell you how long your nest egg will last under various scenarios of inflation, investment returns, and the like. Just change the numbers in the shaded cells and immediately see the results.

For flexibility, the horizontal axis of the spreadsheet shows “years in retirement” running from 1 to 40, rather than “age.” So whether you plan to retire at 55 or 75, the spreadsheet will show the size of your nest egg after 1 year, 2 years, etc. The Social Security Administration will tell you what your monthly benefits will be, so you can plug that number in. You can then enter your estimated savings when you retire, your monthly living expenses, and so forth. When you plug the numbers into the spreadsheet, the graph will immediately change to show you when your savings will run out.

Here’s a specific example. You learn from the SSA that your monthly benefit starting at age 62 will be $1,500. You plan to have a nest egg of $500,000. You estimate that your monthly expenses will be $5,000, inflation will run at 3%, and you can earn 6% on your savings. Plug those numbers in and the chart shows that your nest egg will run out in 16 years, at age 78. Oops, that’s a little early. Drop your monthly expenses to $4,000 and the chart now shows you’re good to age 87. Much better.

The spreadsheet is fairly sophisticated, in that it uses the “present value” function to show you future results in today’s dollars. Please let me know if you find it useful, and be sure to report any bugs.

Most people are familiar with the normal (or bell-shaped) curve. It shows the relative frequency of outcomes when the inputs consist of random events.

If we flip a fair coin 100 times and count heads, then repeat this “experiment” many times and plot the results, we’ll get a normal curve. The most frequent outcome will be 50, the top of the curve. 55 heads will be less frequent (to the right of center), and 25 heads will be even less frequent (left of center).

If we do the experiment enough times, we’ll see cases with 100 heads (extremely rare, way off in the right tail of the curve) and cases with 0 heads (equally rare, way off in the left tail). We express the distance from center in terms of standard deviations (SD). So a 2 SD event would happen 1 time in 20 (this is the famous p < .05 rule in statistics, for those who care); a 3 SD event would happen 1 time in 100; and a 6 SD event (or six sigma, for those who care) is equivalent to 1 in 37,000,000.

What does the normal curve have to do with picking stocks or betting on sports? Success rates in both endeavors resemble the normal curve. The average annual return for stock portfolios is 0% (sad but true). Some people can bring in 10% annually over many years, while others will average -10% returns. A tiny, tiny handful of people can maintain 30% annual returns for decades (Warren Buffet, Peter Lynch, George Soros). At the other end of the curve we have Brian Hunter, formerly of Amaranth Advisors, who lost six billion dollars (that’s billion with a b) in two weeks. These are 5-6 standard deviation performances. They are, by definition, (1) inevitable and (2) rare. This is what the normal curve tells us.

How about sports betting? Sites like pickspal will offer to sell you the picks of people who have a perfect record over (say) the last 3 months. A perfect record sounds impressive, but consider the brief time period. What’s more likely, 10 heads in 10 coin tosses or 100 heads in 100 tosses? These hot pickers will inevitably revert to the mean, and you would be well advised to avoid spending money for their picks.

As baby boomers start retiring, more and more financial advice is being presented to them, some of it good, some not so good. One specific piece of advice that’s shown up more and more lately is this: if you retire early, delay drawing your social security payments so you can get a larger check when you do start drawing.

The Social Security Administration itself encourages this by sending out statements showing that if you start social security at 62 you’ll get about $1,500/month, whereas if you wait until you’re 66 (the “full” retirement age for most boomers) you’ll get around $2,100/month (this is a fairly typical example for a professional who has “maxed out” social security pay-ins; the same logic applies to everyone). Six hundred dollars a month extra just for waiting? Sounds tempting, doesn’t it?

Not so fast. Let’s look at two sets of people: those who can afford to retire early, and those who are forced to retire early (illness, layoff, etc.).

If you can afford to retire early, you probably don’t need your social security payments just to get by. What if you collected the payments for four years and invested them in a CD or a Canadian royalty trust? This would put you more than $70,000 ahead of someone who decided to delay social security until the age of 66. How long will it take them to catch up? It depends on factors like inflation, but it will be a minimum of 10 years and could be as many as 16.

You read that right. Someone who delays social security will not catch up to your accumulation (even ignoring the interest you might receive) until they’re 76, maybe 82. In the meantime they could, to put it gently, expire. For specifics on this, check out the retirement calculator.

What if you’re in that second set of people, and get laid off from your job. That extra $600/month could come in real handy. The problem is, to get it you have to go for four years with nothing. Social security was designed as a safety net. If you need it, use it. If you don’t, take it early and invest it. It doesn’t pay to wait.