How much $ is needed to never have to work again?

[Evan]

Metetron, here's a little quick and dirty analysis of why I wouldn't use equities for the "how much do I need to never work again" scenario. It's not exact because I'm in the living room on my roommate's laptop and it doesn't have excel, so this is the best I could do in Google Docs without wasting a ton of time.

I took the returns of every 12 month sample of the S&P 500 going back to 1950. To be clear, April 06-April 07 is one sample, March 06-March 07 is another. So each month gets counted 12 times. This probably isn't statistically perfect, but it's a close enough approximation for not having excel.

Average return: 8.3%
Standard deviation: 14.8%

Positive "years": 491
Negative "years: 185

Winning:Losing: 2.67:1
% losing: 27.4%

Let's call 5% our benchmark long term risk free rate..
Z score: (x-m)/s=(.05-.083)/.148=-.22
Cumulative normal distribution: 41.2% the return of equities will be less than the risk free rate


Falling below the benchmark rate is a big deal in a scenario, like this one, where you're withdrawing money every month or year. It's not just an issue of catastrophic disaster.