Quote:
Originally Posted by GrayHare
The 8% return is a common misconception. First, realize SS is your money being given back to you. Here's a simple example. Your friend borrows $1000 from you, and says, "I can pay you back $500 this year and another $500 next year. Or, instead of that I can pay you back $1000 next year. By waiting until next year you'll be getting twice as much!" If you see the fallacy in that, you can also see that delaying SS is not an 8% return, instead it's your money plus a COLA being paid back to you over a shorter time. The only way you "win the SS game" is by living longer than the actuarial table guesses you will.
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That's just wrong, in so many ways. First of all, if your friend pays you half now and half later, how does 1/2 + 1/2 add up to more than 1? But 8% of 1 plus 1 DOES add up to more than 1
Most importantly, the 8% is not a COLA. When there are COLAs, those get ADDED to the 8% - so he will likely make MORE than +8%.
The 8% is an actuarial adjustment - that is, if typical life expectancy is 80, and they start paying you at 65, they have to stretch that money out over 15 years. If you start taking at 70, it only has to be stretched over 10 years, so you get a lot more each year. If you live to be exactly 80, it adds up to the same amount. If you live longer than 80, then you come out ahead - because SS continues to pay, at the higher rate, until you die.
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