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Should I enter today’s dollars or future dollars?
Should I enter today’s dollars or future dollars?

This article will help you understand the impact of the time value of money in your plan.

Nancy Gates avatar
Written by Nancy Gates
Updated over a week ago

How is the Planner set up relative to inflation and growth of income and assets?

When you set up your plan, you have the ability to enter your optimistic and pessimistic assumptions regarding General Inflation, Social Security COLA, Housing Appreciation, and Medical Inflation. Once those are complete, or you rely on our default values, the software is applying those rates every year in a linear fashion to the expenses and taxes in the plan.

When you enter growth of an income stream or a nominal growth rate for your assets, the Planner will also apply that growth rate year after year in a linear fashion.

Does the Planner display values in "today's dollars" or "future dollars?"

All future amounts that the system displays are in future dollars, also referred to as future value.

Should you enter "today's dollars" or "future dollars?"

Most of the values you enter in your plan are assumed to be today’s dollars, also referred to as present value.

Any item entered in the Basic Budgeter and the PlannerPlus Budgeter should be entered in "today's dollars" and will be inflated year over year.

There are a number of areas which require future values, listed below. For these expenses you will need to determine the future value prior to entering the expense in your plan.

  • Future primary residence for a planned relocation

  • Future real estate purchase

  • Lump sum pensions

  • Future annuities

  • Windfalls

  • One-Time Expenses

  • Disbursements

  • Transfers

How do you determine the future value for a planned expense? You can easily use a financial calculator, Excel or Sheets FV function, or web based calculator to compute the future value of your planned expense using the average rate of inflation in your plan.

Example: You want to account for a future automobile purchase. Your budget for this expense in today's dollars is $25,000. In order to compute an equivalent amount for the auto purchase in 10 years, you would calculate the future value of $25,000 using the applicable rate of inflation (general, housing appreciation, medical cost appreciation) you're using in your plan. You will see that $25,000 in today's dollars increased by a general inflation rate of 2.5% over 10 years is equivalent to $32,002 in future dollars.

You can then enter the future expense in your plan.

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