What are today's and future dollars. How do today's and future dollars impact my financial plan?
Please refer to our Blog article for deeper insight into this feature.
How is the Toggle applied to the Plan?
You may apply the Toggle in top menu
Once toggled, all labels in My Plan are updated to indicate today's and future dollars.
To toggle between viewing future and today's dollars, visit the Assumptions tab within Boldin. Enable or disable the toggle for Future Dollars as per your preference to adjust the view of values in your Plan.
Today's dollars and future dollars are different ways of presenting values over time. (Today's dollars may also be referred to as "present value.")
Today's dollars represent an expense or savings value at the current point in time (ie: today).
For example, a 1,638.62 item 20 years in the future would cost $1,000 today (under an inflation assumption of 2.5%.)
For example, an investment worth $1,000,000 20 years from now will be worth $610,270.94 today (under an inflation assumption of 2.5%.)
Future dollars represent how a current savings value or expense would grow over time taking into account the effects of inflation.
Taking our example above, the inverse is also true. A $1,000 item today would cost 1,638.62 in 20 years (under an inflation assumption of 2.5%.)
Taking our example above, the inverse is also true. An investment worth $610,270.94 today will be worth $1,000,000 in 20 years (under an inflation assumption of 2.5%.)
Future Dollars Forecast
Real estate projections in future dollars represent the unadjusted value of your property based on the appreciation rate set in the plan. This demonstrates how much the property might be worth in future economic terms without accounting for inflation adjustments.
Today's Dollars Forecast
Real estate projections in today's dollars apply a Present Value discount to account for inflation, showing the property's value in terms of the current economic landscape.
How are the values calculated in the software?
Future dollars for expenses are computed based upon the general inflation rate you have selected in your Assumptions and the view (Optimistic/Pessimistic/Average) you have applied to your plan. If you state an expense or payment as occurring today or in the current year, there is no inflationary impact and the values will be the same. Values for savings are computed based upon the rate of return you enter and other items are computed based upon the relevant growth or COLAs.
For real estate in particular, you can set a custom housing appreciation rate. This rate is adjustable within the Rate Assumptions section of the app under the Inflation and Appreciation tab. Upon setting the desired appreciation rate, the projection values will reflect the corresponding calculations.
How does this impact the data I enter in the Planner?
Most areas of the Planner require users to enter today's dollars.
Consider setting a realistic appreciation rate in alignment with market conditions. Unrealistic projections may distort the economic analysis of your plan, which can be adjusted in the Rate Assumptions section.
Any item entered in the Basic Budgeter and the Detailed Budgeter should be entered in "today's dollars" and will be inflated year over year.
There will be areas of the Planner that require a user to enter future dollars. Those will be clearly marked and include:
Future primary residence for a planned relocation
Future real estate purchase
Lump sum pensions
Future annuities
Windfalls
One-Time Expenses
Disbursements
Transfers
Roth Conversions
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.