(2 min 30 sec)
Target-Maps clearly compare -
Present value of the need vs. the Present value of assets
("What you want" vs. "What you have")
The growth rate is used to generate the Net Present Value of all of the inflating future cash flows. A "flow of cash" like Social Security, Pension, or Income will be affected by the Net Return on Capital percentage.
The advantages of this way of reckoning:
- It keeps it simpler for clients (who intuitively understand purchasing power of today's dollars).
- It allows the 1-page output to be compliant.
- It keep things high level.