When Should I Check the "Future Value" Box?
Often in reference to pensions the pension amount quoted to the client is the amount they will receive when they retire. In those situations the annual amount would be a future value. In reference to Social Security, statements today quote a present value of the future amount. The Social Security Administration offers an online calculator that allows you to roughly calculate both to see the difference. There are a number assumptions involved when estimating a true future value amount, not the least of which are assumed pay increases or not, and what future COLAs could be.
Therefore, determine if the value you are entering into the Annual Amount fields in an Asset-Map or a Target-Map is the inflated dollar amount being made available at a future age or if it is the Present Value of a future amount at the future age.
Check the Future Value box if the amount you are entering is the inflated amount. Checking the Future Value box tells the system that the asset will not attain that nominal value until some future date.
If your answer was present value you may choose not to check the "Future Value" checkbox.
Below is a helpful comparison from the SocialSecurity.gov calculator website.
1. Notice that the same parameters for retirement have very different numbers based on whether “today’s dollars” or “inflated (future) dollars” is selected.
2. Compare Today's Dollars (top) outcome vs. Future Dollars (bottom)
On a Target-Map, if the Future Value checkbox was checked on the financial, COLA is calculated from the age of funding availability. If the Future Value checkbox was not checked on the financial, COLA growth is assumed from the current age of the member.