Why does the BRS calculator have present and future values?

Cadet 2LT Private RallyPoint Member — Sat, 19 Jun 2021 16:07:56 -0400

Why does the Brs calculator have present and future values?

Response by CPT Private RallyPoint Member made Jun 20 at 2021 3:47 PM

CPT Private RallyPoint Member — Sun, 20 Jun 2021 15:47:53 -0400

Let me qualify my soon to be rant with the fact I am a Chartered Financial Analyst (CFA) and spent nearly all my pre USAR civilian time in corporate finance, banking, and institutional investments.

It would help to know the context of what you want to know about Present Value verses Future Value.

The simplest is in the calculation of a fixed income security (a bond for example, or even a CD aka Cash Deposit at a bank). The Present Value (PV) is essentially the buy out price of the Future Value (FV) of a stream of cash flows. If you buy into a CD at a bank at say 5% for $100, TODAY right now that cash stream is worth $100 today right now. In a year's time the FV of that cash flow will be $105.

If someone wanted to buy your $100 CD in 6 months (I'm over simplifying here) they would have to pay you $102.50 in 6 months in order to be given the right to collect that $105 in another 6 months.

So Present Value I presume in the context of the retirement calculator is showing you the today price right now of the retirement nest egg. The Future Value will be what you are expected to have at retirement in 40+ years.

All of the calculation inputs are purely speculative. The example numbers you have in your attachments are too optimistic.

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As a side comment, I calculated the difference the old retirement pension verses the new blended system and how applied to my situation.

So for example, soldiers can now keep their nest egg when they leave the military prior to 20 years at the cost of a reduced pension payout. The net effect of this is about $100K-$250K (depending on various things) savings per soldier that makes it to retirement in favor to the government. The government gets the benefit of reduced investment risk and pushes that on the soldier. The soldier could potentially end up with a greater retirement cash flow if economic cycles just time out correctly with their life cycle. However, soldiers still face adverse investment risk if their portfolios tank 5 ish years before retirement.

All in all the government is not in the business of managing retirement investment risk, and put it on all the employees. So I get it.

Response by SFC Private RallyPoint Member made Jun 20 at 2021 7:39 PM

SFC Private RallyPoint Member — Sun, 20 Jun 2021 19:39:53 -0400

The future value is the estimated buying power of what something will cost in the future. You are still young so you can't look back and remember picking up a pack of smokes for your mom or dad for $1.35 that would cost $7 or $8 now. That's the estimated rate of inflation when you retire.