Current Dollars vs. Future Dollars

Explanation of using Current Dollars vs Future Dollars when estimating a Pension Plan Benefit

When a pension benefit estimate is requested with a last day worked past next year, we show your pension and match amounts in TAPE as current dollars. If we provided you the actual amount of your pension and match in future dollars, you might not think about the effect inflation will have on your retirement income, and what the purchasing power of your benefit will be in the future. Below is an example to demonstrate the difference between current dollars and future dollars.

Example

Let's say you make $2000 a month now and you need to spend $300 a month on groceries. These are your costs and income now, so they are in current dollars.

If your goal is to:

retire in 15 years at age 65

have a total of 25 years of service with Trinity Health,

assume you get a 3.5% pay increase each year, and

inflation is assumed to be 3% a year (15 years = 56%)

Your pension in 15 years shown as current dollars is: $502 a month
Your pension in 15 years shown as future dollars is: $783 a month

Since the actual estimated pension of $783 a month in future dollars is worth only $502 in current dollars ($783 divided by 1.56 to adjust for inflation), TAPE will show your pension as $502 even though your actual check will be $783.

We provide your pension benefit in current dollars because inflation will have a big impact on your purchasing power. Inflation of 3% a year will be 56% in 15 years (i.e. groceries costing $300 today will cost you $468 in 15 years and a gallon of milk costing $2.69 today will cost you $4.19 in 15 years). You may still be able to buy your groceries each month, but you will need additional income to have enough money for your other expenses.

As you can see from the above example, pension benefits can be expressed in two different ways. At Trinity Health we want everyone to understand how inflation will impact our future benefits, so we have adopted the practice of expressing estimated future pension benefits in current dollars.

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