Planit:Discount Rate

From Planipedia

The discount rate is used to calculate the present values within Planit.

Each stream of income, taxes payable or goals is present valued to create a “cash in the bank” equivalent today. The default discount rate is based on your inflation assumption plus an adjustment factor of 2%, however, the adjustment factor can be edited by the user on the Planning Assumptions screen resulting in a mofidied discount rate.

The primary purpose of the present value calculation is to allow a basis of comparison between the wide array of goals and income streams with variable index rates spread over differing numbers of years. The present value number lets us see “the cash in the bank equivalent” for each item today. It also illustrates the client’s situation using numbers that are not so overwhelmingly large that they become difficult for a client to relate to.