Lifetime Benefits and Taxes in Social Security: The Effect of Different Discount Rates on Present Value Calculations

Lifetime Benefits and Taxes in Social Security: The Effect of Different Discount Rates on Present Value Calculations

It is often useful to compute contributions and benefits over a lifetime when studying policies for retirement and Social Security. However, these calculations are complicated by factors like economic growth and inflation, which change the relative value of investments over time. The fact that $1 in the bank today might accrue enough interest to be worth $1.03 next year leads economists, accountants, and actuaries to find ways to equate the two amounts at a point in time. This fact sheet explains how the discount rate affects present value calculations.

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