Should I use Today’s Currency or Actual Currency when modeling fixed-income sources like pensions and U.S. Social Security?

For pensions, there are two types: defined benefit pensions and defined contribution pensions, each with a different modeling option.

• Use Actual Currency for defined benefit pensions if the amount remains constant over time (e.g. $10,000 per year with no inflation adjustment).
• Use Today’s Currency for defined contribution pensions if the payout is expected to change with inflation.

U.S. Social Security is modeled as an income stream with two inflation-related settings:

• The starting amount field - Determines the initial benefit value.
• Change-over-time settings - Controls whether the benefit amount adjusts for inflation over time.

Even if you select Today’s Currency for the starting amount, Social Security payments will not adjust for inflation unless the change-over-time setting is enabled.

Help me understand Today’s Currency vs Actual Currency:

• Today’s Currency: Adjusts for inflation over time, allowing you to express values/events in future years in terms of today’s purchasing power.
  • Example: An expense of $50 in Today’s Currency occurring 20 years later may cost around $100 in Actual Currency due to inflation.
• Actual Currency: Represents a fixed dollar amount that does not adjust for inflation.
  • Example: A pension that pays $10,000 annually with no cost-of-living adjustments should be modeled in Actual Currency.

If an income source or expense is expected to increase with inflation, use Today’s Currency. If it remains fixed in nominal dollars, use Actual Currency.