What Is Present Value?

In MaxiFi, all amounts in your reports — like income, spending, and net worth — are shown in today’s dollars, meaning they’re adjusted for inflation to reflect what that future money would feel like in terms of today's purchasing power.

But in certain reports like the Lifetime Budget Sheet and Estate Value, MaxiFi uses a calculation called Present Value (PV) that goes one step further. Present Value isn’t just about adjusting for inflation — it’s a way of comparing the value of money over time.

 

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Why Present Value Matters in MaxiFi 

MaxiFi uses PV to help you compare long-term lifetime outcomes, especially when you want to understand the full value of a strategy or decision. PV becomes especially useful when:

  • Comparing two plans, reports, or total discretionary income over a lifetime

  • Evaluating how changes to your plan affect the Lifetime Budget, which does use PV calculations

  • Comparing sets of values across time (e.g., under different assumptions or plan choices), not just annual line items

We don’t typically apply PV to estate values or retirement strategy comparisons shown in today’s dollars, as those are usually adjusted for inflation only.

The main takeaway: Present Value gives you a way to make apples-to-apples comparisons between complex plans that unfold over decades. It’s a helpful but more advanced lens to apply when you’re looking at big-picture decisions.

A Simple Example

Let’s say two strategies each provide you with $1,500 in spending over the next five years:

  • Strategy A: $100, $200, $300, $400, $500

  • Strategy B: $500, $400, $300, $200, $100

Both add up to $1,500 in today’s dollars, but Strategy B has a higher Present Value. Why? Because more of the money comes earlier, which means it has more time to grow or be used.


When we calculate Present Value, we actually calculate the PV of each year’s amount individually, adjusting for how far in the future it is. Then we add them all together to get the total Present Value of the strategy:

Total PV = PV of Year 1 + PV of Year 2 + PV of Year 3 + …


This is where Present Value makes a difference: it helps you compare when the money occurs, not just how much.

The Math Behind the Scenes

If you’re curious how Present Value is calculated, here’s a basic breakdown:

Step 1: Calculate your real rate of return

This adjusts your investment growth to remove the effect of inflation

  • Real Rate = [(1 + Nominal Return) ÷ (1 + Inflation Rate)] - 1

Example: If your investment grows at 3.5% per year and inflation is 2.5%, your real return is about 0.976%.

Step 2: Apply it to future amounts

To figure out what a future dollar is worth today:

  • Present Value = Future Amount ÷ (1 + Real Rate)^Years

So if you’re receiving $1,000 in 30 years and your real return is 0.976%, that $1,000 is worth about $747 today.

Note: If the real rate of return is negative, future values can appear larger, not smaller — that’s what we call “negative discounting.”