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Post-Retirement Discounting in Estate Loss Calculations and the Net Discount Rate

Author

Listed:
  • Fred Abraham

    (University of Northern Iowa)

  • David R. Hakes

    (University of Northern Iowa)

Abstract

We show that the accumulations to an estate from premature death should be discounted from the time of projected death rather than from retirement. We provide evidence that in most cases an estate does not grow, and is most likely stable, from the time of retirement to that of projected death. We then calculate the overstatement of the loss to the estate when a forensic economist mistakenly discounts the accumulations to the estate from the time of retirement instead of projected death. We also demonstrate that the use of a net discount rate to discount from retirement to projected death overstates the loss to the estate because a net discount rate implicitly assumes a positive growth rate in the nominal estate from retirement to projected death.

Suggested Citation

  • Fred Abraham & David R. Hakes, 2017. "Post-Retirement Discounting in Estate Loss Calculations and the Net Discount Rate," Journal of Economic Insight, Missouri Valley Economic Association, vol. 43(1), pages 69-77.
    • Handle: RePEc:mve:journl:v:43:y:2017:i:1:p:69-77
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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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