Tag Archives: Reid Earnhardt

How are cash flows and current day value used to calculate the duration of actuarial liabilities?

Actuaries calculate retirement plan liabilities by taking a stream of benefit payments, or cash flows, expected to be received from a plan and assigning a measure of current day value to each payment in the stream, expressed as a single cash amount as of a valuation date. Current day value is the concept that money available today has the potential to earn interest. When describing a sum of money to be provided in the future, its value today should be less in order to account for earnings potential. It is the sum of all expected payments, measured at current day value, which defines an actuarial liability. This article by Milliman actuary Reid Earnhardt explains how cash flows and present value are used to calculate the duration of actuarial liabilities.