How To Calculate Lost Future Earnings

Lost Future Earnings Formula:

\[ LFE = \sum_{t=1}^{n} \left( PW \times \frac{(1 + g)^t}{(1 + r)^t} \right) \]

Present Wage (PW):

Growth Rate (g):

Discount Rate (r):

Years (t):

years

Lost Future Earnings (LFE):

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1. What Is The Lost Future Earnings Calculation?

The Lost Future Earnings (LFE) calculation estimates the present value of future income that an individual would have earned if not for an incident that prevents them from working. It's commonly used in legal cases involving personal injury or wrongful death.

2. How Does The Calculator Work?

The calculator uses the Lost Future Earnings formula:

\[ LFE = \sum_{t=1}^{n} \left( PW \times \frac{(1 + g)^t}{(1 + r)^t} \right) \]

Where:

$ PW $ — Present wage or current annual earnings ($)
$ g $ — Expected annual growth rate of earnings (%)
$ r $ — Discount rate (%)
$ t $ — Number of years into the future
$ n $ — Total number of years being calculated

Explanation: The formula calculates the present value of future earnings by accounting for expected wage growth while discounting future amounts to reflect their current value.

3. Importance Of Lost Future Earnings Calculation

Details: Accurate LFE calculation is crucial for determining fair compensation in legal cases, insurance claims, and financial planning for individuals who have lost their earning capacity due to injury or other circumstances.

4. Using The Calculator

Tips: Enter present wage in dollars, growth and discount rates as decimals (e.g., 0.03 for 3%), and the number of years for the calculation. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why is a discount rate used in the calculation?
A: The discount rate accounts for the time value of money, recognizing that a dollar today is worth more than a dollar in the future due to its potential earning capacity.

Q2: How is the growth rate determined?
A: The growth rate typically reflects expected wage increases due to inflation, career advancement, cost of living adjustments, and merit increases.

Q3: What time period should be used for the calculation?
A: The time period typically corresponds to the number of years until expected retirement, considering the individual's age, occupation, and expected working lifespan.

Q4: Are there limitations to this calculation?
A: The calculation assumes constant growth and discount rates, which may not reflect real-world variability. It also doesn't account for potential career changes, unemployment periods, or other unpredictable factors.

Q5: Should this calculation be used for legal purposes?
A: While this calculator provides a good estimate, official legal cases often require expert testimony and more sophisticated calculations that consider additional factors specific to the individual case.