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Simple English definitions for legal terms
actuarial equivalent
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A quick definition of actuarial equivalent:
Actuarial Equivalent: This means that when someone retires and starts receiving their pension, the amount they get each month is calculated so that it will last for the rest of their life. This is done by taking into account how long they are expected to live and how much money they have saved up. So, actuarial equivalent is the amount of pension benefits that will be paid out over the expected remaining lifetime of the person receiving it.
A more thorough explanation:
Actuarial equivalent refers to the amount of pension benefits that are accrued and paid out over the expected remaining lifetime of the recipient. This means that the total amount of benefits paid out will be the same, regardless of whether they are paid out monthly or at some other interval.
For example, let's say that a retiree is entitled to receive $1,000 per month in pension benefits. If the retiree is expected to live for another 20 years, the actuarial equivalent of this benefit would be $240,000 ($1,000 x 12 months x 20 years). This means that if the retiree chooses to receive a lump sum payment instead of monthly payments, the lump sum payment would be $240,000.
Another example would be if a retiree is entitled to receive $500 per month in pension benefits, but they choose to receive payments every three months instead of monthly. In this case, the actuarial equivalent of the benefit would be $1,500 ($500 x 3 months), which is the same total amount of benefits paid out over the expected remaining lifetime of the recipient.
These examples illustrate how the actuarial equivalent ensures that the total amount of pension benefits paid out is the same, regardless of the payment frequency or method chosen by the recipient.