How Annuities Help Retirees Keep Up With Inflation

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

How Annuities Help Retirees Keep Up With Inflation

Retirement can bring financial uncertainties, especially during periods of high inflation. However, annuities with Cost of Living Adjustments (COLA) and increasing Guaranteed Lifetime Withdrawal Benefits (GLWB) can provide retirees with a reliable income that keeps pace with rising costs. Here’s how these features work:

Cost of Living Adjustments (COLA)

What is COLA?

COLA is a feature that adjusts annuity payments based on changes in the Consumer Price Index (CPI). This adjustment helps your income keep pace with inflation, ensuring that your purchasing power remains stable over time.

How COLA Works

When inflation rates rise, the payments from your annuity increase proportionately. This adjustment is typically made annually, reflecting the CPI changes. For example, if the CPI indicates a 3% increase in living costs, your annuity payments would increase by the same percentage.

Benefits of COLA

  • Inflation Protection: Ensures your income maintains its value over time.
  • Predictable Adjustments: Provides a structured approach to handling inflation, with regular adjustments based on reliable economic indicators.
Inflation-Protected Annuity

Guaranteed Lifetime Withdrawal Benefits (GLWB)

Understanding GLWB

GLWB allows you to withdraw a guaranteed income for life, with the potential for increases. This feature is particularly beneficial during inflationary periods, as it can provide rising income levels in line with inflation.

How GLWB Works

GLWB typically offers a base level of guaranteed withdrawals. Over time, depending on the performance of the underlying investments or specific terms of the annuity, these withdrawals can increase. Some GLWBs are linked to inflation indices, ensuring that the guaranteed withdrawals grow in response to inflation.

Benefits of GLWB

  • Lifetime Income: Guarantees you won’t outlive your income.
  • Inflation-Adjusted Withdrawals: Increases in line with inflation protect your purchasing power.
  • Flexibility: Allows for variable withdrawals, which can be beneficial in adapting to changing financial needs.

Combining COLA and GLWB

Enhanced Inflation Protection

By combining COLA and GLWB features in your annuity, you can enjoy a robust strategy to combat inflation. COLA adjusts your payments based on actual inflation rates, while GLWB ensures your income lasts a lifetime and potentially increases over time.

Strategic Benefits

  • Sustainable Income: Ensures a steady, inflation-adjusted income stream throughout retirement.
  • Peace of Mind: Offers financial security, knowing your income is protected against inflation.
  • Adaptability: Provides a flexible approach to managing retirement income and adapting to economic changes.
How Annuities Help Retirees Keep Up With Inflation

Potential Downsides

Lower Initial Payments

Annuities with COLA and GLWB often start with lower initial payments compared to fixed annuities. This is because the potential for future increases due to inflation adjustments or performance is factored in from the start.

Catching Up Over Time

While starting lower, these payments have the potential to increase over time, potentially catching up to and surpassing the initial payouts of fixed annuities. This gradual increase aligns your income with inflation, ensuring long-term financial stability.

Inflation Adjusted Annuity

How We Can Help

Retirement planning can be daunting, especially when inflation threatens your financial security. At The Annuity Expert, we understand your concerns and have been an insurance agency, annuity broker, and retirement planner for 15 years. We believe in finding the best solutions at the lowest costs, ensuring your retirement income keeps pace with rising costs.

We address the core problem of maintaining your purchasing power during retirement. Inflation erodes the value of fixed incomes, causing financial strain and anxiety. By offering annuities with COLA, GLWB, and MYGA laddering, we provide solutions that adjust your income with inflation, securing your financial future.

What We Recommend

To achieve the desired results and secure your retirement income against inflation, follow these steps:

  • Step 1: Initial Consultation
    • Contact us for a free consultation. During this meeting, we assess your financial situation and retirement goals. The main benefit is a personalized retirement plan tailored to your needs.
  • Step 2: Annuity Selection
    • We help you choose the right annuity with COLA, GLWB, and MYGA laddering features based on the assessment. This step ensures your retirement income is inflation-protected. The main benefit is a structured approach to secure your financial future.
  • Step 3: Implementation and Monitoring
    • We implement your chosen annuity strategy and continuously monitor its performance. Regular reviews ensure your income adjusts with inflation, providing long-term stability. The main benefit is ongoing financial security and peace of mind.

Features and Benefits

  • Personalized Plans: Tailored to your financial situation and goals.
  • Inflation Protection: Ensures your income maintains its value over time.
  • Lifetime Income: Guarantees you won’t outlive your income.
  • Flexible Withdrawals: Adapts to changing financial needs.
  • Regular Monitoring: Keeps your plan aligned with economic changes.
  • MYGA Laddering: Provides periodic access to funds and interest rate benefits.

Addressing Common Objections

  • Objection: Lower Initial Payments
    • Solution: Initial payments may be lower but increase over time, aligning with inflation and ensuring long-term stability.
  • Objection: Complexity
    • Solution: We simplify the process, providing clear guidance and support at every step.

Not securing your retirement income against inflation can lead to financial strain and reduced purchasing power. Working with us ensures long-term financial stability, peace of mind, and a comfortable retirement. You’ll experience security, confidence, and satisfaction knowing your income is protected.

Contact us for free advice or a quote. We’re here to help you secure your financial future.

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Frequently Asked Questions

How does inflation work?

Inflation is the gradual increase in prices of goods and services over time. It occurs when there is an excess of money supply in an economy, leading to a decrease in the value of currency. Central banks use various measures, such as interest rates and money supply control, to manage inflation and maintain price stability. Ultimately, inflation impacts consumers’ purchasing power and affects the overall economy. So, how does inflation work?

Do fixed annuities protect against inflation?

No, fixed annuities do not protect against inflation. Fixed annuities provide a fixed rate of return on the individual’s investment and do not adjust the income payments based on changes in the cost of living. This means that the purchasing power of the individual’s retirement income may be reduced over time as inflation increases. If protection against inflation is a concern, an inflation-protected annuity may be a better option.

Do annuity payments increase with inflation?

It depends on the type of annuity. Some annuities, such as inflation-protected annuities, are specifically designed to increase income payments over time to keep pace with inflation. The income payments of these annuities are linked to a benchmark, such as the Consumer Price Index (CPI), which measures the change in the cost of living over time. As the cost of living increases, so does the individual’s income from the annuity.

What should I consider when choosing an inflation-protected annuity?

When selecting an inflation-protected annuity, it’s important to consider all of your options. You should also consider the trade-offs involved, such as whether the peace of mind provided by an annuity with inflation protection is worth the initial lower income. Ultimately, you should choose an annuity that enables you to build a secure retirement and provides you with the desired stability and security.

What annuity hedges against inflation?

Fixed index annuities and variable annuities with lifetime income riders are two types of annuities that offer protection against inflation.

What is an immediate annuity with inflation protection?

An immediate annuity with inflation protection is a financial product that provides a fixed stream of income for life, with the added benefit of adjusting the payments to combat inflation. This means that the annuity income increases over time, offering a safeguard against rising living costs. It is a popular choice for those seeking a reliable income solution that keeps pace with inflation.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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