Inflation Adjusted Annuities

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Understanding Inflation

What Is Inflation?

Inflation is the rate at which the general level of prices for goods and services rises, leading to a decrease in the purchasing power of money. It is measured by indices such as the Consumer Price Index (CPI). When inflation occurs, each unit of currency buys fewer goods and services.

How Does Inflation Work?

Inflation is influenced by various factors, including:

  • Demand-pull inflation: When demand for goods and services exceeds supply.
  • Cost-push inflation: When production costs rise, causing producers to increase prices.
  • Built-in inflation: When businesses increase wages and prices in anticipation of future inflation.

Inflation Protected Annuities

Inflation-adjusted annuities, also known as inflation-protected annuities or graduated annuities, are financial products designed to provide a stream of income that adjusts with inflation over time. This ensures that the purchasing power of the annuity payments is maintained, helping retirees and other annuity holders manage the impact of rising costs of living.

How Do Inflation-Adjusted Annuities Work?

Payment Adjustments

Inflation-adjusted annuities typically have a mechanism to increase payments in line with inflation. The adjustments can be:

  • Fixed adjustments: Payments increase by a fixed percentage each year.
  • Index-based adjustments: Payments increase based on changes in an inflation index like the CPI.

Benefits And Considerations

  • Benefits: Protects purchasing power, ensures a stable standard of living, and provides predictable income.
  • Considerations: Initial payments may be lower than fixed annuities, there is potential complexity in understanding terms, and there need for a thorough comparison of products.
Inflation-Protected Annuity

Types Of Inflation-Adjusted Annuities

Inflation-Indexed Annuities (CPI Annuities)

Inflation-indexed annuities, also known as CPI annuities, adjust payments based on a specific inflation index, such as the CPI. These annuities are designed to protect the purchasing power of the income stream over time.

Inflation-Protected Annuities

Inflation-protected annuities offer various mechanisms to adjust payments. Some may have a fixed annual increase, while others may adjust based on a predetermined inflation measure.

Annuity Inflation Protection Options

Inflation-Linked Annuities

These annuities provide a direct link to inflation indices, ensuring that payments adjust accordingly. They are ideal for those seeking to hedge against inflation.

Fixed Income Annuity With Inflation Protection

A fixed income annuity with inflation protection includes features or riders that adjust payments based on inflation, combining the stability of fixed payments with inflation adjustment.

Inflation-Protected Annuity Rates

Rates for inflation-protected annuities can vary. Generally, the initial payment may be lower than non-inflation-protected annuities to account for future increases. It’s essential to compare rates and terms carefully.

How Annuities Help Retirees Keep Up With Inflation

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.

Do fixed annuities protect against inflation?

Traditional fixed annuities provide a guaranteed payment that does not change with inflation. Over time, the real value of these payments can decrease as the cost of living increases.

Do annuity payments increase with inflation?

Yes, annuity payments from inflation-adjusted annuities increase with inflation. These increases can be automatic, based on a fixed rate, or linked to an inflation index.

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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