Inflation Protected Annuity

To help mitigate the potential eroding power of inflation products such as fixed indexed annuities with inflation protection added should be considered by current and future retirees.

Inflation protected annuity. Inflation-Indexed Annuity Also called an inflation-protected annuity an inflation-indexed immediate annuity is similar to a fixed annuity. As for inflation protection and before signing a contract people need to see the value in weighing the long term benefits compared to the lump sum they pay upfront for annuities. A COLA SPIA with lifetime payments that increase by fixed percentage each year Penn Mutual.

Treasury Inflation-Protected Security TIPS is a bond that offsets the effects of rising prices by adjusting its principal value as inflation rises. While annuities for guaranteed income do offer inflation features they primarily provide income for life. Treasury Inflation-Protected Securities TIPS are issued by the federal government.

Inflation-protected annuities are less common than fixed annuities and also more expensive but they offer an interesting way to guarantee a stream of income for life that is protected against the. 25 years That is up to 85 years. High inflation in particular can reduce what you can buy on a fixed income that has not risen to keep pace with inflation.

Payouts rise with inflation as measured by the Consumer Price Index. The difference is that the payments increase or decrease each year keeping pace with the rate of inflation. But even though it is possible to add inflation protection on annuity income there are some items to consider before you move forward with this strategy.

This is probably a good time to point out that annuities with a fixed annual cost of living adjustment eg 2 per year are still available. They should only be used as inflation protection vehicle if the investor has an additional concern such as running out of money too quickly having a stable income for peace of mind or having some form of downside protection. Obtaining inflation protection within an annuity means less spending early on for more spending later.

The primary options to consider as alternatives would be Treasury Inflation Protected Securities TIPS a nominal annuity ie one with no cost of living adjustment or some combination of the two. Annuities can be a good investment for inflation protection but should not be used as pure inflation protection vehicles. If your primary goal is inflation protection please discuss with us the range of strategies including annuities.