What is an inflation indexed annuity?
It is a single premium annuity that provides income to the beneficiary for life. Most single premium or life annuities are sold as fixed-income products. The income that you receive each month never changes. This can be a serious problem because of inflation. An annuity that is inflation indexed adjusts the monthly payment upward based on the annual inflation rate. I will give you one significant example from our baby boomer years. During the period 1973-1982, our calculated cost of living increased 130%, with inflation averaging 8.7% each year. If we were to experience a similar period during our retirement years, a $1000/month fixed annuity income could fall to $420 in purchasing power in just ten years. Ouch. Many sellers of life income annuities offer inflation indexing options. These options include automatically increasing the income each year by a fixed percentage, often between 1%-5%. A better and more secure option is to index the annuity income amount to an inflation indicato
