Inflation-Adjusted Annuity Payments

Retirement planning often focuses on achieving long-term stability and financial security. While Social Security can provide a modest monthly income, it’s usually not enough for most people to live on comfortably. Fortunately, there are many ways to prepare for and enjoy the kind of retirement you envision.

One option to consider is an annuity—specifically a Single Premium Immediate Annuity (SPIA). SPIAs offer consistent income, which is why many retirees turn to them. With a SPIA, you make a one-time lump-sum payment to an insurance company, and in return, you receive a stream of guaranteed payments. These payments can last for a set number of years or for the rest of your life. In many cases, you can also include your spouse, so the income continues for as long as either of you lives.

However, SPIA payments are usually fixed in dollar amount. Over time, inflation can reduce the purchasing power of those payments. Fortunately, some annuities offer inflation-adjusted payments, which can help maintain your standard of living as prices rise.

How Do Inflation-Adjusted Annuities Work?

Your annuity contract will outline how inflation adjustments are handled. In general, these adjustments come in one of two forms:

• A set annual increase (e.g., 2% or 3%)

• An adjustment based on actual inflation, often tied to the Consumer Price Index (CPI)

While this feature can be valuable, it typically comes at a cost. Inflation-adjusted annuities usually start with lower initial payments than fixed-payment annuities. It’s important to weigh that trade-off—smaller payments now for the potential to maintain purchasing power over time.

Design a Retirement Strategy That Works for You

A solid retirement plan is built on growing your assets and managing risks. These steps can help support your lifestyle for decades to come. Inflation-adjusted annuities may play a key role in that plan by offering predictable income that better keeps pace with rising costs.

Consider all your options, and choose what fits your needs best. With careful planning, you can enjoy the retirement you’ve worked so hard to build.