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Immediate Annuities and Inflation

The Wall Street Journal cautions annuity investors to protect themselves against inflation in Tom Lauricella’s “Inflation’s Toll on Annuity Payout.”  By opting for a lower yield on your investment today you should be able to help protect your savings.  Immediate annuities protect investors with their guaranteed lifetime payouts, so they have seen a surge in popularity after the recent turmoil in the stock market.  Since you begin receiving payouts from immediate annuities soon after purchasing them, the low interest rates in place now could have a negative impact on your future money if you don’t take a few steps to protect yourself.

The article advises investors to look into flat payout options.  There are different riders that can be added to your policy to use this advice.  If a couple in their upper 60’s invested $50,000, their yearly payouts would be around $3,400.  Without protecting against inflation, in 20 years they would be receiving the same amount, but it would only be worth around $1,800 in today’s value.  With a rider that boosts your payout by 3% each year, an annuity giving you around $2,500 the first year will be paying out $4,500 by the 20th year.  When you compare annuities with inflation protection to those without, it might be to your benefit to protect your money against future inflation.

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