Broker Check

Managing Inflation Risk with Fixed indexed Annuity Payouts

July 29, 2019


You cannot talk about finances without discussing inflation in some capacity. A lot of people bring it

up, but how many know what it means for them? We will explore inflation and how it could impact you


What is inflation?

Inflation is the level of how the prices of good and services are increased over a certain period.

"Growing up in New York, in the early '80s, I could get the same bag of popcorn with more product

and less cost. The bags I used to eat where 4 times the size of this and for the same price. Inflation,

what are you going to do?"

Madonna, 1998: Madonna Rising VH1

Madonna's statement is just one example of how inflation impacts everyone. Say you buy a cart with

20 food items for $100 online. That same cart is going to double in price in the next five years while

you only get 10 of the food items.

Inflation also causes the amount of product to decrease over time. A great example is potato chips. The

family bag you are buying now is not a family bag. You are paying $5 for only half of the product. The

rest is air at the top.

How Does This Impact Your Retirement?

There are two other impacts on retirement, outside of the inflation factor. There are money and

longevity risk.

The market could perform strongly one day, and then poorly the next. The other big problem is that as

the price of goods increases there is a risk of not having enough savings later. In some cases, you have

to take from Peter to pay back Paul.

That is why a lot of financial experts argue for having a diversified portfolio. People who have a more

diversified portfolio reduce the risk of having their savings being impacted.

Those who only have one or two savings accounts are more vulnerable to inflation and other market


What About A Personal Pension?

Personal pensions are very similar to annuities in most respects. They are not protected in the ways that

other accounts are. You wake up one morning to find the market is at risk, To cover this poor market

performance they have to increase the price you pay on your checks to cover the costs.

Your income will also be quoted in today's money, not what the future sees. There is a big difference

between the two. You could add a security rider to reduce the impact, but the rider is not going to work

like you assume it will.


The increase is not set to be indexed with inflation, it is set to increase as a fixed rate. That fixed-rate is

between 1-5%.

The reasons why companies do not tell you the truth about inflation riders

1)The company is not going to protect you during the deferral time, except for buying an income

annuity right away.

2) The only way you get a payout increase is when you buy something connected to the consumer price


3) They make money from your riders. They stand a greater chance of losing that profit if they tell you

what is going on. That is why they choose to keep you in the dark.

More Information


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