One of the biggest risks of your financial plan might be outliving your assets - and inflation is a big part of that. If you’re entering retirement and are worried about inflation, you might want to consider little-known products called immediate-payout and inflation-protected (or inflation-indexed) annuities.
Immediate-Payout Annuity
An immediate-payout annuity is simply an annuity that is purchased with one payment and has a payment plan that starts immediately.
Inflation-Protected Annuity
An inflation-protected annuity is similar to an immediate-payout annuity, but its payments are indexed to the rate of inflation.
While inflation-protected annuities are common in other countries, most notably the United Kingdom, they are less well-known in the United States. However, they could be valuable for someone who is concerned that rising prices will cut into future purchasing power.
Keep in mind that while inflation protection might sound attractive, it can add to an annuity’s costs. Another option for an investor who is concerned about inflation would be to invest a portion of his or her assets in an annuity and a portion in stocks and bonds.
Your financial advisor can provide you with more information about what might be suitable for you given your individual financial circumstances and goals.