Which annuity would be most suitable for inflation-adjusted payments?

Which annuity would be most suitable for inflation-adjusted payments?

• A. Indexed Annuity Payments
• B. Impaired Life Annuity
• C. Integrated Annuity
• D. Prescribed Annuity

Answer: (A)

Inflation erodes the buying power of fixed payments, so the best fit for payments that rise with price levels is an annuity that links its payouts to an index. An indexed annuity increases payments based on an index (often tied to inflation measures like the CPI), sometimes with caps or a participation rate, helping to maintain purchasing power over time. The other types are designed for different goals: an impaired life annuity increases payments due to shorter expected lifetime but doesn’t adjust for inflation; integrated and prescribed annuities focus on specific tax or feature structures rather than inflation linkage, so they typically don’t provide inflation-adjusted payments.

Inflation erodes the buying power of fixed payments, so the best fit for payments that rise with price levels is an annuity that links its payouts to an index. An indexed annuity increases payments based on an index (often tied to inflation measures like the CPI), sometimes with caps or a participation rate, helping to maintain purchasing power over time. The other types are designed for different goals: an impaired life annuity increases payments due to shorter expected lifetime but doesn’t adjust for inflation; integrated and prescribed annuities focus on specific tax or feature structures rather than inflation linkage, so they typically don’t provide inflation-adjusted payments.