The Effects of Inflation on Annuities

Anyone that has set up an annuity fears that their assets will decrease in value over time. This is true to happen, especially in times of inflation, war and various other factors. The failing economy in many parts of the world along with the recession that has been in place in many of the important financial capitals is making the value of money decrease little by little. Annuities are not immune to these effects unless they are placed under certain conditions and contract agreements with the financial institution.

Differences in Annuity Options

Annuities can be managed differently for various people. Those who place their money into annuity plans to give out payments throughout their retirement may end up outliving their savings if they are not careful. Inflation could really cause disastrous value decreases in annuities based on the current market value of the money within the annuity. The easiest way to combat inflation is through special inflation protected annuities that are indexed to the rate of inflation. This means the value of the annuity will not drop based on inflationary circumstances.

Why Inflation Affects Annuities

Inflation by definition is the increase in value of materials without the increase in value of currency. This makes currency less valuable than what it was able to purchase before inflation occurred. In annuities, this can drastically affect the buying power of the amount within the annuity. As time passes by, the annuity will begin to shrink in value and the owner of the money will continue to lose money if the money is not withdrawn. Using inflation protected annuities prevents any of the losses in your account from happening due to inflation. They automatically account for inflation and leave you with an amount closer to the real value of your money.

Money Losses for People with Annuities

Annuities will decrease in value and may leave individuals with very large amounts of lesser value currency. Losses are difficult to deal with, especially in times of high economic distress. These circumstances may make many account holders of annuities to lose thousands of dollars, especially with those with larger accounts which will be able to expect larger losses. Regaining that money is not an easily accomplished feat either, as many times inflation stays for long periods of time until the economic structure is rebuilt and running smoothly. The risk of even greater loss is common when annuities have large amounts of money and are not protected by any means against deflation from war, recession and economic downs.

How to Protect Annuities from Inflation

Inflation could be hard to combat and there are few resources that the average person could use to protect themselves from its effects. Inflation protected accounts help to keep money strong by adjusting the value of the currency and monetary amounts towards reflecting real world values. These types of annuities can be coupled with the power of fixed rate annuities to insure a great payout for many years to come. After all, no one wants their money to shrink when they are unable to work or bring an income on their own.

Finding Inflation Protected Annuity Options

Most banking institutions will have this option available to their account holders, but may recommend others on the off chance that the value of currency suddenly raises. This is common as most banks will not want to adjust the value of your money for you and will want you to feel the effects of inflation as they and everybody else would. The inflation protection options may only cover part of your account balance or the whole amount, this is dependent on where you wish to place your money into when choosing an annuity option.

(Expert=Sara_Spencer)

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