Escalating Annuity Protects Purchasing Power

By Oyekola Taiwo Zacharia 

email address: consciousofrisks@yahoo.com; phone no: 07063718460

The majority of retirees are always looking for higher monthly payments, whether from pensions, investments, or annuities.

This is why some people shop around different insurance firms for better offers before choosing any investment or retirement option, and that is a very good step.

The reason is simple: retirees want to ensure that inflation does not erode the future value of their money compared to its present value.

Elementary economics defines inflation as a situation where too much money chases too few goods or commodities in the market. In other words, the money at hand can only purchase fewer commodities.

Naturally, at that age, monthly income is tied to many responsibilities, such as feeding, healthcare maintenance, and other running expenses.

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Virtually every human being develops a lifestyle—whether positive or negative—and money is needed to maintain an established lifestyle. It is not easy to change a lifestyle that has been built over many years, whether in eating habits, health habits, or social habits.

However, inflation is one of the most critical factors affecting many people, including retirees, older adults, and senior citizens.

As such, annuity regulators have specifically approved the design of the escalating annuity option to mitigate the severe effects of inflation eroding retirees’ monthly income.

What Is an Escalating Annuity?

An escalating annuity is a retirement product designed to combat the effects of inflation on purchasing power by increasing payments annually by a certain percentage. Payments start at a lower amount but increase at a set rate over time, often exceeding what a fixed annuity would pay in the long run.

Benefits of an Escalating Annuity

It increases payments annually for life.

It helps ensure that retirees’ buying power does not fall behind rising living costs.

It raises payouts by about 5%–10% annually until the annuitant’s demise.

It ensures pension payouts do not remain fixed for life.

It helps retirees maintain a better standard of living throughout retirement.

Therefore, as mentioned in previous editions, annuities provide peace of mind because many of the challenges or fears retirees may face during retirement already have built-in solutions from the outset of the annuity plan.

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