A. The foundation of indexed annuity provides safety, protection, and various guarantees, on top of it, there are many different features, some offer strong growth, some offer more options like LTC benefits, some offer enhanced death benefits, or various annuitization options. Compared with variable annuity, indexed annuity offers less risk, therefore lower expenses and less related stresses that come with risky investments.
You can use indexed annuity to fight inflation, using the following two methods.
1. Step up
During the annuity's growth stage, the income rider of the indexed annuity will guarantee you exceed the standard inflation rate of 3%; during the distribution stage, if you select level benefit, you will get income for life, but the income payments remain level and it doesn’t address inflation.
You can choose the annuities that offer a step-up, which is an annual increase in lifetime income which steps up by a certain percentage. One product might step up 3% each year once the income rider is activated. Another product might step up each year in proportion with the capped index rate. If the index goes up, the income amount steps up accordingly.
Laddering means you utilize two or more contracts at the same time, as the annuity owner, you create additional flexibility by allowing one bucket of money to continue to grow while another bucket is distributing funds. Instead of one contract with $500,000, two $250,000 contracts can address inflation even with a level-payout amount.