Inflation & Annuities: Act Now—or Hold Off?

Today’s question is a good one: Should you address inflation now or later? It’s a question I hear almost every day, and it’s worth breaking down in detail so you understand the pros, cons, and the math behind it.

Before we dig in, remember—you can download my annuity owner’s manuals for free at The Annuity Man. They’re full of straight-talk education so you can make informed decisions without ever sitting through a bad chicken dinner seminar.

The Reality About Inflation and Annuities

Let’s cut right to it—if an annuity agent tells you they have a product that perfectly addresses inflation, that’s your cue to walk away.

Here’s the truth: There is no perfect annuity that tracks and adjusts for inflation. Not now, not in the past, not in the form some agents like to promise.

You already own the best inflation-adjusted annuity on the planet—it’s called Social Security. Social Security is a lifetime income stream that adjusts based on cost-of-living increases, determined by Congress. It’s not perfect, but it’s the only “inflation annuity” that actually does what people think an inflation annuity should do.

Why Inflation Is Tricky

Inflation is the financial gorilla in the room—everyone worries about it, but no one can predict it with certainty. Just like interest rates, people claim they know where it’s headed, but the reality is, they don’t.

You can build contractual increases into annuities, but keep this in mind: Annuity companies have the big buildings and the sports stadium sponsorships for a reason—they don’t give anything away.

Using COLA Riders to Address Inflation

With Immediate Annuities, Deferred Income Annuities, or Qualified Longevity Annuity Contracts (QLACs), you can add a Cost-of-Living Adjustment (COLA) rider when you set up the contract.

This allows your payments to increase each year by a fixed percentage—2%, 3%, 4%, whatever you choose—every single year for life.

Sounds great, right? Here’s the catch: Adding a COLA reduces your initial payment amount. It typically takes six to nine years before the COLA version catches up to the non-COLA payment amount.

If you live a long time and have longevity in your family history, a COLA might make sense. Another strategy is to split your purchase—half with COLA, half without—to balance guaranteed income now with income that grows later.

Indexed Annuities and the Sales Pitch Trap

Some agents pitch Fixed Indexed Annuities with Income Riders that might increase payouts based on the index performance.

That sales pitch sounds fantastic in a seminar—“market upside with no downside”—but it’s not the reality. The increases are not guaranteed, and the initial payout is typically lower than that of a static payout option.

If it sounds too good to be true, it is—every single time. Indexed Annuities can be useful tools, but they’re not magic. You need to understand exactly how the contract works before buying.

A Smarter, Staggered Approach

Instead of chasing a “perfect” inflation annuity that doesn’t exist, you can create your own inflation strategy using income start-date staggering.

Example: You have $300,000 set aside for future income. We could split it into three annuities:

• $100,000 starting at age 70
• $100,000 starting at age 75
• $100,000 starting at age 80

This way, your income naturally increases over time, helping offset inflation without overpaying for a COLA rider.

The “Buy When Needed” Method

Another highly effective approach is to wait until inflation actually impacts your lifestyle, then purchase an Immediate Annuity to cover the gap.

For example, your retirement income floor is $3,500/month. Inflation pushes your needs to $3,775/month. Instead of guessing years ahead, we simply reverse-engineer a quote for that $275/month gap—shopping all carriers for the best contractual guarantee.

If inflation bumps things again in the future, we repeat the process with a small, targeted annuity purchase.

The Bottom Line

There’s no need to rush into buying an annuity based on a sales pitch about inflation. The right approach is math-driven, customized to your needs, and timed for when it actually makes sense.

Inflation is a real concern, but it’s not solved with one magic product. It’s addressed through smart planning, utilizing tools such as Social Security, targeted annuity purchases, and staggered income start dates.

If you want to talk about building your own inflation plan—whether it’s for now or later—set up a 30-minute call with The Annuity Man team, we’ll quote all carriers, review your options, and help you make an informed decision that works for your retirement.