Indexed annuities | General financial discussion | Discussion forum

Loonie said

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Yes, I have read about inflation-adjusted annuities. I read about them in a book. I will try to find the reference if I still have the notes. I suppose it's possible that they are only available in the US, and that the book was American, but I don't know that. I do know that the annuity market can be extremely complex with many variables. I suppose it's also possible that I took the provision for fixed rate adjustment to be inflation protection or that that's how it was presented. …

I should perhaps add that I haven't looked into buying any yet, and think I'm still too young and am not entirely convinced I need them. I was just looking at how they work and what they might provide as something to have in mind for future.
It may turn out that, like other kinds of insurance, you can have almost anything if you're willing to pay for it. Any rider on an annuity will cost you extra.

EDITED TO ADD:
I have done a search of my computer files and can't find a reference to the info that I read earlier. Perhaps it's in my paper files (shudder! groan!). I really would like to find it.
I did find a citation for this article from a usually mostly-reliable source which does talk about inflation-indexed annuities and gives the impression they are fully indexed to inflation and that one would have nothing further to worry about. http://www.moneysense.ca/retir.....etter-life

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I did some searching and found there is considerable confusion with indexed life annuities.

It turns out that "indexed" does not necessarily mean inflation-adjusted when dealing with annuities. I found three kinds of "indexed" life annuities:

1. Indexed life annuities. The payouts increase by a fixed percentage (like 2%) each year. The percentage is fixed when the annuity is purchased.
2. Inflation-indexed annuities. The payouts are increased by CPI each year.
3. Equity-indexed annuity. These seem to be US-only. An annuity with a call option on a stock index, like the S&P 500. (See MarketWatch: Behind the indexed annuity curtain) A market-linked annuity!

The June 2010 Financial Post article A good annuity strategy can help you beat inflation confirms that inflation-indexed annuities do exist.

However, the quote from Standard Life for a CPI-indexed life annuity showed a hefty 36.4% reduction in income for the inflation indexing compared to a similar life annuity with a fixed payout. In contrast, a joint, age 65, 2%-indexed annuity has 21.6% reduction (LifeAnnuities.com: Joint Index Annuity Rates).

For the same reduction in income, people may have went for a fixed 2.5%, 3%, or 4% indexed annuity instead.

Also, I'm not sure if new CPI-indexed annuities can still be bought. The article gave a quote from Standard Life. Last year (2015), Standard Life was taken over by Manulife. Inflation indexing is not among the options mentioned in the annuities brochure on Manulife's annuities page.

A more recent September 2013 MoneySense article Annuities: Your DIY pension plan says that CPI-indexed annuities are now "rare and expensive."