Why is considering inflation protection essential for annuity holders?

Considering inflation protection is essential for annuity holders primarily to maintain the purchasing power of their payments. When individuals invest in an annuity, they typically do so with the expectation that the periodic payments they receive will provide financial security during retirement.

Over time, inflation can erode the value of money, meaning that the same amount of money will buy fewer goods and services in the future than it does today. If the payments from an annuity do not increase in line with inflation, the holder may find that their regular income is insufficient to cover expenses as they rise. Thus, ensuring that the payments keep pace with or exceed the rate of inflation is vital to sustaining the financial well-being of annuitants throughout their retirement years.

This focus on maintaining purchasing power is why inflation protection is a crucial aspect of annuity planning.