Inflation and Deflation

All annuities involve payments from an insurance company to you.  With some annuities the payments are fixed, and with other annuities the payments are variable.  Assuming that you purchase an annuity from an insurance company in the United States, you will receive payments in U.S. dollars.

You need to think about and be aware of what might happen to the future value of the currency that provides the basis for your annuity payments.  This is especially important if the annuity payments are fixed.

Remember that inflation means that the value of the currency decreases over time.  With inflation, fixed payments you receive in the future will lose value.  This is the opposite of having debt and paying a mortgage where inflation reduces the cost of debt because future payments are made in dollars that are worth less than today.

Just remember that inflation and fixed annuities are not necessarily a great mix.  This is why opting for inflation protection or cost of living adjustments can be so important when purchasing a fixed annuity.

The variable payments associated with variable annuities should presumably provide some hedge or protection from future inflation, but there is no guarantee.

Deflation involves a decrease in future price levels, so the effect on fixed payments is basically the opposite of inflation.  With deflation, the real value of fixed payments increases because those payments are made with a dollar that is worth more in the future than a dollar today.

It should also be noted that Swiss annuities provide an alternative to U.S. dollar-based annuities.  Swiss annuity payments are denominated in Swiss Francs which has been a very stable currency through the years.