Inflation protection is an optional feature that may accompany fixed annuities. For an additional cost, fixed annuity payments can be adjusted based upon future rates of inflation. Inflation protection is an important feature because the value of future fixed payments can be severely impacted by inflation. Fixed annuity payments are based on prevailing interest rates. Any future increase in inflation will erode the purchasing power of an annuity purchased today unless that annuity adjusts for inflation. For example, at a 4 percent rate of inflation a $1,000 annuity payment will be worth $675 in 10 years.