Which type of annuity typically provides inflation protection?

An indexed annuity is designed to provide inflation protection primarily through its connection to a stock market index. The returns on indexed annuities are linked to the performance of a specified index, such as the S&P 500. This means that as the stock market increases in value, the returns on the indexed annuity can also increase, potentially outpacing inflation.

Unlike fixed annuities, which offer guaranteed returns that may not keep up with inflation over the long term, indexed annuities have the potential for growth that can adjust with inflationary trends.

Variable annuities also have potential for growth through market investments, but they come with more risk due to market fluctuations that can lead to losses, making them less predictable in terms of inflation protection. Immediate annuities, on the other hand, offer fixed payments that do not typically adjust for inflation unless specifically structured with inflation riders, which may not always be included.

Thus, the nature of indexed annuities provides a more reliable avenue for inflation protection due to their linkage to market indices, allowing for the potential growth that keeps pace with or exceeds inflation over time.