Inflation-Protected Annuity

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Inflation-Protected Annuity

An annuity that protects the annuitant from inflation. Many annuities pay a fixed rate of return periodically for a fixed period or the life of an annuitant. While this carries low risk, it exposes annuitants to the possibility that the inflation rate will outpace the rate of return. In order to protect against this, an inflation-protected annuity states its rate of return as the "inflation rate plus" whatever rate of return it would otherwise give. This means that the rate of return will give the real rather than nominal rate. Because inflation-protected annuities are safer, they tend to offer lower rates of return than other annuities. See also: Real Return Bond, TIPS, Inflation-linked certificates of deposit.