Old-Age Annuities in Time of Inflation

Report Outline
Plight of Fixed-Income People in Inflation
Scope of Present Retirement Protection
Operation of Variable-Yield Annuity Plans
Variable Annuities and the Public Interest

Plight of Fixed-Income People in Inflation

The Rise since mid-1956 in prices of many consumer goods has again directed public attention to the plight in time of inflation of older persons dependent upon annuities, pensions, social security benefits, and other types of fixed or inflexible income.

The importance of maintaining the purchasing power of the rapidly increasing number of fixed income receivers has led to a search for some kind of old-age insurance that will keep the money incomes of retired persons in step with changes in the cost of living. The most interesting development in this field has been the emergence of variable-yield insurance plans under which policy holders' premiums are invested in common stocks and retirement annuities move up or down in accordance with the yield from those “inflation-compensating” securities.

Effects of Rising Prices on Value of Annuities

The man who received a moderate inheritance in the mid-1930s and used it to buy an annuity contract which would begin paying off after 20 years is now receiving payments in dollars worth no more than half the dollars he invested. Not only has the value of the dollar fallen sharply over the last two decades, but—partly as a result of inflation—taxes have more than doubled, so that the annuitant has considerably less buying power than he expected when planning for his retirement.