Escalating annuities are a type of increasing annuity and provide a retirement income that gradually increases over the years at a set rate, typically three or five per cent.
An escalating annuity provides some protection against inflation and if inflation is low, depending on the fixed rate of increase you have chosen, may outpace inflation providing you with an increase income in real terms.
The income received through an escalating annuity starts at a lower level than that of a level annuity and could take up to ten years to reach that of a level annuity. It could take more than twenty years before the income received over the period rises above what could be received through the level annuity option.
However, if you are in good health when you are ready to retire and purchase your annuity an escalating or increasing annuity could prove to be the best choice.
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