What happens to the purchasing power of benefit payments from a fixed life annuity when the cost of living goes up?

Benefit payments from a fixed life annuity are predetermined and do not adjust based on inflation or changes in the cost of living. When the cost of living increases, the purchasing power of those fixed payments actually decreases. This is because, as prices rise, the same amount of money will buy fewer goods and services over time. Essentially, the fixed annuity provides consistent dollar amounts, but the real value of those dollars diminishes as inflation erodes their purchasing power. Thus, if inflation is significant, policyholders could find that their fixed annuity payments fall short of their living expenses, leading to a decrease in purchasing power.