Inflation-protected annuities play a crucial role in retirement planning by providing a hedge against the erosive effects of inflation on retirees' purchasing power. Unlike traditional fixed annuities, which offer a predetermined payout, inflation-protected annuities adjust payments to keep pace with inflation, ensuring that retirees can maintain their standard of living over time.

These annuities typically come in two forms: fixed-indexed annuities and variable annuities with an inflation adjustment feature. Fixed-indexed annuities offer a guaranteed minimum interest rate while also allowing for potential earnings based on the performance of an underlying index, providing a balance of security and growth potential. Variable annuities, on the other hand, invest in a variety of underlying assets, and the payout adjusts based on the performance of these investments, offering potential for higher returns but also subjecting the annuity to market risk.

By incorporating inflation protection into retirement income streams, these annuities help retirees mitigate the risk of outliving their savings and maintain their financial independence throughout retirement. They provide peace of mind by ensuring that retirees' income keeps pace with the rising cost of living, allowing them to enjoy a comfortable and worry-free retirement.