Final answer:
The purchasing power of benefit payments from a fixed life annuity decreases when the cost of living goes up.
Step-by-step explanation:
The purchasing power of benefit payments from a fixed life annuity decreases when the cost of living goes up.
When the cost of living increases, the prices of goods and services rise. However, the benefit payments from a fixed life annuity remain the same, which means they cannot keep up with the rising prices. This results in a decrease in the purchasing power of the annuity payments.
For example, if you receive a fixed annuity payment of $1000 per month and the cost of living increases by 2% per year, after a decade, the same goods and services that used to cost $1000 will now cost $1220, but your annuity payment will still be $1000, resulting in a decrease in your purchasing power.