Retiree’s choice: comparing Treasury ladders and annuities for $600,000

With Treasury par yields at 4.28% for one year, 4.59% for five years, 4.84% for ten years, and 5.25% for 30 years on November 5, 2026, a Treasury ladder involves dividing the $600,000 into ten $60,000 bonds, each maturing annually for a decade. This would generate approximately $27,540 in annual interest income if all funds earned the five-year yield. Each year, a bond matures and the principal can be reinvested or spent. However, the ladder ends after ten years, requiring a new plan at age 77.

Annuities, specifically single premium immediate annuities (SPIAs), convert a lump sum into regular monthly payments for life. Payout amounts depend on factors like age, sex, interest rates, and chosen options. The financial strength of the insurance company is crucial, and state guaranty associations offer limited protection if an insurer fails.

Here’s a comparison:

* **Income Certainty:** Treasury ladders offer a fixed term, while annuities provide income for life. * **Inflation Exposure:** Both offer fixed nominal payments, but Treasury rungs can be reinvested at current rates. Annuities can be modified with increasing-payment options. * **Access to Principal:** Treasury bonds can be sold, while annuity funds are typically inaccessible. * **Inheritance:** Treasury ladders leave any unspent funds; annuities provide only refund or period-certain payments. * **Reinvestment Risk:** Treasury ladders face fluctuating rates upon maturity; annuities have none. * **Backing:** Treasury ladders are backed by the U.S. government; annuities rely on the insurer’s financial stability and state guarantees. * **Taxation:** Treasury interest is subject to federal tax but exempt from state and local taxes; annuities have a more complex exclusion ratio.

Both income sources are factored into Medicare’s income-related surcharges, potentially increasing premiums for those exceeding certain income thresholds ($109,000 for single taxpayers and $218,000 for joint taxpayers in 2026).

Inflation remains a concern for both options, with the Bureau of Labor Statistics’ research inflation index for Americans 62 and older rising to 368.066 in September 2026. Treasury ladders offer a partial hedge through reinvestment, while annuities require increasing-payment options to maintain purchasing power.

Retirees may choose a Treasury ladder for flexibility, estate planning, or state tax benefits. Annuities are often favored by those prioritizing income security and minimizing the risk of outliving their savings. A blended approach – using an annuity to cover essential expenses and a Treasury ladder for additional income and flexibility – is also a popular strategy.

To make an informed decision, retirees should obtain a current annuity quote and price a Treasury ladder on the same day to compare options within the same interest rate environment.