Annuity vs. Treasury Ladder
Two ways to put a guaranteed floor under essential spending: an immediate annuity at the payout you were quoted, or a Treasury ladder you build yourself. See what each costs, how long the ladder has to last, and the mortality credit only the annuity pays.
The floor
The annuity quote
From a real quote for a life-only immediate annuity at your age. A quote of $583 a month per $100,000 is 7%.
The Treasury ladder
Who the floor covers
Income the floor still needs
$30,000
A year, above Social Security and pensions
The annuity costs less by
$34,968
$428,571 against $463,539 for a ladder to 92
Chance of outliving the ladder
22%
Still needing income at 93, with nothing left to pay it
Mortality credit
+1.27%
The annuity's 7% against 5.73% from bonds that must last to 100
The two floors
What the annuity earns, by how long you live
| Income stops at | Return on the premium | Chance you are alive |
|---|---|---|
| 80 | 0.62% | 71% |
| 85 | 3.44% | 54% |
| 90 | 4.87% | 34% |
| 95 | 5.66% | 16% |
| 100 | 6.13% | 4% |
The ladder earns 4.5% however long you live. The annuity earns less than that if you die early and more if you don't, which is the insurance you are buying. Life expectancy from the table is 85.3.
What the ladder leaves, and what the income buys
A life-only annuity leaves nothing; the ladder's unspent rungs are yours. Both pay level dollars, so at 2.5% inflation the floor sinks in real terms whichever you buy. Social Security, which rises with prices, is the part of the floor that doesn't.
Odds you still need the income
How it works›
The ladder. One Treasury maturing each year, sized so every rung pays the gap. Its cost is the gap times the present value of a dollar a year for that many years at the average yield you enter. The button reads today's constant-maturity Treasury curve from FRED at the ladder's average maturity.
The annuity. The premium is the gap divided by the payout rate you were quoted. Payout rates change with interest rates, age and sex, and differ by insurer, so none is assumed. The fair payout shown is what a dollar a year for life is worth at the ladder's yield on the SSA 2021 period life table; real quotes sit below it to cover the insurer's costs and its healthier-than-average buyers.
Mortality credit. Bonds alone must be stretched to the oldest age you might reach, so they can pay only a little each year. An annuity pools lives: the premiums of those who die early pay those who don't. The credit is the annuity's payout less what a ladder to age 100 pays. It grows with age, which is why annuitizing later buys more income per dollar.
What it leaves out. Taxes, inflation-linked TIPS ladders, period-certain and refund riders, insurer credit risk above state guaranty limits, and reinvestment risk if a ladder is built over time and not all at once.