Annuity or Treasury Ladder? What a 67-Year-Old With $600,000 Gets From Each

A retiree turning 67 with $600,000 set aside for income can lock in today’s yields two ways: buy Treasuries that mature on a schedule, or hand the money to an insurance company for lifetime payments. Rates are moving right now. Treasury yields rose on a much stronger-than-expected October jobs report, then fell after the Democrats’ midterm win, and two Federal Reserve officials favor a gradual rate-hike path to lower inflation. Whichever option the retiree takes, the rate available when the money goes in sets the income for years.

What $600,000 Buys in a Treasury Ladder

On November 5, 2026, Treasury par yields were at 4.28% for one year, 4.59% for five years, 4.84% for ten years and 5.25% for 30 years.

Hypothetical example: The retiree splits the money into ten bonds of $60,000, with one rung maturing each year for a decade. For a sense of scale, if all $600,000 earned the five-year yield of 4.59%, interest would come to about $27,540 a year before tax. Each year a rung matures and returns its principal, which the retiree can spend or reinvest. The weak spot is the end date. The ladder runs out at 77, and the retiree then needs another plan.

What the Annuity Side Delivers

A single premium immediate annuity (SPIA) turns a lump sum into monthly payments for as long as the buyer lives. We have no current payout quote to share. Actual payouts depend on age, sex, interest rates and the options chosen, such as a period-certain guarantee or a cash refund to heirs. The lifetime guarantee is only as strong as the insurance company’s claims-paying ability. State guaranty associations step in if an insurer fails, but their coverage limits vary by state, so each buyer has to look up what their own state covers.

Seven Trade-Offs to Weigh Before Committing

Tax Rules That Change the Net Income

When an annuity is bought with nonqualified (after-tax) money, part of each payment counts as a tax-free return of what you paid in. Under 26 U.S.C. § 72(b)(1), that tax-free share is the ratio of your investment in the contract to the expected return. Investment in the contract basically means the premiums paid, per § 72(c)(1). Treasury regulations set the expected return using life-expectancy multiples (26 CFR 1.72-5(a)). Under § 72(b)(2), the exclusion ends once the full investment has been recovered, and after that payments are fully taxable. IRS Publication 575 notes that commercial annuities generally use this General Rule, while IRA money follows the rules in Publication 590-B (Pub. 575).

Interest on Treasury bills, notes and bonds is subject to federal income tax but is exempt from all state and local income taxes, according to IRS Publication 550 for tax year 2025. That exemption is worth more in high-tax states.

Both kinds of income count toward Medicare’s income-related surcharges. In 2026, single taxpayers above $109,000 and joint taxpayers above $218,000 pay more than the standard $202.90 monthly Part B premium.

Inflation Hits Both Options

Social Security rises with a cost-of-living adjustment, which was 2.8% for 2026 and will be 3.6% for 2027. A level annuity payment and a Treasury coupon both stay fixed in dollars. The Bureau of Labor Statistics’ research inflation index for Americans 62 and older reached 368.066 in September 2026, up 0.5% from August. Housing and medical care carry more weight in that index than in the standard CPI. The ladder gets a partial hedge each time a rung matures and can be reinvested at the rates of that moment. Annuity payments that don’t increase keep losing buying power for life.

Who Each Option Suits, and Why Many Retirees Blend Them

• Treasury ladder: Retirees who want to reach their principal, leave money to heirs, avoid state income tax, or cover a defined period of years. They have to accept reinvestment risk and plan for what happens after the last rung.
• Income annuity: Healthy retirees whose families tend to live long, who worry most about running out of money, and who care less about leaving an estate. They have to accept insurance company risk and give up access to the money.
• Both: Some retirees annuitize just enough to cover the gap between Social Security and essential bills, then ladder the rest for flexibility and heirs.

That combined approach, enough guaranteed income to cover the essentials with the rest kept liquid, is the whole idea behind our free Paycheck Portfolio Method guide, which walks through the mix, the payment calendar, and the withdrawal order.

Several things will shift the math from here: the Fed’s next rate moves, whether long-term yields hold near 5.25%, and how fast inflation for older households runs compared with the coming COLA. A retiree comparing the two should get a written annuity quote and price a ladder on the same day, so both options reflect the same rate environment.

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