Want steady income in retirement? You can build it yourself with a bond ladder, or buy it with a fixed income annuity. Use the calculator and the comparison below to decide which fits you.
This is a fixed income (single-premium immediate or deferred) annuity: you pay a lump sum, then receive a level monthly payment for life. The calculator solves the internal rate of return on those cash flows for every age you might live to.
Internal rate of return (IRR) if payments run until the end age on the axis.
If you live to…
| If you live to… | Your return |
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Two honest ways to secure lifetime income. Each trades one strength for a real weakness.
| Bond ladderbuild it yourself | Income annuitybuy it | |
|---|---|---|
| Can it run out? | Yes. It is finite, so it can run dry if you live longer than it was built to cover. | No. It pays for as long as you live, so you cannot outlive it. |
| Access to your money | Liquid. You can sell or spend the principal whenever you need it. | Locked. The premium is committed, with little or no cash value. |
| Leaves an inheritance | Yes. Whatever you have not spent passes to your heirs. | Usually not. The balance is gone at death, unless you pay for a rider. |
| Inflation | If rates rise, you can reinvest maturing bonds at the higher rate. | Fixed payout, no cost-of-living bump, so its real value erodes over time. |
| Upkeep | You build it, ladder it, and roll bonds as they mature. | Set and forget. The insurer sends the check. |
| Best fit if… | You value flexibility, liquidity, or leaving a bequest, or you expect a shorter horizon. | Your biggest worry is outliving your money, and you want income you never have to manage. |
The ladder gives you flexibility and a bequest. The annuity gives you longevity you cannot outlive. Neither is strictly better, so it comes down to which matters more to you: the flexibility or the guarantee. Many people do a bit of both: cover the must-pay floor with an annuity and keep the rest in a portfolio.
See how a guaranteed income stream changes what you can confidently spend, alongside your other accounts.
Join the August waitlist →The questions people ask once they realize the payout rate isn't the return.
No. A payout rate is the annual income divided by the premium you paid. A 6% payout rate on a $200,000 premium means $12,000 a year, but for the first several years that money is mostly your own principal being handed back to you. Your real return, the internal rate of return, only turns positive once total payments pass what you paid in, and it keeps climbing the longer you live.
You compute the internal rate of return (IRR) on the cash flows: one large payment out (the premium) followed by a stream of monthly payments in. The IRR is the annual rate at which the discounted payments exactly equal the premium. Because the payments stop when you die, the IRR depends entirely on how long you live. The calculator on this page solves that IRR for every possible end age.
It's the age at which the payments you've received add up to the premium you paid. Before that age your return is negative, because you haven't yet gotten all your own money back. After it, every additional payment is genuine return. For a $200,000 premium paying $1,000 a month starting at 65, break-even lands near age 82.
It depends on how long you live, and the comparison isn't apples to apples. On rate alone, an annuity only out-returns a bond of the same yield if you live past a certain crossover age. But a bond pays a rate and hands back your principal, while an annuity keeps paying for as long as you live and can't run out. That longevity protection is worth something the rate comparison ignores.
Not quite, for two reasons. First, this IRR is conditional on your lifespan: it's the return only if you live to the age you're reading it at, while a bond ladder pays its yield no matter when you die. The two line up only if you assume that exact age and build the ladder to run out at the same time. Second, they're pre-tax figures, and the tax treatment usually differs. Funded from a Traditional account, both the annuity and the bonds are fully taxable as ordinary income. But with after-tax money, an annuity splits each payment into tax-free return of principal and taxable gain (and defers growth until payout), while a taxable bond ladder is taxed on interest every year and passes to heirs with a stepped-up basis. Same headline rate, different after-tax result.
Related: Confidence Spend Calculator
