SPIA vs Bond Ladder Guide: The 2026 Verdict

Verdict, line by line

A $100,000 SPIA pays a 65-year-old man $700 a month — $8,400 a year, guaranteed for life (the top October 2026 carrier quote: an 8.40% payout rate). A 10-rung Treasury ladder blending ≈4.8% pays $6,953.69 a year ($579.47 a month) for 25 years — the equal draw that exactly empties the $100,000. Subtract: the SPIA wins by $1,446.31 a year, every year you are alive. It returns the whole premium in 11.9 years — live past 77 and the checks are pure longevity insurance.

Flip the lens: dying at 70 leaves the ladder’s unspent bonds to your heirs — the life-only SPIA would have paid five years. Dying at 95 reverses it: $252,000 from the SPIA and counting, the ladder empty for five years. The verdict isn’t “the annuity is better.” It’s this: the annuity pays more while you live; the ladder pays more to everyone else.

How the SPIA payout rate really works

The 8.40% looks like the insurer found an 8.4% investment. It didn’t — insurers earn roughly the bond yields on this page. The payout rate is an income rate built from three sources: interest on the portfolio, principal repayment (part of every $700 check is your own $100,000 coming back), and mortality credits — the pool’s secret ingredient.

Mortality credits are the transfer from annuitants who die early to those who live long. The insurer prices on average life expectancy, so everyone who dies at 72 leaves unspent premium behind — subsidizing checks for those who reach 95. No bond portfolio can copy this: no bond buyer dies into the pool. The rate also climbs with age: at 70 the top quote is $771 a month (9.25%).

How the 10-rung Treasury ladder works

The ladder is the do-it-yourself answer: ten Treasury notes, one maturing each year from 1 to 10; as each rung matures you spend part and reinvest the rest at the far end. On the October 2026 par curve — 1-year 4.41%, 2-year 4.65%, 5-year 4.78%, 10-year 5.00% — the ten rungs blend to about 4.8%. The draw that empties $100,000 in 25 equal payments is the PMT formula: PMT(4.8%, 25, $100,000) = $6,953.69 a year ($579.47 a month).

It’s finite (year 26 pays $0), rebuildable (maturing rungs reinvest at prevailing rates, adapting to inflation), and yours (liquid, inheritable). It pays less because it buys none of the mortality pool’s leverage — and all of the control.

The four branches, priced

Age 70. The quote rises to $771 a month = $9,252 a year (9.25%); a 20-year ladder at 4.8% pays $7,888.75 a year ($657.40 a month). The SPIA wins by $1,363.25 a year. Waiting is the cheapest way to buy a bigger check.

Joint life, both 65. Covering two lives costs money: $622 a month = $7,464 a year (7.46%). Against the 25-year ladder ($6,953.69), the SPIA wins by $510.31 a year — about $936 a year for the survivor benefit.

CD ladder at 4.2%. A top 1-year CD ladder pays $6,537.22 a year ($544.77 a month) over 25 years. The SPIA wins by $1,862.78 a year. The lower the alternative yield, the wider the edge.

The inflation view at 3%. The SPIA’s $8,400 buys $4,650.88 a year in today’s dollars after 20 years, $4,011.89 after 25. The ladder rebuilds at higher rates; the fixed check can’t — inflation riders cut the starting payment 20–30%.

Taxes: the exclusion ratio vs the Treasury exemption

A non-qualified SPIA (after-tax money) gets the IRS exclusion ratio: part of each $700 check is a tax-free return of your own principal, and only the interest slice is taxed — until you pass life expectancy, after which checks are fully taxable. Fund it from an IRA and 100% of every check is ordinary income, though it counts toward required minimum distributions.

The Treasury ladder’s interest is federal ordinary income but state-tax-exempt — the 31 U.S.C. §3124 treatment that favors T-bills in high-tax states. Run your bracket through the calculator — and remember the SPIA holds no Treasury interest, so §3124 never touches it. One more tax wrinkle: SPIA income counts toward provisional income, so a large annuity can push more of your Social Security into taxable territory — model the whole return, not just the annuity in isolation.

When the ladder wins

The ladder wins on liquidity: the SPIA is irrevocable after the free-look window — the $100,000 is gone as capital — while any bond can be sold for an emergency or a roof. It wins on legacy: die early and leftover bonds pass to heirs. It wins on inflation resets: maturing rungs reinvest at prevailing rates while the fixed $700 check melts. And on credit risk: Treasuries are U.S.-backed; the SPIA depends on one insurer plus your state’s guaranty association (caps ~$250,000–$500,000, varying by state).

It also wins if you might need the money — under ~$200,000 in assets, poor health, no separate emergency fund. The middle ground is the hybrid: annuitize 40–50% for non-negotiable spending, ladder the rest.

Three mistakes people make

Mistake one: annuitizing money they might need soon. The SPIA’s $8,400 a year is the highest number on this page — and it is irrevocable. Retirees convert the emergency fund into an income stream, then discover income streams don’t pay for roofs. Keep 6–12 months of expenses liquid outside the annuity.

Mistake two: comparing the 8.40% payout rate to a bond yield. The payout rate includes return of your own principal — it is not a yield. The honest comparison is income to income: $8,400 a year for life vs $6,953.69 a year for 25 years. The annuity still wins while you’re alive — but now you know why.

Mistake three: ignoring the state guaranty caps. The SPIA is only as good as the insurer behind it, and the backstop — your state’s guaranty association — typically covers around $250,000, varying by state. A $400,000 premium at one carrier can leave six figures exposed. Split large premiums across two or three A-rated carriers and stay inside each state’s cap.

If the real question is a pension lump sum versus lifetime income, see pension lump sum vs annuity — the same income-to-income framing works there: compare the monthly pension check against what the lump sum could safely pay, not against its face value. Or run your own quote, yield, and horizon in the calculator.