Retirement Calculator
Annuity vs Bond Ladder vs Portfolio Income Tool: What It Calculates and How to Read the Result
Quick answer
For a household with $1.5M+ at retirement, an annuity, a bond ladder, and a diversified portfolio each produce different retirement income on the same dollar of savings, and the right choice depends on how you weigh longevity protection against liquidity, inflation protection, and what you want to leave to heirs. The annuity wins on guaranteed lifetime income; the bond ladder wins on predictability and flexibility; the portfolio wins on inflation, growth, and legacy potential. Most plans use a blend.
Educational Disclosure The information provided by this calculator is for educational purposes only and is not personalized investment, tax, legal, or insurance advice. Assumptions are hypothetical and results are illustrative; actual outcomes will vary and may be materially different. This tool does not account for all factors (including specific product pricing, underwriting, carrier terms, taxes, state rules, fees, spreads, surrender charges, or your full household balance sheet). You should consult with your investment, tax, and legal professionals before acting on any information. No guarantees are made regarding performance, income, or results.
No product sales. No carrier affiliation.
Enables the joint-life annuity option.
Used only for a generic tax note (no state tax calculations).
This tool is educational and does not compute your exact taxes.
Currently: Gross
Controls whether the income target grows with inflation.
Context only (does not change projections in this simplified tool).
Reduces payout modestly.
Illustrative estimates; real quotes vary by carrier, rates, underwriting, and state.
Assumed annuity pricing method: internal approximation tables (not real quotes).
Toggle chart units.
Inflation +2% for the first 5 years.
Reinvestment rates -1.5%.
Portfolio equities -25% in year 1, then normal.
End age +5.
- Distributions are generally taxed as ordinary income.
- Non-qualified annuities may use an exclusion ratio concept (part return of principal, part taxable interest) depending on structure.
- Qualified annuity distributions are typically fully ordinary on distribution.
- Interest is generally ordinary income.
- US Treasuries are generally exempt from state income tax; in AZ, rules vary by state and product.
- Corporate bonds can have credit spread and default considerations.
- Qualified dividends and long-term capital gains can be taxed differently than ordinary income.
- Tax drag (dividends, interest, realized gains) can reduce net returns.
- Asset location and withdrawal sequencing can materially change outcomes.
Reminder: This is not tax advice.
- Success probability: 0%
- Small assumption changes can materially change outcomes.
- A coordinated plan can reduce risk and improve efficiency.
Schedule a Strategic Fit Interview to stress-test options and build a step-by-step action plan.
No commitment. No sales agenda. 30 minutes with a flat-fee CFP & Enrolled Agent.
Educational Disclosure The information provided by this calculator is for educational purposes only and is not personalized investment, tax, legal, or insurance advice. Assumptions are hypothetical and results are illustrative; actual outcomes will vary and may be materially different. This tool does not account for all factors (including specific product pricing, underwriting, carrier terms, taxes, state rules, fees, spreads, surrender charges, or your full household balance sheet). You should consult with your investment, tax, and legal professionals before acting on any information. No guarantees are made regarding performance, income, or results.
No product sales. No carrier affiliation.
What This Calculator Actually Answers
This tool compares the after-tax retirement income you can generate from the same starting dollar across three strategies: a single-premium immediate annuity (SPIA), a multi-year bond ladder, and a diversified stock-and-bond portfolio with disciplined withdrawals. The output is a side-by-side income projection under matched assumptions, so you can see what each strategy gives up and what each protects.
The decision is not binary. Most retirement income plans at $1.5M+ in investable assets use a blend: an annuity floor for non-negotiable monthly expenses, a bond ladder for the medium term, and a stock-heavy portfolio for long-term growth and legacy. This tool helps you visualize what each component contributes to the total picture.
How to Read the Result
The income line for each strategy is net of taxes; that matters because the annuity payments and bond-ladder coupons are taxed as ordinary income, while qualified dividends and long-term capital gains from the portfolio strategy are typically taxed at lower rates. If two strategies look identical pre-tax, the portfolio strategy is usually meaningfully ahead after-tax.
Pay close attention to the year-30 ending balance under each strategy. The annuity ends at zero (the income stream stops when you do). The bond ladder ends near zero unless you rebuild rungs. The portfolio strategy carries an ending balance, which is your legacy. If leaving assets to heirs matters, the portfolio's ending balance is part of the comparison, not separate from it.
Common Mistakes
- Comparing gross income from an annuity (taxed as ordinary income) against gross income from a portfolio (often taxed at qualified-dividend or LTCG rates): always compare after-tax.
- Ignoring inflation. Most SPIAs are fixed; bond ladders without TIPS are fixed. A portfolio adjusted for inflation produces materially different real-purchasing-power outcomes after 20–30 years.
- Treating the annuity decision as all-or-nothing. Partial annuitization (covering a non-negotiable expense floor) is almost always more defensible than annuitizing the full portfolio.
- Forgetting that annuity income is irrevocable. Once you buy a SPIA, you cannot get the capital back; that loss of flexibility is real and not always priced into the comparison.
- Not modeling longevity risk. The annuity's value is highest if you (or a surviving spouse) live well beyond average life expectancy.
When This Calculator Is Not the Right Tool
This is a strategy-level comparison, not a product-selection tool. It does not evaluate specific annuity contracts, riders, or bond credit qualities; those decisions require contract-level analysis that goes beyond what a calculator can model. If you have a pension lump-sum decision pending, the pension-lump-sum calculator is the better starting point.
Frequently Asked Questions
Is an annuity ever the right answer for a $1.5M+ household?
Yes, for a portion of the portfolio, often. If you have a non-negotiable monthly expense floor (housing, healthcare, basic living) that you need protected from market sequence risk and longevity risk, an annuity covering that floor takes those risks off the table. The mistake is annuitizing the whole portfolio.
How does Arizona tax annuity income, bond income, and portfolio withdrawals?
Arizona's 2.5% flat state income tax applies uniformly to ordinary income (annuity and bond ladder distributions) and is the same rate as ordinary income from IRAs and 401(k)s. Long-term capital gains and qualified dividends are taxed at federal preferential rates first, then the 2.5% AZ rate applies. The state-tax friction in Arizona is unusually low, which makes a portfolio strategy slightly more attractive here than in higher-tax states.
Does Social Security affect which strategy is best?
Yes. If your Social Security already covers most or all of your non-negotiable expenses, the case for an annuity weakens: Social Security is already an inflation-adjusted lifetime annuity. If your expenses materially exceed Social Security, a partial annuity can fill the gap before you take portfolio risk.
What is the sequence-of-returns risk for each strategy?
The annuity has effectively zero sequence-of-returns risk once purchased. The bond ladder has very low sequence-of-returns risk for its duration. The portfolio strategy has the highest sequence risk, which is why retirement income plans typically pair the portfolio with a cash/short-bond buffer to ride out down years.