Treasuries Pay 5% and Annuity Quotes Are the Best in Years. Should You Buy an Annuity or Keep the Portfolio?
The 10-year Treasury yield crossed 5% on September 14, 2026, and the Federal Reserve raised its rate two days later. For most people that is a headline about mortgages. For anyone within a few years of retirement it changes a decision that was easy to dismiss for fifteen years: whether to hand an insurance company a lump sum in exchange for a monthly check for life. An annuity is priced off bond yields. When yields were 1.5%, annuities were a poor deal. At 5%, the quotes are the best they have been in years, and the question deserves real numbers.
Quick answer
At 65, a $300,000 single-life immediate annuity at today's roughly 7.5% payout rate pays about $1,875 a month for life. The same $300,000 kept invested and drawn at 4% pays $1,000 a month and, at a 6% return, still holds about $646,000 after 25 years. The annuity pays $875 a month more; the portfolio leaves the capital to you or your heirs. The condition that decides it: buy only the income your essential bills need beyond Social Security, and keep everything else invested.
What an annuity actually is, in one paragraph
A single-premium immediate annuity is a trade. You give an insurer a lump sum today; it pays you a fixed amount every month until you die. The payout rate is not an interest rate: it is your own money coming back, plus interest, plus a share of the money left by people in the pool who die early. That is why a 65-year-old is quoted about 7.5% while a 10-year Treasury pays 5%. The price is that when you die, the payments stop and the balance is the insurer's, not your family's.
Why the quotes moved
Insurers invest your premium mostly in long-term bonds, so the payout they can offer tracks bond yields. Quote tables in September 2026 show a 65-year-old man receiving roughly $625 to $650 a month for every $100,000, a woman a little less because she is expected to live longer, and a joint-life contract that keeps paying a surviving spouse around 6% to 6.5%. In 2021, with the 10-year Treasury near 1.5%, the same man was quoted closer to 5%.
That difference is the whole reason to revisit the question now. Here is what it does to the cost of a fixed amount of income, using the annuity vs portfolio calculator's own arithmetic:
| Payout rate | Income from $300,000 | Lump sum needed for $2,000 a month |
|---|---|---|
| 5.0% (a 2021-era quote) | $1,250 a month | $480,000 |
| 6.5% (joint-life today) | $1,625 a month | $369,000 |
| 7.5% (single-life, man, 65, today) | $1,875 a month | $320,000 |
| 8.0% (the top of today's range) | $2,000 a month | $300,000 |
The same $2,000 a month of guaranteed income that cost $480,000 five years ago costs $320,000 now.
The honest comparison at 65
Now put the annuity against the alternative most people actually use: keep the money invested and draw it down. The calculator uses the classic 4% rule — take 4% of the balance a year, a rate that has survived every 30-year stretch in U.S. market history — and grows the rest at your assumed return. With $300,000 at 65, a need of $2,000 a month, a 7.5% annuity quote, a 6% portfolio return and 25 years:
| Annuity | Portfolio, 4% draw | |
|---|---|---|
| Monthly income | $1,875 | $1,000 |
| Covers your $2,000 need | 94% | 50% |
| Paid to you over 25 years | $562,500 | $300,000 |
| Left at the end (age 90) | $0 | about $646,000 |
| Buying power of the check at age 90, 3% inflation | $896 a month | rises with the balance |
| Can you get the money back? | No | Yes, any time |
The calculator's verdict line reads: "The annuity pays about $875 a month more, but leaves nothing behind." Both halves of that sentence are the decision.
The case for the annuity is the first row. $1,875 a month covers most of the need, arrives whether markets rise or crash, and keeps arriving if you live to 100, which the projection cannot show because it stops at 25 years.
The case for the portfolio is the fourth row. At a 4% draw and a 6% return, the balance grows to about $646,000 while paying you. That is money for a care home, a grandchild, or a bad year. And the portfolio's income can rise with inflation; the annuity's cannot. At 3% inflation the $1,875 check buys what $896 buys today by age 90. At the 3.4% inflation reported in August, it buys $813.
The third option, which is what most retirees should do
You do not have to pick. The calculator's "one move" suggestion is the plan most planners land on: annuitize only the gap between your essential bills and Social Security, and leave the rest invested.
Worked through: essentials of $4,500 a month, Social Security covering $2,500, a gap of $2,000. At a 7.5% payout, $320,000 buys that $2,000 for life; with a $500,000 nest egg, the other $180,000 stays invested for growth, emergencies and heirs. The floor is guaranteed, and no market year can force you to sell at the bottom to pay the electric bill. The retirement income floor calculator will size the gap from your own budget and Social Security estimate.
Three rules that make the split work:
- Keep 6 to 12 months of spending in cash on top. Once the premium is paid, it is gone. The annuity is for bills, not for surprises.
- Stay under your state's guaranty limit per insurer — $250,000 of annuity value in most states, more in a few. If you are annuitizing $400,000, use two insurers rated A or better.
- Decide about your spouse first. A joint-life contract pays about 6% to 6.5% instead of 7.5%, and it is the right choice for most couples, because the surviving spouse's Social Security check will drop when the first spouse dies.
What the draw rate does, and what the calculator cannot see
People sometimes argue the portfolio wins by drawing more than 4%. The calculator lets you try it. At a 6% draw, the portfolio pays $1,500 a month and, at a steady 6% return, ends 25 years at almost exactly the $300,000 you started with. At a 7.5% draw — matching the annuity check — it ends with about $40,000, one bad decade from empty.
And "a steady 6% return" is the assumption to distrust. Markets do not deliver 6% every year; they deliver minus 20% some years and plus 25% in others, and if the bad years come first, a portfolio that averages 6% over 25 years can still run dry at a 6% draw. That sequence-of-returns risk is exactly what the annuity removes, and it is the thing the projection does not model. When you run your own numbers through the annuity vs portfolio calculator, read the "runs out in year" line and then imagine the first three years were 2008, 2022 and 2020.
Two more things to settle before you sign
Social Security first. Delaying Social Security from your full retirement age to 70 raises the check by roughly 8% a year, inflation-protected, for life — a better guaranteed return than any annuity quote. If you can bridge the gap from the portfolio, do that before buying an annuity; the Social Security breakeven calculator shows the crossover age.
Inflation riders cost real money. An annuity that rises 2% or 3% a year starts 20% to 30% lower. At 3% inflation the fixed $1,875 becomes $896 in today's money by 90; a rider fixes that but you are paying for it now. Run the fixed check through the inflation calculator for your own horizon before deciding whether the rider is worth the cut.
What to do this month
If retirement is within five years, get two or three real quotes now while yields are at 5%; they are free and they tell you exactly what your income floor costs. Then run your lump sum, your essential gap after Social Security, the quoted payout rate and 25 to 30 years through the calculator. If the annuity covers the gap with money to spare, buy the gap and keep the rest.
FAQ
Will annuity payouts get even better if the Fed raises rates again?
Only a little, and only if long-term yields rise too. Payouts follow the 10-year and 20-year Treasury yields, not the Fed's overnight rate. The 10-year has already moved to 5%; another quarter-point Fed hike in October would barely register. Waiting for a better quote also costs you every month of income you did not collect.
Is 7.5% really available, or is that the best case?
Quote tables in September 2026 show about $625 to $650 a month per $100,000 for a 65-year-old man on a single-life contract, which is 7.5% to 7.8%. A woman is quoted roughly 7.2% to 7.5%, a joint-life contract 6% to 6.5%. Add a 10-year guarantee period, so your heirs receive something if you die early, and the payout drops about 5%.
What happens to my money if the insurer fails?
State guaranty associations cover annuity contracts up to a limit, $250,000 per insurer in most states and $300,000 to $500,000 in a few. Choose an insurer rated A or better by A.M. Best, and split amounts above your state's limit across more than one company.
Does the 4% rule still hold with Treasuries at 5%?
It holds more comfortably. The rule was built on stretches when bonds paid 2% and stocks fell for a decade; with safe bonds at 5%, a 4% draw is easier to fund. The risk that remains is a bad first decade, which no yield fixes.
Should I use an IRA or taxable money to buy the annuity?
An annuity bought with IRA money is taxed like any IRA withdrawal as the checks arrive. One bought with taxable savings is partly a return of your own money, so only the interest portion is taxed. Either way the calculator's figures are before tax; the tax on $1,875 a month is real and it is worth asking a tax professional which pot to use.
Sources
- Bogleheads — Safe withdrawal rates (Bengen 1994 and the Trinity study) -- the basis of the 4% draw the calculator uses.
- National Organization of Life & Health Insurance Guaranty Associations -- state coverage limits if an insurer fails.
- ImmediateAnnuities.com — annuity payout rates by age -- the September 2026 quote ranges cited above.
- U.S. Department of the Treasury — daily Treasury yield curve, September 2026, and the Social Security Administration's delayed-retirement-credit schedule -- the 5% yield and the roughly 8%-a-year increase for delaying benefits.