Q. My husband's place of business closed down two years ago. He had worked there for 30 years and is eligible to receive a pension (he's 55 years old). He's not drawing the pension, which will increase by 5 percent for every year that he DOES NOT draw it, up until he reaches age 62.

A new company (in the same type of business) bought the building where the old business was located. My husband works for them now, making a good wage. His co-workers, many of whom also worked with him at the other business, tell him he is crazy to not be drawing his pension. They say that he could invest it and make more than 5 percent a year. My husband doesn't agree--- he's not convinced he could invest the pension and make more than 5 percent a year. What do you think?

---C.C., Brainerd, MN


A.Your husband should take the pension now. You can understand by walking through the math with me. A pension is a guarantee of a lifetime income. The younger you are, the greater its value because you will receive monthly income for a longer period of time.

Suppose that your husbands pension, were he to take it at 55, was $1,000 a month for his lifetime. If you visit www.immediateannuities.com you will find that it would take $176,929 to buy a life annuity to yield $1,000 a month at that age.

Since he knows his pension income will grow by 5 percent a year, he would be eligible for a monthly income of $1,407 if he waits until he is 62. It would take $227,795 to buy a monthly income of $1,407 for a 62-year old male.

By waiting, the value of his pension, 7 years from now, increases by $50,866.

A more practical calculation is to ask how much he would need to have in hand to increase his $1,000 pension by $407 a month at 62. Answer: $65,894.

Can his early pension income be saved at a high enough return to accumulate that amount? Easily. Suppose he has to pay 25 percent income taxes on his $1,000 a month pension at 55. That leaves him $750 a month to invest. If he earns no interest at all $750 a month for 84 months will accumulate to $63,000.

If he put that money into I Savings Bonds, which currently earn 1 percent plus the rate of inflation or 3.67 percent, it would be absolutely safe. If inflation remained the same over the next 7 years, his monthly savings would accumulate to $71,708, of which $63,000 would be after-tax money.

As a practical matter, he might not have to pay taxes on his pension income because he could increase his 401(k) and IRA contributions from his earned income.

Bottom line: taking the pension now is a good idea for you and your husband. It will increase your personal security and flexibility over the next 7 years. It will increase the sources of your final retirement income. And it will increase your retirement income.

The same exercise could have different results for other people.


  Q.   What is your opinion of closed end funds as a source of income? These funds are rarely mentioned in the media, although many yield over 8 percent. With the wide variety to choose from (municipal bonds, high-yield corporate bonds, REITS, preferred shares, international bonds, and more) it is surprising that there is no more interest in these funds.

---C.G., by e-mail from Dallas


A. Sadly, Wall Street is deeply interested in these funds when they are being launched but there is little long term Street research on them. One consequence is that many sell at discounts to net asset value per share. That makes some of them very interesting because you are basically buying $1.00 of assets for 90 cents, sometimes less.

Unfortunately, few of the fixed income closed end funds sell at discounts to net asset value. At the end of 2004, for instance, 113 of the 445 closed end fixed income funds were selling at premiums to net asset value, not discounts, and the average fund was selling at a modest 3.2 percent discount--- not a reason to rush out and buy.

Of the 445 taxable and municipal closed end funds, 267 were providing yields of at least 6 percent, a yield hard to find in their open-end counterparts. Unfortunately, many of the closed end funds achieve their high yields by leveraging their bond portfolios with low cost short-term debt. That increases their net yield--- but also increases their risk.

Closed end funds have been, and remain, an under explored hunting ground but they require significant research effort.