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Help me simulate an immediate annuity
Old 02-02-2007, 01:48 PM   #1
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Help me simulate an immediate annuity

Later on this year, I will pull the trigger and Iíve been thinking of various ways I can bridge the gap between 55 and 62 when my DW will start collecting social security. I am looking for a little more money Ė say $1,000 per month that I can use to finance the non-essential luxuries that I want to include in my retirement.

One alternative I am considering is laddering CDís over the next 8 years. At an average CD rate of 5.35%, I figure I could withdraw $15K per year over this time period before I exhaust the $$$.

Another alternative I am considering is dumping a full $100K into a fund which has worked well for me. Nuveen Preferred & Convertible Income Fund (JPC) is currently paying a cash return of 8%. This would give me only about half the $$ to work with but I would be preserving my principle. I know I would be subjecting myself to interest rate risk if I do this, but I figure that if I simply hold for the income and donít sell, losses in priciple won't matter.

Regarding JPC, I donít understand why this exchange traded fund sells for such a discount to its NAV. Even with principle fluctuations, if you hold long enough for the dividends, it seems hard to go wrong with. It certainly has worked for me! I bought in last year at a price of 12.50/sh when the yield was over 9%. Over the past year, Iíve enjoyed the 9% yield plus an additional 10% in capital appreciation.

A $100K investment would represent less than 6% of my nest egg.

Any advice would be greatly appreciated.





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Re: Help me simulate an immediate annuity
Old 02-02-2007, 02:38 PM   #2
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Re: Help me simulate an immediate annuity

Just took a quick look at JPC. Discount to NAV is gone. Yield is 8%, but that's through leveraged preferreds (higher risk than bonds). ER is 1%.

If the economy takes a dump in the next 8 years, JPC is exposed. If the economy heats up and interest rates rise, JPC is exposed.

If you want predictable income over the next 8 years, I would take the simple ladder approach.
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Re: Help me simulate an immediate annuity
Old 02-02-2007, 02:41 PM   #3
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Re: Help me simulate an immediate annuity

I agree: treasuries and CDs sound like a much better choice for what you have in mind.
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Re: Help me simulate an immediate annuity
Old 02-02-2007, 02:47 PM   #4
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Re: Help me simulate an immediate annuity

Thanks for pointing that out, WAB. They've got junk bonds too which could go south in a downturn.


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