Consumerist offered this gem up the other day, a forty-page document released by the AARP called “A Financial Professional’s Guide to Working With Older Clients” (PDF).

The first 18 pages were written for financial professionals and you can probably skip them. As a potential client, on the service provider-client side of the relationship, you could read the first 18 pages if you want to know what you need to be asking someone advising you. If you don’t plan on working with an adviser, you can skip it entirely.

On page 19, it starts discussing the issues that concern retirees and older clients. Not all of these will apply to you but it’s good to know what your peers are concerned about because you might be concerned too and just not know it! It covers social issues, family issues, generational issues, physical impairments (hearing, vision, disability), mental impairments, as well as written & online communications.

It’s a very quick read and gives you something to think about.

A self-directed IRA is a type of Traditional or Roth IRA in which you’re allowed to invest in things other than stocks, bonds, or mutual funds - such as investing directly in a hot new biotechnology or traditional technology startup. In fact, it’s the only way you’d be able to invest your IRA dollars into anything non-traditional to include but not limited to real estate, race horses, and basically anything else (as long as you follow a few rules).

Disqualification

The biggest rule is that you can’t do anything that makes it appear as if you’re using deferred funds for current use. The biggest example is in real estate investing. If you use your IRA funds to “invest” in a property that you end up using and the IRS finds out, then your entire IRA could be disqualified, considered distributed, and you’ll have to pay any associated taxes and withdrawal penalties if you’re under 59 1/2. The disqualification aspect is the biggest danger associated with self-directed IRAs because it can sink you.

There are some categories that are explicitly not allowed and the two biggest are life insurance and collectibles. The “current use” rule regarding life insurance is clear, you’re technically always using it, right? With collectibles, it appears that the rule exists simply because there’s no way to enforce the “current use” rule otherwise. If the IRS ever asks, you could simply give your cousin the piece of art and say they were using it.

How To

This part is pretty simple, just head on over to your bank’s trust department or open an account with a custodial firm (many traditional brokerages, such as Vanguard, also handle self-directed IRAs). They handle all the accounting from disbursing the funds to collecting the profits but they stay mum on all other issues, they are not allowed to give advice. The fees are typically higher than your normal IRA account but that’s because they do a lot more work handling all those esoteric investments you’re thinking about.

Coming from a Chinese family, the thought of having my parents live in a retirement home was never appealing to me. In Chinese culture, unlike American culture, there’s a sense that family, rather than government (Social Security, pensions?), takes care of the elderly members of the family. That’s not to say all Americans send their grandparents to the retirement home, just that it happens more often. However, as I’ve been reading about retirement communities (and also homes), I see there’s a tremendous benefit to living with people who are in the same age demographic as you, rather than with children. It still hasn’t changed my mentality but it certainly opened my eyes to the benefits.

Events
Since a retirement home or community is full of folks in the same age demographic, it likely has events that cater to those individuals. Bingo nights, dancing nights, and movie nights really increase the level of social activity ones experiences and, to be honest, would be fun for almost anyone not looking to get drunk at a bar. This level of social activity is crucial when you reach retirement because it gives you something entertaining to do.

Quiet
A community without the younger demographic is one that will naturally be quieter! A quiet lifestyle, if that’s what one prefers, is one you’ll generally find in a retirement community and not necessarily find in a “regular” community.

Affordable
If you look up housing pricing for retirement communities, you’ll find that the homes there are affordable because they are catering to the fixed income crowd. So not only do you get the events and the peace and quiet, but you get a more affordable home too!

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The 149th Carnival of Personal Finance is now available!

I’ve considered investing more of my retirement money into Treasury Notes but could never get over the seemingly weak rates of return. However, one article I found recently talked about someone who uses treasury notes exclusively for retirement savings, averaging around 4.625%, and then living off the interest of those (state and local tax free!).

Sometimes we read reports about stocks yielding over 10% a year and we start seeing the dollar signs, but when we get older, it’s the conservative and safe play that we really want. I think having grown up in a culture of more, we get it in our heads that we’re supposed to always try to get as much as we can, even if it puts a few more gray hairs on our head. When you get older, you stop needing to get more and instead need to get enough.

There are two types of savings bonds, EE and I bonds, backed by the “full faith and credit of the United States government,” which means the only way they go under is if the US Government goes under (or defaults, which would be just as bad).

EE bonds earn a market-based rate, indexed to the average yields of 5-year Treasury securities. The I bond is inflation-indexed. Its earnings formula has two parts: a fixed rate of return that remains the same for the life of the bond and a variable rate tied to inflation as measured by the Consumer Price Index for Urban Consumers (CPI-U). The Treasury announces new rates each May and November.

If you’re getting 4.625% and hitting the golf course each day, I’m sure you’ll be just as happy, if not happier, than getting 10% and not hitting the links. Sometimes we just need enough.

Some people lament growing older, some people celebrate it. Well, now both groups have five great reasons to celebrate (even more!). The latest TheStreet.com article on retirement identifies five great opportunities for seniors to pull the age card and get themselves discounts.

Baseball Tickets

More and more teams are offering Senior Days, with discounted tickets, or promotions aimed at seniors. The Baltimore Orioles are having a giveaway where the first 3,000 55+ ticketholders will get a free tote bag and seat cushions!

Cell Phone Plans

Cell phone carriers are now offering special promotional rates and plans for seniors who would like a cell phone but won’t need 1000 minutes a month. AT&T has a Senior Nation 200 plan and Verizon has the Nationwide 65 Plus plan for only $30 a month.

Skiing

If you like to ski and you’re willing to head out to Monarch Mountain in Colorado, you can ski for free if you’re 70 or older. Eric Ramsey makes a good point:

“We look at it like if you’re still skiing at 70 years old you deserve to be skiing for free,” says Eric Ramsey, a spokesman for the resort.

Senior-Specific Bank Account

We discussed the best bank account for seniors in the past but this article lists a few good contenders: “Bank of America’s Advantage of Seniors checking, Wachovia’s Crown Classic Banking and Access Fifty Checking and Wells Fargo’s Elder Services all target seniors with perks like no-fee travelers checks, free or discounted bill pay, preferred rates on money market savings, CDs and IRA accounts, and free or discounted identity protection.”

Senior Pets

If you don’t have the energy for a young rambunctious puppy, consider a senior pet. “The Progressive Animal Welfare Society’s (PAWS) “Seniors for Seniors” program matches senior (seven and over) cats and dogs with senior (60 and over) humans at a reduced rate of $35, almost a 50% discount.”

Source: TheStreet.com

It’s April 14th, tomorrow is tax filing day, have you made all your contributions for 2007? Now’s your last chance!

IRA Contributions

You have until April 15th of the following year to make contributions for that tax year, so you have until April 15th, 2008 to make your contributions to a 2007 IRA. If you have online account access and a linked bank account, you can still hop online to make your contribution right now. If you have online account access but haven’t linked a bank account, you may not have enough time to go through the verification process, but you are not out of luck. If you mail a check and it’s postmarked before April 15th, you can still get the contribution characterized as a 2007 contribution.

Retirement Savings Tax Credit

You’ll have to file a 1040 or 1040A, or go with an online service like TurboTax that will handle it all for you, but you may qualify for a retirement savings tax credit. The tax credit works on a schedule based on income, with the ceiling being $26,001. If you earn more than $26,001 as a single filer or $52,001 as a married filing jointly then you can skip this paragraph. For everyone else, you can get a credit of up to 50% of your retirement contributions. For single filers, the 50% credit rate is for incomes of less than $15,500, 20% is between that and $17,000, 10% for those earning less than $26,000, and then nothing for anyone over.

Another point to know is that in the case of IRAs, only half of the maximum contribution can be counted towards calculating your credit. So for 2007, the max contribution was $4,000 but only $2,000 figures towards the credit, leaving a maximum credit of $1,000 for single filers.

Almost every recognized retirement account contribution counts from IRAs to 401(k)s to SIMPLES, SEP, 403(b), etc. For additional help, check out Form 8880 Credit for Qualified Retirement Savings Contributions or just use TurboTax.

New year means new brackets and limits and all that great jazz!

This year the total amount you can contribute to your 401(k) or 403(b) will not increase (remains $15,500) but IRA contributors will be able to put $5,000 towards their retirement (more if you’re in the catch-up category).

There are a few other 2008 increases indexed to inflation that have been discussed over at Blueprint for Financial Prosperity in the review of 2008 federal income tax brackets post so I won’t be repeating them here.

If you are able to max out your 401(k) at $15,500 and your Roth IRA at $5,000 for only a single year anytime before you are the age of 26 and can earn 10% annually, the historical average rate of return, then you will end up with over $1 million by the time you are 67 even if you never contribute a single penny ever again. [Source: MotleyFool.com]

If you are over the age of 26, don’t fret, you can be as seasoned as 52 and still reach one million by 67 but it will take a lot more work. The article outlines an entire table detailing how many consecutive years of maxing out your funds it will take to reach $1 million by 67 and the numbers aren’t as daunting as you may think.

For 52 year olds starting with $0, you will have to contribute the maximum for 15 consecutive years in order to see $1M. The prospect for a 42 year old is much better, a mere six years of maximum contributions will get you there. If you’re 32, only two years of maximum contributions will get you to $1M by the time you are 67. After 52, unfortunately you can’t reach $1M through contributions and 10% growth… but if you’re 53 now and have zero contributions, you can at least depend on the fact that Social Security will still be solvent and you likely have a pension. Those two comforts will likely not exist for those folks in their 20s!

When you retire, a nest egg is that pot of money that you rely on to generate income year after year. You might have it in some large cap dividend stocks or a batch of CDs or some other income producing asset, that’s a good idea. However, there may come a time when you need to tap into that nest egg to deal with emergencies. When that time comes, you may be tempted to over-correct by plowing some funds into riskier investments in an attempt to recover and that’s a bad idea.

Let’s take an easy example of $100,000 in a CD earning 4% a year. Each year you are depending on that asset to generate a tidy sum of $4,000 a year. However, this year you had a medical emergency and had to raid the fund for $5,000. Next year, you only earn 4% on $95,000 - or only $3,800, a difference of $200. If you have another emergency, that fund falls even more. You can see how these nest egg raids can have a deleterious long term effect.

This is where you may be tempted to correct for this emergency by putting a lot of money into the stock market to make up for it. Don’t! The answer is that you should cut your expenses so you can try to slowly recover the $5,000 you lost. Don’t try to make it back on the stock market because one negative downturn and you may never have enough time to recover.

Cut expenses rather than go for broke.

Recessions, or two consecutive quarters of negative GDP growth, have been on many people’s minds lately and this latest article, What job woes mean to you by Chris Isidore, probably doesn’t help. Economic cycles happen and with each economic burst will come a correction of sort, a regression to the mean if you will. However, if you plan for it, you can mitigate the negative effects of a recession as best as possible.

The greatest concern during a recession is job loss, the focus of that article, and you can mitigate that by solidifying your worth to the company you work for and boosting your emergency fund. I wrote about the decision making process for contributing to a retirement fund or an emergency fund in the past, still worth reviewing if you haven’t read it. After the 401(k) match, I recommended that after you’ve saved 6 months of expenses you should move back to your Roth - I still agree.

However, I would amend that article and increase the emergency fund period to 9 or even 12 months. One benefit of a Roth is that you can withdraw your contributions penalty free under many conditions, so you aren’t significantly hampered by contributing, but the key here is to increase your emergency fund because the probability of a bad event, such as job loss, has increased.

You can’t control, to a certain extent, what happens to you but you can control how well you prepare for it.