Do you know where all of your financial documents are? Are they spread throughout electronic files and around your home? If you are like many of us, you are engulfed in a flood of bills, tax forms, account statements and other financial documents, and may not know where everything is. That means it’s time to sort, simplify and organize, especially if you are just around the corner from retirement.
While it may seem logical to wait and get your records in order after you retire and have more time, getting organized BEFORE you stop work is a wise choice. Getting paperwork arranged sooner rather than later can help you ensure that your budget and assumptions are more closely matched to reality. More than one person has started cleaning up only to discover overlooked financial accounts, frequent flyer miles or credit card points — items that have the potential to help make retirement more pleasant. Or it’s possible you may find more financial obligations than you realized.
This also is a good time to consider consolidating financial/investment accounts, allowing you to both improve your understanding of portfolio performance and reduce the number of documents. Once you have your paperwork reduced, it is easier to keep everything organized and more secure. Whether you prefer a fireproof safe or a password-protected electronic file, you will have more space, a better system and less likelihood of losing important information if you have fewer records overall.
Finally, cleaning up your financial documents now means you’re less likely to leave the task to your loved ones. If something happens to you, having your important papers in order would allow your heirs to more easily apply for and claim benefits, go through the probate process, close accounts, and pay final estate or income taxes.
Which documents should you keep? Consumer Reports1 suggests dividing your records into four categories:
- Keep a year or less. This file should include items that may be important to reconcile with your monthly statements or to keep in case there is a question, such as credit card and ATM receipts and bank deposit slips. You may need to keep some of these longer to support your tax returns.
- Keep a year or longer. Keep loan documents until a loan is fully paid (typically more than one year). Hold onto vehicle titles until you sell the vehicle. Keep purchase confirmations for any stocks, bonds and mutual funds until you sell so you can establish cost basis and your holding period.
- Keep seven years. Keep all tax records, brokerage summaries, pay stubs and receipts for large purchases for up to seven years, since this is the length of the IRS statute of limitations.
- Keep forever. Important personal records—birth and death certificates, wills, military discharge papers, marriage licenses, divorce decrees, Social Security cards, medical records and passports—fall in this category. It is also important to keep defined benefit plan or estate planning documents, life insurance policies, paperwork for any investments you still hold and an inventory of your safe deposit box contents.
As famed “tidying up” specialist Marie Kondo has said, finding time for the important things in life begins with decluttering: “Once you are done tidying up, you will find it easier to keep your home — and mental space — clear and focused.”2 It is never too early — or too late — to discard items you no longer need. Who says “spring cleaning” can only take place in the spring? By taking time early to get your financial documents decluttered and in order, you can free up time later.
Looking for more information on record retention? Read our other Perspectives article here.
1 How Long to Keep Tax Records and Other Documents
2 Marie’s Top 5 Productivity Tips
D.A. Davidson & Co. is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of the data available to us at the time of the original article. These opinions are subject to change at any time without notice. Copyright D.A. Davidson & Co., 2019. All rights reserved. Member SIPC.