When Transitioning to Retirement, Reduce Complexity and Consolidate!

After recently losing her father to a long battle with cancer, and having to sort through his estate, one of our Relaxing Retirement members reminded me to share a very important strategy with you so nobody else has to go through the exhausting and unnecessary experience she went through.   

Sorting out all of her father’s bank and investment paperwork took almost two months because it was coming in from everywhere.

When she finally tallied it up, here’s what she discovered.  In addition to numerous bank accounts in several different banks, he had 14 different custodians for shares of stock that he owned, as well as various stock certificates for his original purchases that were located in his fireproof safe in his basement. 

Most of this came about from the break-up of AT&T years ago into all the “Bell” spinoffs like Lucent, Southwestern Bell, Nynex, Vodaphone, Verizon, etc.

In addition to those, he also had 8 different IRA accounts, including 3 in banks and 5 held directly at different mutual fund companies!

In all, that’s 22 different sets of statements in addition to his individual stock certificates! 

Why Did He Have So Many Accounts?

Right now, you must be asking, “OK, why did he have so many accounts?”

As she explained, her father grew up in a household marred by the Great Depression when banks had their troubles and innocent people couldn’t get access to their money.  So, the reason for the different bank accounts was probably to stay under the FDIC insured amount.

As for all of his stock accounts, both inside and outside of IRAs, there’s really no explanation other than he wasn’t aware that he could consolidate them all onto one statement.

Years ago, I had a gentleman in his 70s tell me that the reason for him holding a dozen different IRA accounts was “diversification.”

When I told him that he could keep all the same investments that he had but consolidate them all onto one easy to read statement, he couldn’t believe it.

Why You Should Consolidate Your Statements and Investment Holdings (including Individual Stock Certificates)

He was so conditioned to believe that multiple accounts equaled diversification.

For starters, you can and should consolidate all “like kind” accounts (same title, i.e. joint, etc.) into one account, especially IRAs i.e. Traditional, Roth, Rollover, etc.  This is also true of your retirement plans at prior companies or institutions.

There are several reasons for this, none of which is to boost performance:

  1. Instead of spending time locating statements each month, you can receive one consolidated statement that lists all of your investments broken down by account title.
  2. When it comes time to reallocate or rebalance your investments, you have one source to contact to make the change.  And, that company also does all the record keeping for you.
  3. IRA Required Minimum Distribution (RMD): Once you reach age 72, and you have to begin taking your RMD, you only have to calculate the amount to withdraw from one account, so record keeping is much simpler.  Instead of receiving notification of the required amount to withdraw from several companies, you will only receive one.
  4. Tracking Non-deductible IRAs: Consolidating your IRAs also makes it easier to keep track of non-deductible IRA contributions, and thus accurate filing of your income taxes when you take your annual distribution.  As a simple example with round numbers, if you have $100,000 in IRAs, and $20,000 of that comes from non-deductible IRA contributions over the years, then only 80% of your withdrawal is subject to tax.
  5. On-line access in one location: in today’s world of on-line account access, you can view all of your investment holdings on one website, including your bank accounts.
  6. Last, but not least, it makes it so much easier on your heirs.  Helping our member pull all of this together after the fact reminded me that I take it for granted that everyone knows that you can do this.  Your heirs will be extremely happy that you consolidated everything into one location.

As a final thought, in addition to taking care of this for your family, if your parents are still with us, you may want to approach them about this as well.  It may save you a few headaches down the road!

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