Consolidating Accounts: How to Simplify Your Retirement Finances

Have ever gone to the store to buy new batteries…only to discover later that you already had some in a drawer you forgot to check?

What about going to the supermarket because the recipe calls for lemon juice…without realizing you already had a bottle that got pushed to the back of the fridge? 

Or how about this: You bought a subscription to a streaming service to watch a specific show…without realizing you already had an account under a different email? 

This sort of duplication of both effort and expense can easily build up in our finances as well as our home life.  By the time they are ready to retire, many people may have multiple IRAs (both Roth, Traditional, or even Inherited) combined with one or more 401(k)s and multiple taxable accounts.  Add to this a variety of savings accounts, credit cards, and accounts with mobile payment services like Paypal or Venmo, and you have the potential for massive financial clutter in retirement. 

The reason this matters is because with clutter comes the possibility of more fees, more money that’s sitting around unproductively, more potential for fraud, and a more complicated tax situation. 

That’s why it’s always good for retirees to examine ways they can simplify their finances and reduce clutter by consolidating, combining, or rolling over various accounts into as small a number as possible.  This can bring the following benefits:

·         A clearer view of your financial picture, so you know truly how much you have to meet expenses, fund your dream lifestyle, and achieve your goals in retirement. 

·         Fewer logins and account details to remember and store (when done right) — which means fewer opportunities for cybercriminals to steal your identity. 

·         Reduced fees.  Most types of financial accounts come with various management and administrative costs.  These can really add up, so by consolidating, you may be able to reduce both the number of fees you pay and the overall amount. 

·         Higher compounding potential.  Greater sums of money in one or two accounts can compound over time at a much higher rate than the same amount of money spread out among accounts and institutions. 

·         Reduced risk of forgetting RMDs or leaving money on the table.  Once you turn 73, retirees are required to take required minimum distribution from certain retirement accounts each year.  Having multiple IRA or 401(k) accounts can increase the likelihood of forgetting or withdrawing the wrong amount.   

·         Less stress for your heirs.  Someday, your heirs and beneficiaries will need to take over your estate, which can be a daunting, complicated process.  By consolidating accounts well ahead of time, your loved ones will have less paperwork to deal with, fewer phone calls to make, and an easier time actually enjoying the legacy you worked so hard to leave for them.

Now, this doesn’t mean that all your accounts should be consolidated.  Having multiple accounts can sometimes mean greater flexibility and more investment options.  Consolidating may also have negative tax implications if it’s not done strategically.  But generally, the more you simplify your financial picture in retirement, the easier it is to make that picture look however you want it to.