Simple steps to de-clutter your finances

By Bankrate.com

Finding a path through financial clutter may not be easy, but the results will soothe your nerves.

"When I ask clients how they keep track of investments, their response invariably is that they don't," says Bob Nusbaum, a certified financial planner and the president of Middle America Planning in Pittsburgh. "The problems that result are that they don't manage their investments, and their costs -- annual fees for various accounts and mutual fund expenses -- are usually way too high."

Stocks, mutual funds, 401(k) plans, IRAs, pensions, bank accounts, savings bonds -- these financial instruments and vehicles accumulate over the years like single buttons and paper clips in the kitchen junk drawer. A friend or family member in the insurance or brokerage business sold you a product, and it continues to sit in your portfolio out of simple inertia. You bought stock in the company where your father worked for 50 years, and selling it feels like a disservice to his memory.

"There's ready advice about purchasing, but rather little about when to sell," says Debra Morrison, a fee-only wealth manager at Capital Financial Advisors in La Jolla, Calif. "So a fear of selling what might be an excellent investment paralyzes people. They hang on to things not out of laziness but out of rank ignorance. But retirement, or the fear of possible job loss, can serve as a wake-up call to get a grip on what you own."

Clear up the confusion now, and keep it at bay by taking inventory of your holdings on a yearly basis.

De-cluttering forces you to prioritize

By the time they retire, most people will have accumulated a hodgepodge of investments, usually residing in five common domains: brokerage accounts that include mutual funds and stocks; a retirement plan with an employer; bank accounts, including certificates of deposit and money market accounts; life insurance; and IRAs, says Diane Pearson, a wealth adviser at Legend Financial Advisors in Pittsburgh.

As a first step in determining whether you have enough for retirement living, account for all the assets you have, Pearson advises. "Look to see which of your investments will provide the liquidity you'll need during retirement," she says. "You may have a pension plan and Social Security, but that may not be adequate to cover your cash flow. If it's not, look at your other investments," she says, adding that you'll need to determine which investments to tap first.

If you've been a good saver all your life, it may be difficult to begin using some of your investment accounts for living expenses, says Ellen Rogin, the president of Strategic Financial Designs in Northfield, Ill. The necessity of doing so causes some people to worry that they are spending too much. De-cluttering will help ease these worries because it forces you to become familiar with all your resources, including your pension (assuming you're lucky enough to have one) and Social Security benefits. At the same time you can determine whether it makes sense to buy an annuity for a portion of your assets.

Sometimes people enter retirement oblivious to the fact that they're vested in a pension plan. "In some cases, especially when pensions are older or smaller, people may forget they are entitled to them," Rogin says. "Employers can find them." You can find them, too, by checking a few resources, such as the Pension Benefit Guaranty Corp.

De-cluttering helps your loved ones

Another reason to de-clutter: It will help your spouse and heirs.

Pearson says she tends to see couples where one spouse is responsible for the finances and the other spouse doesn't know what's going on. Both need to know where the money is, how much there is and whom to talk to if the spouse who handles the money suddenly isn't able to do so.

The de-cluttered portfolio will ease the way for the spouse who knows less, in the event his or her partner dies first, says J. David Lewis, the president of Resource Advisory Services in Knoxville, Tenn. He recently met with an older couple who wanted to get all their information organized and under the management of a planner in case one of them became incapacitated.

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"We won't serve as guardians or have power of attorney, but we will have all the stuff organized for the person who has that role," Lewis says. "In this case, the husband said it was worth the price of hiring us just so his wife will have somewhere to go if something happens to him."

You and your spouse aren't the only ones who will benefit from clearing up financial clutter. Your heirs and executor also will appreciate your leaving behind neat and organized financial records.

Create a master list of your holdings and related account numbers so that your executor won't have to search through piles of paper to determine what and where they are. Share with a reliable family member information about the location of this list, as well as how to contact the experts (attorney, insurance agent, financial planner) who are helping you with your finances.

Make certain that the beneficiaries are correct on all your retirement account holdings. Lewis has seen significant problems when beneficiaries who are listed have died and no contingent beneficiaries are named.

Continued: De-cluttering your portfolio

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