Keeping Track Of Your Finances In Retirement
Last week, we discussed the implications of having an emergency fund in retirement. In that article, I touched on a financial goal that many of our retiree clients are trending towards - simplifying their finances. Today, I want to delve deeper into some methods and technologies clients are using to achieve this.
Consolidating Financial Accounts as Much as Possible
Which scenario potentially carries more risk?
Having all your retirement accounts invested in a broadly diversified total stock market index fund held at a single reputable custodian
Spreading your retirement accounts between multiple custodians and having an investment strategy that concentrates a significant portion in a single stock
Many financial professionals would suggest that option #2 potentially represents more risk for the retiree due to its lack of diversification. Generally, retirees may benefit from reducing the number of financial accounts they have at different institutions and instead focusing more on their actual investments and overall asset allocation. Whether someone becomes our client or not, we believe that most people are better off with fewer retirement accounts, though individual circumstances may vary.
For an average married client (let's call them Tom and Barb), their investment accounts might look as follows:
[Custodian] Roth IRA Tom
[Custodian] Roth IRA Barb
[Custodian] Traditional IRA Tom
[Custodian] Traditional IRA Barb
[Custodian] Joint Investment Account
[Bank] Joint Checking Account
That's five financial accounts at their investment custodian and one financial account at their local bank. While this may not feel "minimal," it's not uncommon for four or five financial institutions to be involved when a new client comes on board.
While there's much more to say on this topic, it's important to note that consolidating financial accounts is not always the best decision. For example, if you're still working at a company and older than RMD age, you can continue delaying your RMDs while actively employed. Another reason may be if you're retiring early (before 59½) and need access to 401(k) funds. You should consider leaving those funds in your 401(k) under a SEPP plan that allows penalty-free withdrawals before age 59½ if you take equal periodic payments for at least 5 years (or until age 59½). Additionally, if you're seeking creditor protection, assets in a an ERISA employer retirement plan like a 401(k) have better protections than an IRA.
Paper Statements or Online Balance Checking?
Most of our clients fall squarely into the Baby Boomer generation. Technology has changed significantly in your lifetime, and it's amazing what you've had to adapt to through your working years. From no computers to the infancy of computers, to everyone having a home computer, to now carrying around a supercomputer in our pockets, I've found many of our clients have different preferences for how much technology they want to incorporate into their lives.
My advice is to find a financial institution or financial advisor office that caters to your preferred level of technology. Many financial institutions are trending towards online-only services. At our firm, we utilize a custodian a hybrid model that offers online portals and the option for paper statements, which some clients prefer. However, if you don't factor this into your decision-making, you could easily end up with a financial institution that doesn't give you much choice in how you receive account information. Online, technology-first financial institutions are catering their service offerings to people who prefer digital communications.
That said, I believe learning to access your accounts online is becoming an increasingly important skill, and it's never too late to learn. While you may not have enjoyed using a desktop or laptop computer, it's amazing how much you can accomplish with a smartphone. From personal experience, I know many of our octogenarian clients are remarkably adept at sending and receiving texts (mostly due to it being the main avenue for receiving pictures and videos of their grandchildren!).
Our clients have the option to receive paper statements to their mailbox or access their accounts online using our custodian's web or phone app. We also provide an additional service called the Orion Client Portal, which offers a central login where clients can see all their household family investment accounts on one screen efficiently. While a majority of account paperwork is done electronically, we also offer the option for clients to stop by our office to sign the paperwork in-person.
Financial Aggregator Apps
The apps for your investment custodian and local bank are probably good default options to have on your laptop, tablet, or phone. However, for tech-savvy retirees, it can be beneficial to take an additional step. Consider adding a budgeting software like Monarch Money or YNAB to serve as a financial aggregator for all your accounts. You may have heard of Mint.com, which was operated by Intuit - I no longer recommend it as it was recently sold to Credit Karma.
These financial aggregators can sync the current values of all your investment accounts, checking and savings accounts, and employer-sponsored retirement accounts into a single screen. Both apps mentioned above are paid services, but it's interesting to see how effective a financial budgeting and aggregator tool can be when supported by subscription fees instead of advertisements soliciting services. As a disclosure, while I personally use one of these services (Monarch Money), I have no financial affiliation with any of these companies beyond being a paying subscriber.
If you prefer paper statements and minimal technology use, this category of technology is one you can safely skip.
Declutter When You Can
Some clients struggle to discard old financial documents. They may bring a giant folder of statements to their annual meeting, unsure what to keep or shred. While I understand the intention of not wanting to discard potentially important documents, I've heard many stories from children who, when needing to understand their parents' finances due to death or incapacity, become disoriented by the accumulated financial documents from decades past.
Part of managing your finances in retirement involves preventing financial document clutter. One benefit of working with a financial planner is having someone you trust to help you decide what's worth keeping. You might not need to keep tax returns from over 15 years ago, and you may not need to scan copies of monthly statements if they're easily accessible online.
Consider Working with a Financial Planner
If you feel you don't have a good grasp of your finances, working with a financial planner may be beneficial to help you stay on track. A good financial planner will spend considerable time understanding your financial goals, help you stay on track through periodic check-ins, and serve as a valuable resource for financial questions that arise unexpectedly. When choosing a financial planner, it's important to understand their qualifications, how they are compensated, and the scope of services they provide. Look for professionals who adhere to a fiduciary standard, meaning they are legally obligated to act in your best interest.