Keep It or Chuck It?
January 03, 2014One of the questions a lot of my friends have asked me as we got to the end of the year was about keeping their financial documents. I have friends on both ends of the spectrum. Some keep EVERYTHING and are tired of seeing boxes pile up in their attic. Others keep NOTHING and figure that with online statements, if they need it they can request it.
Listening to the two sides (neither friend works in the financial industry) debate the topic was a very entertaining part of one of my recent nights. After a lengthy debate, they asked for my opinion. So, here it is:
Estate planning documents: Keep these forever! Don’t throw them away. Even when you update them (wills, trusts, powers of attorney, advance healthcare directives), keep the old copies and note the date of the revision/update/new document so that if a conflict arises, you have “version control” and can follow the paper trail. A good thing to do is to review your documents annually to make sure that anyone named to a position of importance (executor, power of attorney, etc.) is still willing, able and suitable to remain in that role.
Life insurance documents: Keep these forever! This one probably needs no explanation. After buying a policy and maintaining premium payments, you will only need to do something with this policy once. Actually, it will be your heirs, armed with a death certificate, who have to act. Having the policy documents accessible for them is a wonderful thing. You should review your beneficiary designations every 3-5 years or upon a major life event (births, deaths, divorce, etc.).
Bank/credit card/investment statements: It is very rare that you need anything beyond a few statement cycles but many banks still keep up to 24-36 months’ worth of statements online. If your bank doesn’t offer online statements, keep 2-4 years’ worth of statements and shred anything older. You can always request (for a small fee) that your bank research an item that you want to dispute.
I did this recently for a 10-year old parking ticket that was reported as unpaid. I requested a few statements around the time of the ticket (I don’t even get bank/credit card statements anymore since I rely totally on the online platforms) and was able to show a microfiche copy of the check so that my driver’s license wasn’t suspended. Why it took 10 years for this to surface is still a mystery to me, but not having my bank statement was not an impediment to resolution.
Tax returns: Keep 5-7 years. For audit purposes, there is generally a 3 year statute of limitations but it can be extended to 6 years in certain circumstances. The only benefit to having older returns (7 years +) is that you have an accurate earnings history for Social Security data. You can eliminate that need by going to www.ssa.gov and registering to have an account there. You can review your earnings history now and then shred the boxes of old tax returns. If you want them for sentimental purposes (OK, any reason!), you can scan them and save them to an external drive with password protected files. You don’t want tax returns floating around on the Internet because they provide far too much personal data that hackers and identity thieves would love to have.
Cable, utility, and cell phone bills: Pay them and shred them. There is no good reason that I can think of to keep years of these statements. Pay the bill and move on. Eliminate clutter.
Property records: Keep them until the property is sold. I just found the mountainous stack of documents from the purchase of my first house and ran it through the shredder. There is nothing of value in those old documents. Other than laughing at how little I paid for the first house in comparison to today’s values (and I scanned and saved the first page of the contract with the price), it’s useless.
A general way to think about these things is to ask “what’s the benefit of keeping these documents?” The #1 reason most documents are used (not kept) is to resolve a dispute. From there, it’s to take action on that particular account/item.
If the documents can be useful for disputes or action, keep them. If not, simplify your life by shredding them. Inertia keeps many pieces of paper in our lives and those who have to clean out our attics and basements after we’re gone will thank us for keeping only that which is necessary!