Many investors are what I call “account collectors” – after years of working at different employers and saving in different types of retirement accounts, they have often accumulated an unnecessarily large number of investment accounts.
This can lead to many structural headaches, but the biggest and most potentially hazardous issues with having so many accounts is that over time accounts can be lost to the sands of time or simply forgotten in one way or another.
It can be easy to forget about accounts as you age
I’m sure many of you are thinking “but I know exactly how much money I have in all my accounts” – and that is probably true.
But as we age, our minds inevitably start to slow down. We become more forgetful. And those smaller accounts – that small 401(k) account you have left over from an employer you worked for 10 years ago – fall out of your thoughts and can easily be forgotten, forever.
When one spouse passes away
It is fairly common for one person out of a couple to be the person who handles the finances. This includes keeping track of all their various investment accounts, and often times the other spouse has no idea where the couple’s money is actually kept.
That works as long as the person who handles the finances remains healthy. But should they get sick or pass away, it can leave the surviving spouse scrambling to figure out where the couple’s money is, at a time when they are already emotionally distraught by what is going on in their personal life.
“Don’t let yourself get there”
In high school I spent some time training Brazilian jiu-jitsu, and would occasionally find myself in a seemingly inescapable hold or position. When I would ask my coach how to get out of that, he would often reply with the best advice possible: don’t let yourself get there.
The same goes for lost investment accounts – you don’t want to worry about tracking them down after the fact. It is far more effective to avoid this type of thing before it even happens.
Consolidate your investment accounts
One of the best ways to avoid losing accounts is simply by having fewer accounts to remember. It is extremely helpful as people age to consolidate their money into as few accounts and custodians as possible. Though it may take some work to get all your money moved around on the front end, it will make for considerably less work on your part down the road.
Having everything in fewer accounts and custodians not only decreases the likelihood something will be forgotten, it will make things like calculating and withdrawing Required Minimum Distributions (RMDs) and keeping beneficiaries up to date much easier.
Designate your “person”
I think it is very helpful to keep someone in the loop on your finances as you age. This person can be a family member, trusted acquaintance, or financial professional – whatever makes you the most comfortable. It is ideal for them to have some level of financial aptitude to prevent you from making obvious mistakes, but the most important things involve simply helping you keep track of everything so nothing gets lost.
As you can imagine, we play this role for our clients. But we often find people will designate a particularly responsible child or younger relative, and that works great as well.
What do I do if accounts are lost?
If accounts remain dormant for a long time, financial institutions are required by law to try to notify you or get a hold of you in some way, but if they can’t, the title to these accounts will be transferred to the state under escheat.
The good news is, you can actually search for and claim this property.
In Illinois: https://icash.illinoistreasurer.gov/
In Texas: https://claimittexas.org/
Final Thoughts: Prevention is the best medicine
Though we have seen people who had the help of diligent advocate track down and recover lost accounts, prevention is still the best medicine in this case. By consolidating investments and designating a responsible person to help you keep track of your finances, you can avoid the many headaches of lost accounts, and can spend your time enjoying your money instead of searching for it!
Paul R. Ruedi, CFP® is a financial advisor at Ruedi Wealth Management in Plano, Texas.
Paul has been quoted in news publications including USA Today, Forbes, The New York Times, Dallas Morning News, Inc.com, Business Insider, US News and World Report, GoBankingRates, The Street, NerdWallet, and The Penny Hoarder. He also writes articles that have been featured in CNBC, Investopedia, Yahoo Finance, Nasdaq, and MSN Money. He was named one of Investopedia's Top 100 Most Influential Financial Advisors in 2018.