The phrase “death cleaning” may sound jarring to unaccustomed ears, but the concept makes sense. It’s about getting rid of excess rather than leaving a mess for your heirs to sort out.
“Death cleaning” is the literal translation of the Swedish word dostadning, which means a decluttering process that begins as people age. It’s popularized in the new book “The Gentle Art of Swedish Death Cleaning” by Margareta Magnusson.
Magnusson focuses on jettisoning stuff, but most older people’s finances could use a good death cleaning as well. Simplifying and organizing our financial lives can make things easier for us while we’re alive and for our survivors when we’re not.
This task becomes more urgent when we’re in our 50s. Our financial decision-making abilities generally peak around age 53, researchers have found, while rates of cognitive decline and dementia start to climb at age 60. As we age, we tend to become more vulnerable to fraud, scams, unethical advisers and bad judgment, says financial literacy expert Lewis Mandell, author of “What to Do When I Get Stupid.” Cleaning up our finances can help protect us.
Some steps to take:
Consolidate financial accounts
Fewer accounts are easier to monitor for suspicious transactions and overlapping investments, plus you may save money on account fees. Your employer may allow you to transfer old 401(k) and IRA accounts into its plan, or you can consolidate them into one IRA. For simplicity, consider swapping individual stocks and bonds for professionally managed mutual funds or exchange-traded funds (but check with a tax pro before you sell any investments held outside retirement funds). Move scattered bank accounts under one roof, but keep in mind that FDIC insurance is generally limited to $250,000 per depositor per institution.
Memory lapses can lead to missed payments, late fees and credit score damage, which can in turn drive up the cost of borrowing and insurance. You can set up regular recurring payments in your bank’s bill payment system, have other bills charged to a credit card and set up an automatic payment so the card balance is paid in full each month. Head off bounced-transaction fees with true overdraft protection, which taps a line of credit or a savings account to pay over-limit transactions.
Prune credit cards
Certified financial planner Carolyn McClanahan in Jacksonville, Florida, recommends her older clients keep just two credit cards: one for everyday purchases and another for automatic bill payments. Closing accounts can hurt credit scores, though, so wait until you’re reasonably sure you won’t need to apply for a loan before you start dramatically pruning. If you’re not carrying balances or heavily using any of your cards, you can close several at a time. Otherwise, close them gradually over several months or even years to minimize the credit score impact, and consider keeping your highest-limit cards.
Set up a watchdog
Identify whom you want making decisions for you if you’re incapacitated. Use software or a lawyer to create two durable powers of attorney — one for finances, one for health care. You don’t have to name the same person in both, but do name backups in case your original choice can’t serve.
Consider naming someone younger, because someone your age or older could become impaired at the same time you do, says Carolyn Rosenblatt, an elder-law attorney in San Rafael, California, who runs AgingParents.com. Grant online access to your accounts, or at least talk about where your trusted person can find the information she’ll need, Rosenblatt recommends.
Also create “in case of emergency” files that your trusted person or heirs will need. These might include:
Your will or living trust
Medical directives, powers of attorney, living wills
Birth, death and marriage certificates
Social Security cards
Car titles, property deeds and other ownership documents
A list of your financial accounts
Contact information for your attorney, tax pro, financial adviser and insurance agent
Photocopies of passports, driver’s licenses and credit cards