Paper Chase: Should It Stay or Should It Go?

They say with age comes wisdom.

I say with age comes clutter--tax returns, bank statements, receipts and paid bills that can pile up unnoticed until they're spilling out of drawers and closets.

Whether you're married or single, if you're over 40, you've had decades to accumulate a daunting paper trail.

I was confronted by this recently when I tried to store some boxes in a closet where my family keeps old files. Upon close inspection, I realized that we had boxes of tax returns, checking account statements and receipts going back to the Reagan Administration, long before my husband and I even knew each other.

A purge was in order. But how do you decide what should stay and what should go?

For an expert's opinion, I turned to Janine Adams, 47, a certified professional organizer and owner of Peace of Mind Organizing in St. Louis, Mo.

The following are Adams' suggestions for what records to keep, how long to keep them and the right way to toss documents once they're no longer needed:

Tax returns. The Internal Revenue Service can randomly audit tax returns for three years after filing and up to six years if the agency suspects an underreporting problem. Since returns are filed the year after taxes recorded on them were paid, hang onto returns and supporting documents for seven years. After that, shred the supporting documentation and keep or destroy the 1040s as you see fit. One argument for keeping old 1040s: If there's ever a mistake in your annual Social Security earnings statement, you can use an old tax return as proof of your income for the year in question, Adams says.

Financial records. Keep bank statements related to tax returns for the same length of time-- seven years. Otherwise, Adams recommends saving bank records for two years. "A bank statement has little value, and depending on your bank, you could get a statement if you needed," she says. For investments, save monthly or quarterly statements until you get a year-end summary, then keep it and ditch the rest. Keep purchase records for homes, stocks and other investments for as long as you own them, for capital gains purposes. If you sell, save sales records for at least seven years in case you're audited, she says. If you pay off a loan or close a utility or other account, keep the statement showing your zero balance as proof in case a collection agency contacts you about a payment.

Other records. In addition to birth, marriage, divorce and death certificates, keep car purchase and maintenance records, including receipts for oil changes and other work, all the better to show a prospective buyer the car is yours to sell and has been well-maintained. With auto, homeowners' or other insurance policies that renew every six or 12 months, keep the current policy and toss old ones. Keep paid medical bills as long as you'd keep tax records, but hang onto medical records--such as those documenting immunizations and blood tests--forever. "It's a handy way to build your medical history," she says. As for other bills, Adams counsels clients to pay them and then shred them, and she says no one who's followed that advice has ever had a problem.

It's easier to keep tabs on important papers if you have an organized filing system. Adams recommends the following set up:

• A two- or four-drawer filing cabinet. The most efficient have drawers that pull out all the way to fit more files.
• A filing system. Adams recommends a system from FreedomFiler that includes files, labels and a specific filing method.
• A shredder. To protect against identity theft, Adams recommends shredding everything, including credit card offers that come in the mail. If you have a lot of old records to dispose of, consider hiring a commercial shredding service to do it for you.
• Long-term storage. Keep files you consult often close by. For everything else, a spot in the attic or basement will do. If you're in a flood-prone area, keep records off the basement floor or in water-proof containers, Adams says.

Once you've culled through old papers and saved what's important, create a list of what's there and share it with a family member or the executor of your estate so if something happens to you, someone knows where to find things.

It's never too soon to get organized. "It's not like when you turn 65 you're old and need to tell your kids where stuff is," Adams says. "You could get hit by a car at 50."