Anderson the value of debt in retirement; why everything you have been told is wrong (2015)

The Value of Debt in Retirement
Why Everything You Have Been Told Is Wrong

Thomas J. Anderson


Cover design: Wiley
Copyright © 2015 by Thomas J. Anderson. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means,
electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of
the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization
through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers,
MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for
permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ
07030, (201) 748-6011, fax (201) 748-6008, or online at www.wiley.com/go/permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this
book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this
book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty
may be created or extended by sales representatives or written sales materials. The information in individual chapters of
this book is to be considered in a holistic way as a part of the book and not to be considered on a stand-alone basis. This
includes, but is not limited to, the discussion of risks of each of these ideas as well as all of the disclaimers throughout the
book. The advice and strategies contained herein may not be suitable for your situation. The material is presented with a
goal of encouraging thoughtful conversation and rigorous debate on the risks and potential benefits of the concepts
between you and your advisors based on your unique situation, risk tolerance, and goals. Y ou should consult with a
professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other
commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care
Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993, or fax (317) 5724002.

Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with
standard print versions of this book may not be included in e-books or in print-on-demand. If this book refers to media
such as a CD or DVD that is not included in the version you purchased, you may download this material at
. For more information about Wiley products, visit www.wiley.com.
Library of Congress Cataloging-in-Publication Data:
Anderson, Thomas J. (Certified investment management analyst)
The value of debt in retirement : why everything you have been told is wrong / Thomas J. Anderson.
pages cm
Includes bibliographical references and index.
ISBN 978-1-119-01998-5 (hardback); ISBN 978-1-119-02001-1 (epdf); ISBN 978-1-119-02000-4 (epub) 1. Finance,
Personal. 2. Retirement—Planning. I. Title.
HG179.A5597628 2015
332.7084′6—dc23
2014049407


This book is dedicated to two very special sets of retirees
who have given me the insight and unconditional love
necessary to write this book:
Grandpa John & Grandma Kay Kay
Marty & Julianne Smith


Contents
Foreword
Acknowledgments
Introduction
Caution: You Could Burn Your House Down Baking a Cake!
Notes
PART I: BASIC IDEAS AND CORE CONCEPTS

Chapter 1: A Better Path
A Successful but Controversial Debut
The Fifth Indebted Strength
Who Can Benefit from This Book? Not Only Millionaires! (But They Can, Too)
Everyday Example #1: Immediately Better Credit Card Debt
Getting beyond the ABLF and Focusing on Retirement
Notes
Chapter 2: Debt in Retirement
What Some Popular Retirement Books Get Right—and Wrong—about Debt
The “Good versus Bad” Debt Camp
Bach Where We Started: The Irresolutely “Against Debt” Camp
The (Very Small) “Sometimes It’s Okay to Have Debt” Camp
Everyday Example #2: A Bridge Loan over Troubled Quarters
Notes
Chapter 3: Why and Whether to Adopt a Holistic Debt-Inclusive Approach in
Retirement
A First Look at the Three Main Types of Debt: Oppressive, Working, and
Enriching
Seven Rules for Being a Better Debtor
In the Company of Longer Life Spans
Winging Your Way to a Successful Retirement: The “Whole Chicken” Approach
Everyday Example #3: A Holistic Business Recipe for Success
Notes
PART II: THE POWER OF DEBT IN REDUCING TAXES, INCREASING RETURN,
AND REDUCING RISK
Chapter 4: Returning to the Return You Need
Cash Flow and Incoming Money: The Ultimate Key to Resource Management
You Have to Get Your Numbers Right!

Regardless of Your Net Worth, Distributions Are Rarely Constant over Time in
Retirement
How Much Can You Safely Take Out?
How You May Be Able to Increase Your Rate of Return
How Is This Possible? A Big-Picture Overview
Risks and Problems
Everyday Example #4: Retiring the “Loan” Survivor
Notes
Chapter 5: The Power of Debt Meets Our Ridiculous Tax Code
Some Brief Preliminaries: Income versus Incoming Money
The Websters: A Tale That Taxes the Imagination
Your De Facto Tax Advisor
An Inconvenient Truth
How to Pay Almost No Taxes in Retirement: A Few More Examples
Everyday Example #5: “Auto” You Not Be Sure You Are Getting the Best Loan?
Notes
Chapter 6: Risk Matters More Than Return
Why Your Personal Risk Tolerance May Not Matter
A Simple Understanding of Risk
An Overview: “What Time Is It?”
A Detailed Understanding: “How the Watch Works”
Proof That Debt Can Reduce Your Risk in Retirement
Everyday Example #6: A Lot to Think About? Not Really
Notes
PART III: HOW TO GET THERE: A GLIDE PATH
Chapter 7: The World Is Full of Risk—Especially Now
Not Your Usual Serious Caution
Learning from What Companies Do—Value Liquidity!
What about Interest Rate Risk? Fixed versus Floating Rate Debt
Investment Risks: It Isn’t the Debt That Matters, It Is the Quality of Your

Investment Decisions!
Asset Allocation and Investment Considerations
A Six-Step Approach to Diversified Investing in Retirement
Lessons from Math and History Suggest Caution
Be Careful What You Watch!


My Opinions on Asset Allocation
Notes
Chapter 8: The Sooner the Better
Understanding the Implications of These Ideas for Your Life Plans
Getting a Handle on Whether You Should Adopt a Strategic Debt Approach
The Need-Want-Have Matrix
Watch Those Ratios! A First Glide Path into Retirement
What If You Are Not Optimal Today?
Dying with Debt?
Final Mortgage Considerations
Notes
Chapter 9: Conclusion
A Checklist Review
Bringing It All Together: A Strategic Debt Strategy in Action
A Last Word: The Value of Debt in Retirement
Notes
PART IV: GUIDES
Guide 1: Leaving a Legacy
General Giving Philosophy
The Benefits of Giving While You’re Working
Giving to Create Income
Notes
Guide 2: Managing the ROI of Retirement

Retirement “ROI”: Resources, Outer Pragmatics, and Inner Dynamics
Retirement Is Coming: A Holistic Roadmap of the Territory before You Retire
Meta-Management against a Background of Accelerating Change
Staying Effective and Informed over Time
Resource Management for the Long Haul
Partial Retirement/Partial Income
You Can Test-Run Retirement
Real Estate, Small Business Ventures, and Personal Guarantees
Medicare
Long-Term Care Insurance
Thoughts on Life Insurance
Reverse Mortgages


How You Should (or Should Not) Factor in Inheritance
Outer Pragmatics: Real World Concerns, Issues, and Details
Legal Planning
Medical Planning
Residency Planning
Life Planning
Inner Dynamics: Meaning, Purpose, and Pleasure in Retirement
Sharpening the Saw
Particular Considerations on Retirement and ROI for the LGBT Community
Notes
Guide 3: How to Help Your Family and Buy the Stuff You Want and Need
Act Like a Company/Think Like a CFO
Principles When Financing the Purchase of a Desired Item
Managing Credit Card Debt
Helping Your Kids with Their Credit Card Debt
Helping Your Parents

Buying a Luxury Car
Buying a Boat/Airplane/Art/Antiques/Jewelry, Paying for a Dream Vacation,
Financing a Hobby (Horseback Riding, Car Racing)
Paying for Fractional Ownership (Home/Plane/Boat)
Helping Out Our Kids and Student Loans
Homes: Downsizing/Moving/Building
Purchasing a Second Home: Pluses and Minuses
Rent versus Buy a Second Home
One Hundred Percent Financing: The No-Down-Payment Real Estate Purchase
Option
Notes
PART V: APPENDICES
Appendix A: About the Companion Website
Appendix B: Details for Chapter 4
Understanding the Ideas of Chapter 4, with Charts and Tables
Notes
Appendix C: Chapter 5 Detail
Understanding RMDs
The Liger at Work Again


Understanding Cost Basis and a Step-Up in Basis
Notes
Appendix D: Details for Chapter 6— A Study of Withdrawal Rates in Retirement
Background: How the 4 Percent Rule Came to Life
Trinity Study Results
Trinity Study: Unfortunate Timing
Notes
Appendix E: A More Detailed Discussion on Risk, Return, and Correlation
Notes

Appendix F: More Detail on ABLF, Risk Details, and Official Statement of
Disclosure and Understanding
More Detail on ABLF
Statement of Disclosure and Understanding
With Respect to ABLFs
Additional Important Notes
Notes
Glossary
Bibliography
About the Author
Note
Index
EULA

List of Tables
Chapter 3
Table 3.1
Chapter 4
Table 4.1
Chapter 5
Table 5.1
Table 5.2
Table 5.3
Chapter 6
Table 6.1


Table 6.1
Table 6.2
Table 6.3

Table 6.4
Table 6.5
Table 6.6
Table 6.7
Chapter 7
Table 7.1
Table 7.2
Chapter 8
Table 8.1
Guide 2
Table G2.1
Appendix B
Table B.1
Table B.2
Table B.3
Table B.4
Table B.5
Appendix C
Table C.1
Appendix D
Table D.1
Table D.2
Table D.3

List of Illustrations
Introduction
Figure I.1 Strategic Use of Debt in Retirement May Help You
Chapter 1

Figure 1.1 The Five Indebted Strengths
Chapter 5
Figure 5.1 Hercules the “Liger”
Figure 5.2 The Websters’ Basic Personal Information
Figure 5.3 Other Income: The Websters
Figure 5.4 Total Taxable Income before Deductions: The Websters
Figure 5.5 House Deductions: The Websters
Figure 5.6 Donations: The Websters
Figure 5.7 Other Deductions: The Websters
Figure 5.8 Final Estimated Taxes Due: The Websters
Figure 5.9 How The Websters Generate Sufficient Cash Flow in Retirement
Chapter 6
Figure 6.1 Modern Portfolio Theory, the Efficient Frontier
Chapter 8
Figure 8.1 The Continuum of Different Types of Debt
Figure 8.2 Amount of Assets Held by Those That Have Different Types of Debt
Figure 8.3 Debt Evolutions over Time
Figure 8.4 Assets and Debt Overlay
Figure 8.5 The Opportunity to Change Course
Figure 8.6 Need-Want-Have Access Chart
Figure 8.7 Optimal Debt Ratio Glide Path over Time
Guide 1
Figure G1.1 “Happiness” Curve
Guide 2
Figure G2.1 Retirement ROI
Figure G2.2 Roadmap for Measuring the ROI of Retirement
Appendix C
Figure C.1 Summary of Inputs for Alice
Figure C.2 Summary of Inputs for Fred and Joanne
Figure C.3 Summary of Inputs for Randy

Appendix D


Figure D.1 Example Balance Sheets—The Johnsons and Smiths
Figure D.2 Additional Example Balance Sheets—The Johnsons and Smiths
Appendix E
Figure E.1 Risk/Return Trade-Off: Expected
Figure E.2 Risk/Return Trade-Off: Actual
Figure E.3 Asset Class Return 1994–2013


Foreword
You have worked hard for your money. You have saved. If you are reading this book, you
are likely in retirement, near retirement, or an advisor to those who wish to retire. When
it comes to retirement, Charles Dickens said it best: “It was the best of times; it was the
worst of times.” Boomers are getting pushed and pulled in a lot of directions as they retire
or near retirement. They are the sandwich generation—helping their kids, helping their
parents. At the same time, many want to enjoy life, take trips, and buy the things they’ve
always wanted. How can retirees balance these conflicting demands and desires?
Tom Anderson has received multiple national awards for his wealth-management
expertise and studied at many of the top schools in finance. Wealth management is all he
has done and all he has studied. While others were at summer camp, Anderson went to
Wall Street Camp. In The Value of Debt in Retirement, Anderson shows you some
potentially shocking revelations, “tricks” that high-net-worth individuals have used for
years. These include:
Why rushing to pay off your mortgage in the name of being debt-free when you retire
may leave you with less liquidity, less tax efficiency, and a profound inability to take
advantage of the basic ideas, strategies, and practices in this book.
How an intriguing combination of selling and borrowing—selling from your IRA and
borrowing against what’s called an Asset-Based Loan Facility—can provide you with

greatly superior, highly tax-efficient results.
How and why financial advisors, despite their claims that they are not giving you tax
advice, could be doing exactly that . . . often in a way that primarily amounts to
guessing with your future.
How conventional wisdom is generally flat-out wrong with respect to assumptions
that are made regarding taxes, annuities, IRAs, and Roth IRAs.
Helpful guides at the end of the book will help you see how in the current environment
you can buy a $100,000 car for $250 per month with no required monthly payment. How
to buy a $1 million second home, 100 percent financed, for $2,500 per month, fully tax
deductible. You are going to get amazing ideas on better ways to help your kids, help your
parents, and leave a bigger legacy for your charities. Along the way you will see how you
can be prepared for emergencies and opportunities that come your way.
Increasing return, reducing taxes, and lowering risk—all with a goal of making sure that
you do not outlive your money—is what this book is all about. But make no mistake:
There is no free lunch. Not everyone will be able to implement these ideas, and they come
with many risks. But I can promise you this: Anderson is going to challenge you. He
challenges me most every day!
Sarah Anderson
President, Better Debt, LLC


Revolutionizing DebtTM
The leading expert in securities-based lending education, tools, and solutions
www.betterdebt.com


Acknowledgments
There may be some books where somebody sits down, writes on a computer, hits send,
and poof!—a book comes out. This isn’t one of those books. Writing a book like this
would not be possible without an incredible team surrounding it.

My core business would not be possible without Kerry Abdoney, Jon Bancks, Stacey
Halyard, Darla Lowe, JoAnn Masters, and Julie Vogt, as well as my many partners
throughout the country. I can’t tell you how much you have contributed to my ability to
do this project and how much I value you. You are all part of my family and I love you.
Rafe Sagalyn, Brandon Coward, and the team at ICM have been excellent agents and
facilitated a great relationship with Wiley. I appreciate our long-term partnership and
sincerely value your advice and guidance.
Jordan S. Gruber once again was a true partner and able to take my initial ideas and turn
them into a publishable manuscript. I can’t thank him enough for his efforts. I love how
we connect on projects and am excited that we are already working on the next one.
The following readers gave candid feedback that helped refine our initial work: Mike
Finn, Karla and Denny Goettel, Jim and Ann Hoffman, David and Pat Knuth, David
Lessing, Jim Mohni, Dr. Jerry and Nancy Shirk, Dean Swinton, Pen Shade, and Marty and
Julianne Smith. Randy Kurtz, you are brilliant and you went above and beyond. The
comments this group provided on this work were transformative.
Damian Pardo and Robert Espinoza, I am so thankful for the time, energy, and effort you
spent in helping me develop the guide for the LGBT community. This is a small start on
an important topic, and I hope together we can expand on these ideas in the future.
An absolutely amazing group of people from diverse backgrounds served as a powerful
sounding board that helped beta test many of the concepts and related ideas. These
individuals include: Simon Algar, Angela Billick, Adam Browne, Gian Cavallini, Corey
Chisnell, Chris Claus, Dodge Daverman, Daniel Eckert, Suzanne El-Moursi, Jeff Finn,
Maddy Halyard, Chris Harper, Mike Gibbs, Jim Guthrie, Mike Jackson, Bernardo Jorge,
Walter Joyce, Paul Krake, Todd Kurisu, Ed Lomasney, Krista LaFrenz, Britton Lombardi,
Chris Merker, Carrie Merritt, Paul Mulvaney, Colin O’Brien, Jeff Prochnow, Linhard
Stepf, Josh Stein, Anne Stanchfield, and Scott Watenberg. Sarah and I can’t begin to thank
you enough for your support during this project. We are blessed to consider each of you
to be dear friends.
Brittain and Steve Ezzes, I sincerely appreciate your inspiration and contributions.
To my dad, thanks for everything you have taught me over the years, particularly the time

we spent traveling to the Iowa farms, raising cattle and learning about agricultural
marketplaces. Those experiences helped to shape my world view and create a foundation
for a thriving business and fulfilling life.
To John and Patti, thanks for being wonderful readers of the book. Thanks also on a


personal note for your unconditional support of Sarah and me, our family, and our
businesses. We are so fortunate to have your shining examples inspire our life. We love
you!
The charitable giving guide was inspired by a conversation with Jeremy Scarbrough at
Washington University. He later gave thoughtful suggestions to make this section be
much more robust.
Robyn Lawrence and Stacey Halyard were incredible early editors who synthesized
feedback from early readers and made the book much more impactful. Dave Knuth, your
math editing skills were exceptional.
Emmons Patzer is a fountain of creative ideas. Importantly, the concepts of Oppressive,
Working, and Enriching debt are developed from base material he provided. Emmons has
been a true mentor and advisor and friend throughout the project.
Speaking of Emmons, he, along with Bill King, David Lessing, Dr. Mahendra Gupta, Eliot
Protsch, and Steve Vanourny have served as an outstanding board of advisors. Your
stewardship, passion, and intelligence are stunning.
This leads me to one of my greatest areas of thanks. I am incredibly enthusiastic about
the growing partnership with The Olin School of Business at Washington University in St.
Louis that is helping further develop some of the academic studies outlined within this
book. I would like to highlight the efforts of Dr. Mahendra Gupta, Anjan Thackor, and
Charles Cuny. Charles in particular has been an amazing academic advisor and mentor.
Hopefully, together we are scratching the surface of what could prove to be some
tremendous breakthroughs in personal finance. To be clear, much of the material that is
being presented is only at a Phase 1 level of academic rigor and merits much more study,
but it is my sincere hope that we will be able to further expand on these ideas together in

follow up works.
Wiley has again assigned a top-notch team. I would particularly like to thank Tula
Batanchiev, Associate Editor, who continues to be my North Star guiding me. I sincerely
appreciate our partnership. Thank you to Helen Cho, Editorial Program Coordinator, and
Melissa Connors, Publicity. Steven Kyritz, Senior Production Editor, and Stacey Rivera,
Senior Development Editor, were invaluable and I appreciate their skills. Any remaining
mistakes are my own.
The team at Timber Wolf Publishing took an idea and ran with it. Bryan Goettel, Lauren
Kurtz, Ted Nims, Brandon Swinton, and David Zylstra all contributed to the project and
made it Better!! I want to highlight Jaramee Finn, Fred Rose, and Julie Schmidt. They are
the honey badgers. This would not have been possible without their incredible efforts,
contributions, and attention to detail. They are the shepherds who have not only guided
this book, but also vastly contributed to the content and ideas.
Rowan, Rory, and Reid—I could not be more proud of you. You are excellent helpers! I
know that you sacrifice a lot and I can’t tell you how much I appreciate your support.


Sarah—I know who you are, and you are the smartest, most talented and magical person I
know. You are my inspiration and you are my partner. All of my ideas are really just yours
said another way. This book is yours. It isn’t that “you make this possible”—it literally
couldn’t happen without you.


Introduction
Retirement is wonderful, but it certainly isn’t easy. It brings with it many fears,
uncertainties, and doubts. You’re concerned about your health and wellness, your family
and extended family, your financial resources and ability to live the life you have always
dreamed about. It brings questions about inner purpose, fulfillment, and, frankly, even
the meaning of life.
While retirement is an adventure that you will experience only one time, I have had the

opportunity to vicariously experience thousands of retirements.1 Using my academic,
professional, and personal experiences, I have learned tricks and tools that may help you
live the retirement of your dreams. I take strategies that the best companies and the
ultra-affluent have been using for years and apply them to specific personal situations to
create the best possible outcome for clients and their families.
My goal is to reframe the conversation around debt in general and highlight its potential
benefits as well as the potential risks of being debt free. I deliver a new way of thinking
about your risk tolerance in which your decisions depend on your needs. In doing so you
will see why I care virtually nothing at all about your “risk tolerance.” What I do care
about are your needs and the best way to accomplish your goals and objectives. If you
need a low amount of income—less than a 3 percent return—from your portfolio, you may
not need to embrace a debt strategy. For example, if you have $1 million and need less
than $30,000 per year in income from your portfolio, then you may have little need for
debt. However, if you need a return between 4 and 6 percent, it’s quite likely that you can
benefit from debt. If you need a return of more than 6 percent, I recommend that you pay
very, very close attention to this book. It may be the only way that you will be able to
achieve your goals.
It is my opinion that the investment process traditionally used by professionals and “doit-yourself” investors alike is broken. It is missing half of the picture! Too many people
guess with respect to debt—they don’t have a strategy. I often find that if they do it isn’t
well thought out or comprehensive. Generally it is as simple as “pay it all off as fast as
possible.” It is time that we consider, as companies do, debt to be a tool and open the
world to a new approach to wealth management in retirement, one that factors in both
sides of the balance sheet as an integrated ecosystem.
Equally important is that regardless of your beliefs with respect to debt, I want you to
have a different understanding of the word “risk” and for you to think about risk
differently. Many baby boomers have undersaved for retirement and are making decisions
that mathematically make it virtually impossible for them to be successful. In this book I
put the greatest care in examining trade-offs. I provide you with tools to compare and
contrast different risks. For example, it may turn out that being debt free is great for you.
It may also turn out that being debt free in fact considerably increases your risk. My goal

is knowledge and empowerment around the risks we all face.
Part I of this book lays the foundation and discusses “why” you should consider the use of


strategic debt in retirement. I begin with a discussion of the benefits of strategic debt.
Chapter 2 provides an overview of conventional wisdom, what authors are currently
saying about debt, and why it might be time for a new approach. Chapter 3 outlines the
different types of debt—oppressive, working, and enriching—and establishes the seven
rules for being a better debtor. It also discusses the impact of longer life expectancy on
retirement planning. The longer our expected retirement, the more important it is that
our money lasts for us, which means it’s even more important that we take a holistic
approach to personal financial management that includes both assets and liabilities
(debts).
Part II focuses on “what” debt can do for you. I prove that with a proper debt strategy you
may be able to virtually eliminate your taxes, increase your rate of return, and reduce
your risk (Figure I.1). The more you understand these ideas, the more confident you will
feel that you will have sufficient resources throughout your retirement. Confidence about
your resources can ease many of the traditional fears, uncertainties, and doubts that come
with retirement. This will in turn let you spend more time focusing on family, friends,
charities, and maybe even the purpose and meaning of life!

Figure I.1 Strategic Use of Debt in Retirement May Help You
A proper debt strategy may be able to virtually eliminate your taxes, increase your
rate of return, and reduce your risk.
This section could fundamentally change your life! I start out by discussing the
importance of getting your numbers right and look at some big mistakes that even
professional advisors make every day. I then prove that debt can enhance your rate of
return and increase the probability that you will never run out of money.
This section includes one of my most stunning case studies, an individual with a net
worth of $5.5 million who spends $20,000 per month after taxes and pays less than

$4,000 per year in taxes. More important, I show you how—regardless of whether your
net worth is higher or lower—it may be possible to make these strategies work for you,


too!
Finally, I focus on the fact that risk is equally important—if not more important—than
return when you are retired and look at the potential role of debt in reducing your risk.
You read that right. I prove that it is possible that debt can actually reduce your risk,
increase return, and lower taxes.
Figure I.1 Strategic Use of Debt in Retirement May Help You
Part III focuses on the “how.” I discuss the risks in detail, outline a glide path on how to
embrace these strategies, and conclude by bringing it all together.
It was fascinating to get feedback from early readers. Some people told me that they
wanted more detail—and others told me they wanted less detail. Some told me that they
wanted to hear more about my experiences with the emotional aspects of retirement;
others said stay focused on the numbers. In order to address these conflicting comments
this book is laid out differently than most. The nine chapters are written with a bigpicture perspective and are intended to be simple illustrations of the ideas and concepts.
In order to address the conflicting comments, I have designed a series of guides and
appendices for those who want more detail on specific topics.
The last section of the book is intended to be a customized experience for you and your
interests. Think of it as a nonfiction “choose your own pay for things you want to buy. The
goal is that you can use the table of contents to turn to a specific topic that is relevant to
you. Finally, I offer a few appendices with helpful information and detail for you to
consider as you move forward with implementation of these ideas.

Caution: You Could Burn Your House Down Baking a Cake!
If you read a cookbook it may tell you to chop carrots or to bake something for 30
minutes. Think of all of the risks that these activities include: Chopping with sharp
instruments, 350-degree ovens, and maybe an open flame—in your house! Risks range
from minor injury to burning the place down. If I had to outline all of the risks with every

step of every recipe, each one would likely be (1) impossible to follow and (2) 50 pages
long, or longer! Further, a cookbook assumes some basic knowledge, for example, that
you know how to operate your oven. A cookbook cannot include an owner’s manual for
your stove, oven, refrigerator, and dishwasher.
There is a lot of similarity between cooking and the ideas I will be presenting in this book.
Risks range from very minor to the serious possibility of burning down your financial
house. My goal is to reduce the risk in your life—not to increase it! I will do everything I
can to present information in a balanced way and to help identify risks proactively.
Similar to a cookbook, I will not be able to provide an instruction manual for all of the
tools in your financial kitchen. The simplest way to look at this book is that the ideas of
increasing return and reducing your taxes are based on very basic math facts. To be clear,
it is a fact of math that what I am about to outline is possible. However, your ability to


accomplish these results depends on so many factors that it is far from certain, and your
ability to be successful with these strategies is not a known fact at all. As we will see, all
debt is simply a magnifying glass. If you make good decisions they will look better and if
you make bad decisions they will be much worse. I will give you some guides to better
decision-making but your actual results from using these tools and ideas are
indeterminable.
To address risks and to make the book more approachable there is a very important
disclaimer at the end of each chapter: “The information in this chapter is to be considered
in a holistic way as a part of the book and not to be considered on a stand-alone basis.
This includes, but is not limited to, the discussion of risks of each of these ideas as well as
all of the disclaimers throughout the book.” An entire chapter is dedicated to a discussion
of the risks that come with these ideas. The bottom line is that you do need to carefully
consider risks before moving forward with any of these ideas. Additionally, it is important
to remember all of the examples in this book regarding the use of an asset-based loan
facility (ABLF) or securities-based line of credit assume that the loan is in good standing.
For the details of these types of loans and the associated risks it is important to review

Appendix F and discuss the potential use of these products with your tax, legal, and
financial advisors.
The next part of the disclaimer states: “The material is presented with a goal of
encouraging thoughtful conversation and rigorous debate on the risks and potential
benefits of the concepts between you and your advisors based on your unique situation,
risk tolerance, and goals.” I chose that language, and I mean what it says. This is not a
“how to” book, and the advice should not be considered specific to your situation. This
book’s goal is to encourage thoughtful conversation and debate at the kitchen table and
with your tax, legal, and financial advisors about whether these ideas make sense for you
and your situation.

QUICK HOUSEKEEPING ITEM
The elephant in the room is that this book is coming out at a time when interest rates
are at or near generational lows in many countries around the world. Therefore it is
necessary to share a quick word on interest rates before we dive in.
The ideas and concepts in this book are written to transcend time and geographic
boundaries. At the same time I need to use examples in order to make the book
topical and relevant. Therefore, the examples in this book are based on interest rates
in the United States in early 2015.
It is my fundamental belief that over a long enough period of time interest rates will
change. I am also fundamentally concerned that some weird things could happen
with rates as a result of some of the policies that are being implemented around the
world. We will address these risks in detail throughout the book.


With any luck, reading this book will spur you to consider the merits of not rushing to pay
down your mortgage and other “good” debt and instead building up a diversified after-tax
portfolio so that you will have more liquidity, more tax flexibility, and the ability to take
advantage of these ideas and practices. It may help you increase your rate of return,
reduce your taxes, reduce your risk, and increase the chances you will make it through

your retirement without running out of money and leaving the legacy you want to leave.
At the end of the day, you will choose whether or not you take advantage of the strategic
debt philosophy, ideas, strategies, and practices put forth in this book and its predecessor.
And that’s exactly my point: Challenge conventional wisdom. I want you to have the
choice because I believe you deserve to be the one who reaps the rewards.2

Notes
1. I have been a financial advisor for 15 years. During this time my specialty has been
retirement planning and retirement investment management. I have been recognized
four times as a Barron’s top advisor on their state-by-state list and by On Wall Street
magazine as a member of the “40 under 40” group, which recognized me as one of the
largest producing advisors in the industry under 40 years old. Throughout my career I
have coached and trained approximately 10,000 advisors on my wealth management
process and the benefits of holistic thinking. In the process I have fielded more
questions than I can remember and seen more case studies than you can imagine. In
addition to my core business, which is made up of hundreds of clients, a large part of
my success has been built on direct partnerships with other advisors. These advisors
collectively serve well over a thousand additional clients. In addition, I have also
served as a sales manager for Merrill Lynch, where I had the opportunity to assist
approximately 100 advisors who oversaw well over 10,000 individual client
relationships.
2. Author’s Note : The information in this chapter is to be considered in a holistic way as a
part of the book and not to be considered on a stand-alone basis. This includes, but is
not limited to, the discussion of risks of each of these ideas as well as all of the
disclaimers throughout the book. The material is presented with a goal of encouraging
thoughtful conversation and rigorous debate on the risks and potential benefits of the
concepts between you and your advisors based on your unique situation, risk
tolerance, and goals.

Part I
BASIC IDEAS AND CORE CONCEPTS
First comes thought; then organization of that thought into ideas and plans; then
transformation of those plans into reality. The beginning, as you will observe, is in
your imagination.
—Napoleon Hill


Chapter 1
A Better Path
The debt we owe to the play of imagination is incalculable.
—Carl Jung

The path I am going to outline for a better retirement—how you can retire comfortably,
minimize taxes, help your family, and buy the things you have always wanted—is centered
around the idea of using the strategic benefits of debt. Give me some time and an open
mind, and I will show you some tricks that ultra-high-net-worth individuals have been
using for years, including how you may be able to increase your rate of return, minimize
taxes, and actually reduce risk by using strategic debt.
Can you—and should you—attempt to benefit from what this book will define and
describe as “better” debt? Will a debt-inclusive approach to the entirety of your financial
life, including the momentous transition known as retirement, make things better for you
and those you love? Or will debt—any debt at all—be the heavy lead anchor that sinks
your hopes for achieving happiness now and in your golden years?
It depends. It certainly isn’t my belief that all debt is good, nor is it my belief that
everybody needs debt. The goal of this book is to offer some perspective, a whole different
way of thinking about things, a (w)holistic way that includes both sides of the balance
sheet—that is, both your assets and your debts. I hope to raise questions worth
considering and make suggestions potentially worth implementing. Then I will give you
my take on what some of your best next steps might be. I hope to present a realistic case

of what’s possible, and to guide you in the right general direction. I will offer many
everyday examples of how you can obviously, immediately, and substantially benefit from
my ideas, while also pointing out pitfalls, obstacles, and dangers along the way.
But honestly, it’s an uphill battle. Our culture is replete with fearsome admonitions about
all debt being inherently evil, how debt will always make you poorer and worse off, and
how the only way to retire with peace of mind is to get rid of—ideally, get rid of all—your
debt, before it’s too late. Nobody wants to burden their children with debt when they are
gone, right?
Consider Shakespeare’s Hamlet, in which Polonius tells his son Laertes, “Neither a lender
nor a borrower be.” Or consider financial author and radio host Dave Ramsey’s advice:
“You can’t be in debt and win. It doesn’t work.”1
Not so fast!
In the first book in this series, The Value of Debt (John Wiley & Sons, 2013),2 I describe a
variety of ways that debt can make a huge positive difference in the lives of those
mentally, emotionally, and financially equipped to take advantage of it. In this book, I will
reinforce and expand on the key ideas from the first book and illustrate how with a debt
strategy it is possible to increase your returns, reduce your taxes, and reduce your risk,


which can increase the chances that you will not outlive your money. I’ll also show you
ways to pay for the lifestyle you have always wanted to have.

A Successful but Controversial Debut
I was humbled when the first book in this series, The Value of Debt, made it onto the New
York Times bestseller list and was named one of the Top 10 business books of 2013 by
WealthManagement.Com, one of the wealth-management industry’s most prestigious
magazines. The Value of Debt begins with the five tenets, or action principles, that anchor
a debt-inclusive philosophy and practice, and they are worth repeating here.

FIVE TENETS OF A DEBT-INCLUSIVE PHILOSOPHY

1. Adopt a Holistic—Not Atomistic—Approach
2. Explore Thinking and Acting Like a Company
3. Understand Limitations on Commonly Held Views of Personal Debt
4. Set Your Sights on an Optimal Personal Debt Ratio
5. Stay Open-Minded, Ask Questions, and Verify What Works
Now, would you guess that any of these ideas would be controversial? In fact, to a lesser
or greater extent, they all are! To begin with, the idea of a comprehensive, inclusive
approach that takes debt seriously was, until The Value of Debt, virtually missing from
personal-finance literature. You might think that the many promoters of a comprehensive
and holistic wealth-management approach would naturally want to include both sides of
the balance sheet—both assets and debts—but literally none have done so. (It’s okay to be
comprehensive and holistic, they seem to say, but debt is a special case, and there must be
a reason why it has been intellectually and emotionally off-limits for so long, right?)
Pointing to such an idea as the central premise for a book naturally raised a good deal of
suspicion in certain quarters, both professional and academic.
The second idea, another real shocker, is that individuals and families—especially but not
only well-off ones—should consider applying the same sort of thinking and acting with
respect to debt that companies utilize. Consider this: The total number of sizeable
companies in the United States with zero long-term or short-term debt can literally be
counted on one hand.3 Why? Is it because they can’t afford to pay off their debt? No. It’s
because the well-educated and well-paid CFOs of these companies—who all realize that
correctly structured debt actually makes their companies stronger, longer lasting, and
more profitable—don’t want to be fired. These CFOs all intuitively understand the
Indebted Strengths that arise from strategic debt, which we will briefly review in the next
section. They also understand why the use of enriching debt available to their
organization is both efficient and rational, as we explore throughout this book.