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 Debt^TM

The leading expert in securities-based lending education, tools, and solutions

www.betterdebt.com

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.

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 “do-it-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!

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.

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 big-picture 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 adventure.” There are three guides. The first is a guide to charitable giving strategies to consider. Here I will give you win-win ideas on how you can protect your needs and leave a legacy. The second guide focuses on things to consider as retirement approaches and how to be mentally prepared. The final guide focuses on the financial aspect of retirement, suggesting better ways to 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.

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