Buy, Borrow, Die in Retirement

The aggressive endgame of decumulation is to not decumulate the taxable brokerage at all. The strategy has three legs and one assumption: borrow against appreciated assets for liquidity, let the assets continue to compound, and rely on the basis step-up at death to extinguish the deferred gain forever (section “Capital Gains Resets With Inheritance”). The assumption is that your after-tax expected return on the portfolio exceeds the after-tax cost of the debt; when it does, the strategy is dominant on every dimension that matters.

The 2026 cost of capital, in plain numbers Buy, Borrow, Die was the favorite trade of the post-2008 decade because the cost of capital was near zero. During the ZIRP (Zero Interest Rate Policy) era, a client with a $5M+ taxable book could secure a Securities-Backed Line of Credit (SBLOC) at SOFR + 0.50% to 1.50%, borrowing at 1.5% to 2.5% all-in while the underlying equities compounded at 8% to 12%. The margin of safety was so wide that financial discipline was optional. That world has ended. As of mid-2026, the Federal Funds rate sits near 3.64%, and SOFR-based private-bank SBLOC pricing runs from 4.2% to 6.2% depending on relationship size, collateral quality, and how hard the client is willing to negotiate. The gap between borrowing costs and expected after-tax portfolio yields has compressed. Worse, market volatility remains a threat: the March 2026 liquidity squeeze dragged the S&P 500 down 12% in three weeks before recovering, calling margin on over-leveraged retirees who treated their lines of credit as free options. The strategy still works in 2026; the margin of error does not.

Sources of liquidity without realization:

• SBLOC or Pledged Asset Line (PAL) governed by the Federal Reserve’s 12 CFR Part 221 (Regulation U) non-purpose loan restrictions. Secure it with the brokerage portfolio, priced at SOFR plus a relationship spread (0.50% to 2.50%). There is no fixed repayment schedule, no mark-to-market fees, and interest-only payments are the norm. It is callable immediately if collateral values cross the maintenance threshold.
• Portfolio margin inside the brokerage itself—cheaper than an SBLOC at seven-figure balances, but with stricter, automated, and immediate margin liquidation mechanics.
• Home equity lines and cash-out refinancing. Because mortgage interest deductibility is limited to acquisition indebtedness under IRC §163(h)(3), “Interest”, the interest is generally not deductible when proceeds are used for lifestyle consumption. However, the interest rate is often lower than SBLOC pricing, and you eliminate short-term margin volatility risk.
• Policy loans against cash-value life insurance (e.g., whole life or overfunded Universal Life) qualified under IRC §72(e). The loan proceeds are completely tax-free and do not require regular payments. Interest accrues and is discharged from the death benefit at your passing. If you already own cash-value insurance, this provides excellent late-life liquidity — subject to two strict constraints: first, the policy must not be a modified endowment contract under IRC §7702A: an over-funded policy that fails the seven-pay test has its loans taxed LIFO as ordinary income, with a 10% penalty before 59½. Check the MEC status on the annual statement before borrowing a dollar. Second, never let the policy lapse with a loan outstanding. A lapse triggers immediate taxation of the entire accumulated gain — including the borrowed amounts you already spent — and the classic failure mode is an elderly owner whose accrued loan interest overtakes the cash value, producing a six-figure tax bill on money that no longer exists. Monitor the loan-to-cash-value ratio annually and keep the policy funded.

What it buys you The loan proceeds are not taxable income. They generate $0 of AGI, $0 of IRMAA MAGI, and $0 of NIIT exposure. The underlying appreciation stays unrealized and continues to compound. At death, the deferred capital gains disappear entirely under the basis step-up rules, and the executor pays off the loan balance from estate assets before distribution.

What it costs you

• Real interest expense, compounding annually, on a principal balance you are not actively paying down.
• Margin liquidation risk. In a severe 30–40% market drawdown, a heavily drawn SBLOC will trigger a margin call. Forced sales at the absolute bottom of a bear market represent the ultimate failure mode.
• Portfolio concentration limits. Regulation U and broker policies require a highly diversified portfolio. Borrowing against concentrated single-stock positions triggers punitive advance rates and aggressive margin triggers.
• Narrowing yield spreads. When borrowing costs approach 6%, the spread against your long-term after-tax portfolio return narrows. Executing Buy, Borrow, Die in a high-rate environment without adjusted math is a major strategic error.

The Merton-share critique A subtler cost shows up in the Kelly/Merton framework (section “The Merton Share: Sizing the Equity Sleeve”). Borrowing against an equity portfolio leaves the gross equity exposure unchanged but reduces net worth by the loan balance, which mechanically pushes your effective equity-to-net-worth ratio above your Merton share. If your computed Merton share is 80% and you draw an SBLOC equal to 20% of portfolio value, your effective equity exposure on net worth is now 100%—above the optimal point for your actual risk aversion—which under the framework reduces long-run wealth growth even before the explicit interest cost is counted. Haghani and White¹⁰⁴ make the case that selling appreciated assets and paying the capital-gains tax is often utility-superior to borrowing against them, because the sale returns you to the Merton share while the borrow pushes you past it. The step-up at death does not erase this trade-off; it only changes how much of the gain you eventually extinguish. The candid reality is that buy-borrow-die optimizes after-tax dollars at the cost of running above your risk-adjusted optimum for the rest of your retirement, and the trade is good only when the dollar saved on tax is large relative to the utility lost by being over-levered—which is a function of your relative risk aversion, not a universal rule.

When the math works for you Hold a highly diversified taxable equity portfolio of at least $3M with sizeable embedded capital gains. Cap your SBLOC draw at 15% to 20% of the portfolio’s value to guarantee you can survive a 50% market crash without a forced liquidation. Negotiate the relationship spread aggressively—at $5M+ relationship sizes, private banks will regularly drop their spread from SOFR + 2.50% to SOFR + 0.75% for clients who push. Limit borrowing to discretionary, lumpy outflows (real estate, travel, family gifting) and let your Social Security and RMDs cover regular baseline living expenses. Pay only the interest, and repay opportunistically during low-income years or after a tax domicile change.

When to avoid it If your taxable brokerage portfolio is under roughly $3M — the same line as above; the figure is a convention marking where negotiated pricing and survivable draw sizes both become viable, not a rigid statutory rule — if the embedded gain is small relative to current interest rates, or if margin volatility will cost you sleep. The strategy requires scale and strict emotional discipline.