The Value of Debt: How to Manage Both Sides of a Balance Sheet to Maximize Wealth

Chapter 7

Generating Tax-Efficient Income in Retirement or Divorce

Introduction: Three Goals (and Some Disclaimers)

The three main goals of this chapter are:

1. To illustrate how you can create tax-efficient (and potentially tax-free) income in retirement.1

2. To challenge and expand your understanding of taxes generally—and what to do about them.

3. To briefly indicate how these first two ideas can be applied, when possible, to optimizing divorce scenarios as well.

You can think of this chapter as presenting solutions to a gigantic problem, so it’s not surprising that the ideas you’ll find here are large and somewhat complex. Over time—and with a bit of luck—the big ideas found in this chapter will have their own book-length treatments, expanding on the ideas and scenarios found here and providing many more detailed examples. In the meantime, please consider this a big picture overview and know that every possible scenario cannot be covered here.

A quick caveat: Our tax code has nearly 4 million words and has gone through more than 5,000 changes since just 2001.2 It is not possible for a book, let alone a chapter of a book, to fully cover all of the regulations or complexities within our tax system. The premise on which these ideas are based may change on a moment’s notice. Further, these concepts may not apply to your individual situation. Accordingly, this section should in no way be construed as giving tax advice.

While there is risk in discussing these ideas in a constantly ...