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Strengthening your liquidity as retirement nears

How to strategically use borrowing to better prepare for life after work

March 24, 2026
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Wealthy individuals and families who are nearing or already in retirement often strive to eliminate as much debt as possible from their balance sheet — setting up a clean slate as they enter the next phase of life. However, it’s a strategy that can significantly limit your potential for continued growth. There’s a reason why so many successful companies issue large amounts of debt while at the same time maintaining considerable cash reserves. They could simply use the cash on hand to eliminate all their corporate debt. Instead, they make a strategic decision to preserve liquidity in order to capitalize on any future opportunities that may arise.

Similarly, wealthy households should think of debt as a strategic tool that can be used for a wide range of purposes — from financing major purchases and mitigating taxes to increasing liquidity and providing valuable leverage to strengthen your personal balance sheet.

Key Takeaways

Debt in retirement isn’t necessarily a bad thing. In fact, the years right before retirement are often an opportune time to take advantage of your solid credit while still earning enough income to attract lenders. You may want to consider using credit and debt:

  • Instead of liquidating assets to purchase a retirement property
  • To generate liquidity for major purchases without triggering capital gains taxes
  • As a way to avoid selling highly appreciated assets so they can transfer to your heirs with a step-up in basis

During the years leading up to retirement, you’re in a position where you have both significant income and assets, so you can borrow whatever you need. Once you retire, however, that income flow is often dramatically reduced. And when that occurs, traditional lenders will generally become far less eager to lend to you.

Keep in mind that it’s income, not only wealth, that ultimately determines your ability to repay the loan within the loan approval process. So now’s the time to start thinking about the future and how making the most of borrowing and financing opportunities may improve your total wealth picture.

6 credit actions for a more successful retirement

1 to 2 years before retirement

  • Pay off any outstanding credit card debt
  • Pay off outstanding auto loans or leases
  • Decide on retirement living arrangements and initiate any property purchase (if applicable)

After retirement

  • Leverage credit to help amplify investment gains in a rising market
  • Generate an additional income stream for living expenses
  • Maximize your heirs' inheritance by avoiding gain realization and taking advantage of eventual "step up" in basis

The type of debt you utilize and carry matter

The right kind of debt supports the growth of your wealth and personal balance sheet over time. Anytime you use your available credit to make an investment that increases in value and/or generates income, that is considered a good strategic use of debt. So, too, are any lower-interest rate loans you obtain.

Alternatively, debt you incur to purchase items that are expected to decrease in value or carry high interest rates is likely to hinder growing your wealth over time. A common example is carrying high monthly balances on credit cards with higher interest rates. The high cost of carrying this debt reduces the likelihood of offsetting these costs through returns on other assets and investments across your personal balance sheet.

Consider using debt instead of cash to purchase a retirement property

If retirement is on the horizon and you plan on buying a retirement home in the next few years, you may want to consider accelerating the purchase while you’re still generating a high income and can qualify for preferred terms on a conventional mortgage loan. This will afford you the flexibility to take out a loan on your primary residence and use those funds to complete the purchase.

Many homebuyers consider making all‑cash offers when purchasing a new home, particularly when they have the financial means to do so. However, paying entirely in cash is not always the smartest strategy. For example, a few years ago when 20‑year mortgage rates were around 2.5%, financing the purchase could allow buyers to benefit from the mortgage interest deduction while keeping their investment portfolios intact. In many cases, the income generated by maintaining invested assets can more than cover the monthly mortgage payments, eliminating the need to liquidate long‑term investments.

With competition for residential properties in highly desirable markets remaining fierce, it’s true that an all-cash offer may make the difference between a seller accepting or rejecting your bid. But an equally quick closing can be achieved by leveraging a pre-qualified traditional mortgage — leaving your portfolio assets free to continue growing.

Given the performance of the market over time, the opportunity cost of using invested funds to pay off a low-rate mortgage may not be the best idea. You need to look at both sides of the balance sheet. For example, suppose you currently have a $500,000 mortgage with a 3% interest rate, as well as a $2.5 million diversified portfolio that generates an average annual return of 7%.

Liquidate vs Keeping your asset chart. For full description, activate the "Show text version" link.

Generating liquidity to fund large purchases

For many wealthy individuals and couples, the lion’s share of their net worth is tied up in home(s), retirement accounts and business interests. These individuals may have a net worth of $3 to 5 million, yet very little in the way of liquidity.

Liquidating significant portfolio assets to fund a large purchase is not always the most effective strategy. When long‑term returns on invested assets can average around 8% and borrowing costs are closer to 5%, financing the purchase for a limited period can be a more advantageous approach. This is why even individuals with substantial wealth often choose to maintain mortgages on their second or third homes rather than drawing down their portfolios.

Rather than trying to unwind investments that could trigger significant capital gains taxes, the thoughtful use of lending can be a markedly more advantageous way to fund major purchases. For example, the following represent three instances where assuming debt may be preferable to liquidating your investment positions:

  • For shorter-term lending needs, such as a bridge loan to purchase a new home while you sell your existing home, a securities-backed solution such as a Private Client Line from Bank of America1 can offer a quick and easy solution. Although rates may be higher than other types of loans, a securities-backed loan avoids property appraisals so it can be implemented quickly and easily. Then, once the second property sale is completed, you simply repay the loan. Alternatively, you could opt touse a Home Equity Line of Credit (HELOC) or a Custom Lending solution to leverage existing assets as collateral for a flexible line of credit to maintain your current wealth management strategy.
  • If you expect debt to be repaid by some definite future liquidity event (such as the sale of a closely-held business, a stock option exercise, or a lump sum pension payout), then taking it on now and carrying it into retirement maybe far more advantageous than selling off portfolio holdings.
  • Only when there’s no other clear, viable avenue for paying down the debt should you consider liquidating portfolio assets, given the resulting loss of future growth potential as well as the possible tax ramifications.

You should be aware, however, that securities-based loans carry some risks and may not be appropriate for all investors. A significant decline in the value of your collateral assets could require depositing additional funds or securities to avoid a collateral maintenance call and/or forced sale of assets. And you potentially could lose more funds than are held in the collateral account. Therefore, make sure to review all loan agreement documents and disclosures carefully and consult with your tax and legal advisor before borrowing.

Additional tax benefits from holding onto your assets

By strategically leveraging lending and debt to fund your major expenditures, you have an opportunity to minimize or eliminate any capital gains taxes that the sale of portfolio holdings might trigger. Additionally, it’s important to note that any assets you are able to retain until you die may get a "step up" in basis. This means that your beneficiaries take ownership at the assets' market value at the time of your death, not the original cost basis, and can sell the assets without paying taxes on the earlier growth.2

Example

Suppose you own 10,000 shares of AAPL bought in 2018 @$45/share = $450,000 original cost basis

If you sold the stock today @ $245/share = $2,450,000 in gross sales proceeds

This would result in $2,000,000 of capital gains @ 20% capital gains tax + 3.8% net investment income surtax = $476,000

Net after-tax proceeds of the sale would be
$1,974,000

Alternatively, suppose you hold onto the stock and use it as loan collateral

When you pass, your heirs will inherit the stock with a step-up in basis to the current share value

Even if the value didn’t increase, they could still turn around and sell the stock @ $245/share with $0 in capital gains due

This would provide them with net after-tax proceeds of
$2,450,000

Remember, your heirs must also pay off the loan balance if you did not do so during your lifetime.

What is interest tracing?

When you can clearly show you are using borrowed funds to purchase taxable investments, the IRS allows you to deduct the interest associated with the borrowing. For example, if you take a $250,000 loan by taking out a mortgage on an investment property you own and then turn around and invest the full amount of the loan proceeds into taxable investments, you can offset any income generated by the investment and other investment income with the interest expense from the loan. The interest you pay on the mortgage is treated as investment interest, and as long as you itemize deductions on your federal income tax, you can deduct the amount of interest paid up to the amount of your net investment income. If the interest paid exceeds your net investment income, any excess can be carried forward to future tax years.

If you own a closely-held business or receive much of your compensation in the form of company stock and options, the risks associated with those concentrated holdings are magnified the closer you get to retirement. And because those holdings are relatively illiquid, it can place extreme pressure on your cash flow. Strategically using a line of credit, however, can significantly enhance your cash flow, reduce or eliminate high-cost debt, help to better diversify your portfolio, and potentially even minimize your tax burden.

Talk to your advisor

Whether you’re still working or recently retired, it’s important to sit down with a trusted advisor and discuss your expected lifestyle, goals, assets and potential debt strategies sooner rather than later. You need to envision where you are going to be next year, two years from now and five years down the road — both in terms of housing as well as your balance sheet — because it becomes much harder to manage your debt as your income lessens.

Borrowing can be a great option if you need to fund large expenses but still want your wealth to continue working hard for you. Just make sure to also consider your liquidity needs, investment objectives and tax implications. Some individuals prefer to have more cash on hand or simply aren’t comfortable with substantial debt in retirement.

That’s why it’s important to work with your advisor to discuss strategically leveraging various borrowing solutions such as a Private Client Line, a Home Equity Line of Credit, a Custom Lending or Traditional Mortgage solution. For wealthy individuals and couples, borrowing can unlock additional opportunities — helping you to stay on track, maintain a disciplined approach to managing your wealth and potentially improve your portfolio returns while ensuring access to cash when you need it. Remember that retirement credit and debt planning isn’t just a one-time discussion. Your goals, circumstances and needs may change over time, so make sure you and your advisor revisit and update your plan.

1 The Private Client Line is offered by Bank of America Private Bank. Credit is subject to approval. Normal credit standards apply.

2 You should consult your legal and/or tax advisors before making any financial decisions. Please consult your tax advisor regarding interest deductibility.

Custom lending may involve special risks and may not be appropriate for all clients. In particular, Custom lending may be subject to additional credit and legal approval because of special risks and restrictions that need to be carefully considered. Real estate financing and specific program options and property types may not be available in all states and may be subject to change from time to time. As a general rule with respect to each client, consideration must be given to capital gains tax implications, portfolio makeup and risk tolerance, portfolio performance expectations, and investment time horizon.

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