The second option is to take out a line of credit for $50,000. He can pay it off by saving a bit more every month; working longer than planned; selling assets in the portfolio as opportunities arise; or a combination of all three.

The third option combines the first two, but assumes the market’s had a good run. Say Ralph’s accident happened in November. “He can take $25,000 from the portfolio and $25,000 from a line of credit; then the following January he can take another $25,000 from the portfolio and pay off the line of credit. This allows him to split taxes over two years.”

If Ralph is set on paying the bill monthly, essentially the same strategies apply. For instance, if he takes out a $50,000 line of credit, he can draw $1,000 a month and then pay it down with portfolio withdrawals months later when the market is better suited to selling. He will, however, be required to cover monthly interest on the loan.

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The solution

Market conditions are mediocre, so Ralph’s advisor suggests he use a line of credit to pay the hospital bill in $1,000 monthly installments, covering the debt with assets from the portfolio once it’s a good time to sell. Interest rates are low by historical standards—around 3.5%—so a $50,000 loan is relatively cheap.

Client acceptance


Ralph accepts his advisor’s suggestion for paying the hospital, but he doesn’t like the idea of downsizing early. He has a large backyard and sitting by the pool helps ease the stress of a hectic professional life. Saving and working more, spending a little less and tweaking his asset mix are far more palatable.

Dean DiSpalatro is senior editor of Advisor Group.

Originally published in Advisor's Edge

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