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Comment by ailef | Hacker News Reader

Is it actually possible to borrow for so many times without ever returning it back or is this an hyperbole?

In this example you will always have more in assets than you will borrow, so any new borrowing will be well collateralized. So yes, you can do this.

Yes, it is possible. Think of total assets as annuity, annual loan as payment from annuity, and interest as management fee charged by annuity administrator.

Back of the napkin calculations:

Total assets $100 million

Annual Expenses as Annual Income

   Annual withdrawal = $4 million
   Assuming 40% tax, tax due = $1 million
   Asset liquidated = $5 million
   Remaining asset = $95 million
   End of Year asset @ 4% growth = 98.8 million

Annual Expenses as Loan

   Annual withdrawal as loan = $4 million
   1% interest on annual loan = $40,000
   Asset liquidated to pay loan interest and taxes on    liquidated assets = $60,000
   Remaining assets = $99.940 million
   EOY asset = $103.937 million - $4 million

1% interest on annual loan? I'd like to know who your lender is!

Inflation - ignored.

What happens when your asset goes down in value - ignored.

At IBKR, the margin loan rate is %1.1-%0.75 after the first $100k, and anyone can get that with no special negotiation effort.

https://www.interactivebrokers.com/en/index.php?f=46376&p=m

Now imagine you're a billionaire!

You're right.

But I don't think that is likely to hold for very long. I've never seen interest rates this low in my life.

Furthermore, when interest rates do go up, suddenly you're paying a lot of money for that large accumulated debt.

People have been saying “I’ve never seen interest rates this low in my life” for the last few decades. Also, much of the debt could be tied to long-term loans in which case the overall interest rate would not move much.

Certainly. This is basically a line of credit secured by your asset portfolio. As long as you keep that line of credit under your asset value and pay the interest, you can do this.

You pay back last year debt with the money you borrow this year.

VISAs business model in a nutshell, evidently.

Paying back debt requires income, which is taxed.

In this example you continue to incur new debt, but at a rate not more than the growth rate of your assets.

With a PAL you don't have to pay back the debt, just the interest, as long as the assets don't drop in value too much

Yes, you can take out a mortgage for instance

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