The Power Of Zero Show David McKnight

When it comes to investing, I’ll Teach You to Be Rich author Ramit Sethi sees whole life insurance, annuities, and Primerica as major red flags.
David believes that, in the Netflix documentary How to Get Rich, Ramit Sethi makes sweeping insurance product condemnations with little or no evidence to support his case.
If David had a chance to sit down with Ramit Sethi, there’s a series of questions he would like to ask him, including “Why are annuities bad?”
Yale Professor Robert Schiller recently affirmed that bonds aren’t the best solution for managing risk in retirement.
While analyzing 10-year returns for stocks, bonds, and fixed index annuities, Schiller uncovered four startling truths. 
For David, if you were to reach into your retirement portfolio, remove the bonds and replace them with a fixed index annuity, you would increase returns while safeguarding that portion of your portfolio against loss.
The 4% Rule says that if you have a 60-40 stock-bond mix, the most you can take from your portfolio, and maintain a high likelihood of not running out of money before you die, is 4% per year (adjusted for inflation).
If you have done a good job saving money, don’t take advice from financial gurus who are dispensing one-size-fits-all financial planning advice on Netflix.



Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
DavidMcKnight.com
DavidMcKnightBooks.com
PowerOfZero.com (free 3-part video series)
@mcknightandco on Twitter 
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com
I’ll Teach You to Be Rich (book)
How to Get Rich (Netflix series)
Dave Ramsey
Suze Orman
Prof. Robert Shiller
Dr. Roger Ibbotson
Yale University

Dave Ramsey contends that the IUL is a ripoff primarily because of two reasons: high fees and surrender charges
He also recommends that if you have an IUL to surrender it immediately, thereby incurring those surrender charges immediately.
The reason companies have surrender charges is to cover the costs of getting the program off the ground. They start off high and reduce gradually over the first fifteen years or so.
The question is, ‘Is the surrender schedule something that should weigh on your decision to do an IUL?’ The answer in most cases is no, as long as you plan on keeping the plan until death do you part.
An IUL is like getting married. You have to investigate the alternatives before choosing the one that’s right for you.
If Dave Ramsey adopted the same approach with the taxes and penalties in your 401(k), he would be singing a different tune.
If you were to take $100,000 out of your 401(k) at the age of 40, you’d end up paying the penalty and taxes at your current tax bracket, likely resulting in $40,000 in penalties.
The penalty schedule also doesn’t reduce over time when you consider that you’re likely to bump up into higher tax brackets.
The first fifteen years of your IUL, 401(k), or IRA are the years you should least want to access that money.
Like traditional retirement plans, IULs are generally long-term propositions. Don’t start an IUL if your plan is to take the money out in the first ten to twenty years.
If Dave Ramsey has a problem with the IUL surrender charges, he should likewise have a problem with all the taxes and penalties you will pay on your traditional retirement accounts over a much longer period of time.
The IUL only really works as part of a comprehensive approach to retirement and getting to the zero-percent tax bracket.
 
 
Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
DavidMcKnight.com
DavidMcKnightBooks.com
PowerOfZero.com (free video series)
@mcknightandco on Twitter 
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com

If you have the lion’s share of your wealth in a tax-deferred bucket, you have actually played your cards perfectly. You probably allocated that money at a time when tax rates were likely higher, and right now tax rates are at historic lows. This is the perfect time to move things into the tax-free bucket.
The question is ‘How long will these historically low tax rates last?’ Traditional thinking says tax rates will revert to higher rates in 2026, but that seems pretty unlikely to happen.
No politician wants to be the one that raises taxes on the largest voting block in America. The most likely scenario is that Congress will extend the Trump tax cuts at some point between now and 2026 for another eight years.
This may be the most important eight-year window in your life, given where tax rates will have to go into 2030 and beyond.
Citing out-of-control spending on Social Security, MediCare, MediCaid, and interest on the debt, former Comptroller General David Walker has predicted that tax rates will have to double in or before the year 2030.
Slowly shift your tax-deferred bucket into the tax-free bucket now while there is still time.
The 24% tax bracket is the greatest sweet spot of all sweet spots. It’s only 2% more than you’re likely paying right now and it allows you to shift an additional $170,000 a year to tax-free.
The 24% tax bracket is better than the future version of the 22% tax bracket, which is 25%.
Every year that goes by where you fail to take advantage of the 22% and 24% tax brackets is potentially a year beyond 2030 where you could be forced to pay the highest tax rates you’re likely to see in your lifetime.
Take advantage of the next 8 years to preemptively pay taxes on your retirement assets so that by the time tax rates potentially double, you’ve done all the heavy lifting and can withdraw those assets tax-free.



Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
DavidMcKnight.com
DavidMcKnightBooks.com
PowerOfZero.com (free video series)
@mcknightandco on Twitter 
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com

The internet is full of naysayers that are convinced the Indexed Universal Life Insurance Policy (IUL) is a ticking time bomb, but the question is “what does the evidence show?”.
Over the last fifteen years we’ve seen catastrophic market declines and near-zero interest rates for a protracted period of time. This has created the perfect conditions to measure the effectiveness of the IUL.
The stock market is one of two things that drives the return of the IUL, the second and more important factor is interest rates.
You should expect target rates of return between 6% and 8% within your IUL, and the last 15 years have been a great laboratory to measure the effectiveness of accomplishing that goal.
The first example is a company that dates back to 2006, and despite the ups and downs of the market, the IULs have managed to keep pace with that projection.
The second example uses a set of historical returns back to 2006 as well, and averages them out to show a return of just over 7%.
The third example is a policy that goes back to 2009, enduring the ups and downs of the market and still showing a return of 8.03% over that time frame.
When you subtract the 1% in fees in the life of the program, you will be netting 5% to 7% over the life of the contract. This is why the IUL is not a replacement for the stock market portion of your portfolio, but is great as a bond replacement.
Reach into your portfolio and remove the bonds. Replace it with IUL and you will increase your return, lower your risk, and lower the standard deviation of your entire portfolio, and experience a better outcome over time.
Assessing the success of your IUL is a matter of tempering your expectations and making the right comparisons.
They only really work if you keep them for your entire life but they do that admirably by providing a death benefit that doubles as long-term care, as well as the ability to grow tax-free wealth safely and productively.
 
 
Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
DavidMcKnight.com
DavidMcKnightBooks.com
PowerOfZero.com (free video series)
@mcknightandco on Twitter 
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com

In a recent video a high school senior called in to Dave Ramsey’s show where he offered some good advice but also played down the severity of the nation’s debt crisis.
Dave refers to two different books on how the national debt was going to ruin the country back in the 80’s, which obviously did not come to pass.
The trouble is not the level of debt a country has in general, it’s how much debt there is in relation to their gross domestic product. This is why the current situation is different.
The single most important measurement is the debt-to-GDP ratio.
According to the World Bank, a healthy debt-to-GDP is 77% or lower. Right now, the debt-to-GDP ratio is trending well beyond that threshold over the next 16 years.
Dave claims the average American investor should not have to worry about the national debt. While that’s partly true, what they really should be worrying about is the kinds of accounts they are investing their money in.
Former Comptroller General David Walker explicitly predicted that by the time 2030 rolled around the national debt would be so high and out of control that the government would have to raise effective tax rates on middle America to 45%.
Given the abundance of studies highlighting the dangers of the national debt, Dave Ramsey dropped the ball on helping a huge number of listeners.
Americans of all ages should be concerned about the national debt. It should spur you to consider when you want to pay taxes, either now when they are at historical lows or roll the dice and see what happens in the future.
Dave Ramsey is underestimating the risk of the national debt on the fiscal outlook for the US, and he missed an important opportunity to inform more Americans.
 
 
Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
DavidMcKnight.com
DavidMcKnightBooks.com
PowerOfZero.com (free video series)
@mcknightandco on Twitter 
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com

A recently published study claims that taking income from permanent life insurance and annuities in retirement can create a better outcome for investors. 
Ernst & Young compared five different strategies including investments only, investments and term life insurance, permanent life insurance and investments, deferred income annuities, and a combination of #3 and #4.
In their comparison, Ernst & Young considered insurance products part of the fixed income allocation and bond replacements.
They also used the permanent life insurance as a volatility buffer, where they access the cash value of the policy to pay for lifestyle needs during periods of market volatility, similar to the concept in the best-selling book, The Volatility Shield.
They ran 1,000 Monte Carlo comparisons with the goal of measuring sustainable income, and they used ordinary income tax rates.
Each income scenario sustained a minimum of 90% probability of success.
In the investment-only approach, it’s only inefficient from both an income perspective and from the legacy perspective.
The strategy that produced the greatest combination of income and wealth to heirs is the scenario where 30% went into a permanent life insurance policy, 30% into a deferred income annuity, and the balance into investments.
They recast the numbers for couples in different age brackets, but the results were essentially the same.
The permanent life insurance policy used in this study was whole life insurance, which meant that the loans taken in retirement had to ultimately be repaid out of the investment portfolio.
Had they instead used indexed, universal life insurance in the comparison, they could have shown a higher rate of return over time and guaranteed a zero-percent loan provision for the volatility buffer concept. In other words, they could have taken tax-free and cost-free distributions from their life insurance, saving money on interest payments and avoiding the phantom tax bill from the IRS.
The conclusion of the study is accurate, but, by switching out the permanent life insurance for indexed universal life insurance, they would have improved their outcome even further.
If they ran a scenario where tax rates doubled over time, the scenario would have pulled even further ahead than the investment-only scenario.



Mentioned in this episode:
David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code
DavidMcKnight.com
DavidMcKnightBooks.com
PowerOfZero.com (free video series)
@mcknightandco on Twitter 
@davidcmcknight on Instagram
David McKnight on YouTube
Get David's Tax-free Tool Kit at taxfreetoolkit.com