The Power Of Zero Show

David McKnight
  • 4.6 (146)
  • Investing
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Tax rates 10 years from now are likely to be much higher than they are today. Is your retirement plan ready? Learn how to avoid the coming tax freight train and maximize your retirement dollars.

  1. 2d ago

    The Five Biggest Roth Conversion Traps

    In this episode, David McKnight walks you through the five biggest Roth conversion traps, and how to avoid them. He is a big believer in Roth conversions.  Because of the apocalyptic fiscal trajectory of the U.S., taxes in the future are likely to be dramatically higher than they are today. Hence, every dollar you reposition from tax-deferred to tax-free at these historically low tax rates may be one of the smartest financial decisions you ever make. However, while many people understand Roth conversions in theory, they still get them wrong in practice – David has seen some very costly mistakes over the years. The first big Roth conversion trap is waiting too long.  True: nobody wakes up excited to pay a tax 10-20 years before the IRS absolutely requires it of them… …but we're living in the middle of "the tax sale of a lifetime", which is likely to end in or around 2035 and will see the Federal Government forced to raise taxes. The second Roth conversion mistake has to do with not maxing out the appropriate tax bracket. If you have a substantial amount of money in your IRA or 401(k), David says that you won't be able to fully execute your Roth conversion strategy unless you take full advantage of the 24% bracket. "When 2035 rolls around, we'll look back at the 24% bracket as a good deal of historic proportions", highlights David. Over-converting is the third big mistake people make when it comes to Roth conversions. When people come to the conclusion that future tax rates are going to be higher than the current ones, they often panic and reflexively convert all of their tax-deferred retirement savings to Roth. What they forget, however, is that, in retirement, they will still have a standard deduction. Remember: Eevery retirement strategy you undertake should be calculated to extend the life of your investments, not shorten it. Roth conversion trap #4 is letting the fear of IRMAA (Income-Related Monthly Adjustment Amount) dictate your Roth conversion strategy. The fifth Roth conversion trap is not paying taxes on your Roth conversion out of the right place.   Mentioned in this episode: David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track The Power of Zero: How to Get to the 0% Tax Bracket and Transform Your Retirement by David McKnight DavidMcKnight.com DavidMcKnightBooks.com PowerOfZero.com (free video series) @mcknightandco on Twitter  @davidcmcknight on Instagram David McKnight on YouTube

  2. Jul 15

    High Earners: Stop Making This Roth vs. Traditional Tax Mistake!

    David McKnight addresses one of the most common questions he gets: "If tax rates are going to be dramatically higher in the future, shouldn't I be putting every dollar into a Roth 401(k)?". Moreover, people often wonder whether they should be converting as much of their IRA to Roth as quickly as possible. David is a firm believer that the current tax rates are as low as we're likely to see in our lifetime. The U.S. has over $39 trillion in debt and it's going to increase by two trillion per year over the next 10 years and over $200 trillion in unfunded obligations for Social Security, Medicare, and Medicaid. Many people make the critical mistake of thinking that every retirement plan contribution should be immediately redirected into Roth accounts. However, David stresses, if you're a high-income earner contributing heavily to a Roth 401(k) today may actually be one of the most expensive tax decisions you can make. David explains why he has long argued that 24% is the sweet spot. The so-called Retirement Income Valley is the window of opportunity that opens up immediately after retirement and before social security required minimum distributions kick in. David touches upon IUL and why he doesn't suggest that it should replace your 401(k) or serve as a stock market alternative… Remember: your 401(k) should remain the primary engine driving your retirement plan.  Once you've maximized that tax deduction, an IUL can serve a very important supporting role, though. An Ernst & Young study examined what happens when retirees allocate a portion of their retirement savings to a maximum-funded index universal life policy. Researchers found that if you could divert 30% of your retirement contributions to an IUL with the goal of saving 3-5 years of living expenses by day one of retirement, it helps shield you from stock market volatility. "The IUL isn't designed to replace the investment portion of your portfolio, it's there to protect it", clarifies David. The best retirement strategy isn't the one that sounds the most compelling, it's the one that maximizes the likelihood that your money lasts as long as you do. Mentioned in this episode: David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track DavidMcKnight.com DavidMcKnightBooks.com PowerOfZero.com (free video series) @mcknightandco on Twitter  @davidcmcknight on Instagram David McKnight on YouTube Ernst & Young

  3. Jul 8

    What REALLY Happens When Your Kids Inherit Your IRA

    In today's episode, David McKnight discusses what many people don't get about the IRS and what happens to their IRA and what their children are supposed to get at some point. Many people spend decades building up tax-affirmed retirement accounts without fully appreciating what happens when those accounts pass to the next generation. When a spouse inherits an IRA, they get the most favorable treatment under the tax code. In fact, they have options that nobody else gets - like the spousal rollover. David touches upon the so-called Stretch IRA, which he considers one of the greatest estate planning tools ever created, and the 10-year rule. The scenario in which this episode sits is a time when the U.S.' fiscal trajectory suggests future tax rates are likely to be dramatically higher than they are today. "We're over $39 trillion in debt, with a debt projected to grow by $2 trillion per year for the next 1+ years, and $3 trillion per year after that," says David. David explains why he talks about Roth conversions and Roth IRAs frequently on this channel, as well as what you could give to your children that's more valuable than an inheritance. Mentioned in this episode: David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight DavidMcKnight.com DavidMcKnightBooks.com PowerOfZero.com (free video series) @mcknightandco on Twitter  @davidcmcknight on Instagram David McKnight on YouTube

  4. Jul 1

    The Hidden Reason Married Couples Need Roth Conversions

    David McKnight kicks off this Power of Zero Show episode by stressing that, in his opinion, tax rates in the future are likely to be much higher than they are today. Why? Because the U.S. has a national debt that continues to grow at an alarming rate. It has hundreds of trillions of dollars in unfunded obligations for programs like Social Security, Medicare, and Medicaid. At some point, the Government is going to need huge infusions of cash to meet such obligations. The so-called "Widow's Penalty" is a very compelling reason, David believes, to consider doing Roth conversions while today's tax rates are still around. And that's true even if you don't think that future tax rates will be higher than the current ones… David explains how, when a spouse passes away before the other, the surviving spouse often inherits a tax problem at a moment in life when they're least equipped to deal with it. The ugly truth is that, in many cases, surviving spouses earn nearly the same amount of income as before while being forced to operate within a less favorable tax framework. That means that income that previously fit comfortably inside the 24% tax bracket can suddenly spill over into the 32%, 35% or even 37% bracket! David touches upon the fact that one of the most important tax planning windows in their entire lifetime occurs during the years when both spouses are still alive and filing taxes jointly. Remember: this topic is crucial because tax consequences don't necessarily end with the surviving spouse.  Whatever remains in your IRA may pass on to your children. David's advice is to move money slowly enough that you don't rise into a tax bracket that gives you heartburn, but quickly enough that you get all the heavy lifting done before tax rates go up for good.     Mentioned in this episode: David's new book: The Secret Order of Millionaires David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight 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

  5. Jun 24

    Did Suze Orman Just Endorse Annuities?

    David McKnight discusses the Woman's World article Suze Orman Reveals When to Buy an Annuity - and the One Question You Must Answer First. For years, Orman has warned investors away from annuities, often lumping them into the category of expensive financial products that enrich salespeople at the expense of consumers. David has been surprised by what the current views of Orman appear to be, completely in line with what David has been preaching for years. Orman's analysis begins with a key consideration: annuities can be a helpful tool in retirement, but whether they make sense for you depends on one key factor: your income needs. In the Woman's World article, Orman writes that the first step is to figure out how much money you need each month to cover your essential expenses. Next, you should look at your guaranteed income sources like Social Security, a pension, rental properties, interest, or dividends. David paints out the scenario in which you get permission to take more risk in the stock market portion of your portfolio. A recent BlackRock study showed that people whose living expenses are guaranteed spend 22% more than those who rely on their stock market portfolio alone in retirement. David talks about what he refers to as a "piecemeal internal Roth conversion feature" and why it may be a beneficial asset. David sees Orman's approach as short-sided for the fact that guaranteed lifetime income isn't the only mathematically appropriate use of annuities. True, most retirees own bonds because they want stability, but bonds do come with reinvestment risks, interest rate risks, inflation risks, and often low long-term returns. David explains what would happen if you reached into your portfolio, removed bonds, and replaced them with an annuity. According to David, the conversation needs more nuance because "not all annuities are created equal". Remember: retirement planning isn't about one-size-fits-all financial advice; it's about creating a customized approach that will help you wring the most efficiency out of your retirement savings.     Mentioned in this episode: David's new book: The Secret Order of Millionaires David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight 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 Suze Orman Woman's World article - Suze Orman Reveals When to Buy an Annuity - and the One Question You Must Answer First  BlackRock Ken Fisher

  6. Jun 17

    The Truth About Buy-and-Hold Investing in Retirement

    In this episode, David McKnight addresses one of the biggest myths in retirement planning: once you retire, you need to dramatically reduce your exposure to stocks. The reason why most financial advisors recommend reducing stock exposure in retirement has very little to do with stocks and everything to do with sequence of returns risk. Sequence of returns risk is what happens when you're forced to withdraw money from your investment portfolio during a market downturn. If the market falls 30% and you're simultaneously taking withdrawals to pay for your living expenses, you're locking in losses and permanently impairing your portfolio's ability to recover. According to David, the way to solve this problem is by ensuring that your essential expenses are covered before you ever retire. When you're at least five years out from retirement, David believes that one of the most important decisions you can make is to create the so-called income floor. An income floor is a guaranteed stream of income that covers your basic living expenses regardless of what the stock market is doing. The volatility shield adds a second layer of protection that has to do with discretionary expenses (e.g., a trip around the world, taking the grandchildren to Disney World, etc.). Suze Orman has controversially recommended that retirees keep 3-5 years' worth of living expenses in a savings account, so they don't have to sell investments during a market downturn. While David agrees with the concept, he doesn't see savings accounts as the most efficient place to put that money in. Instead, he'd rather have retirees accumulate that money in a completely separate account (a volatility shield) – which, unlike a savings account, has the potential to grow 5-7% net fees over time. Looking for an alternative volatility shield? Look at cash value life insurance in the form of indexed universal life (IUL), says David. An Ernst & Young study found that retirees who included the volatility shield strategy and a guaranteed lifetime income annuity in the retirement plan were able to dramatically increase the sustainable withdrawal rate on their investment portfolio. Since the early 1990s, the gold standard on sustainable withdrawal rates has been 4%. The 4% Rule says that if you withdraw approximately 4% of your portfolio each year, there's a reasonably high chance that your money will last a full 30-year retirement. However, when retirees had access to a volatility buffer and could avoid taking distributions following market downturns, sustainable withdrawal rates increased dramatically (in some scenarios, up to 8%). David is a believer of the fact that the portfolio that got you into retirement can also take you through retirement – with a recommended 70% in U.S. stock market index funds and 30% in international stock market index funds. For David, the reason why this approach works well is that, with it, you solve the two biggest issues in retirement: income and volatility. Moreover, if you can position these assets inside tax-free accounts through strategic Roth contributions and Roth conversions, you gain protection against yet another threat, tax rate risk. David concludes by stressing that it is not that the buy-and-hold strategy doesn't work, it's that most retirees don't have the protection tools necessary to stay committed to the strategy when markets become turbulent.     Mentioned in this episode: David's new book: The Secret Order of Millionaires David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight 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 Suze Orman Ernst & Young

  7. Jun 10

    The New Case Against Bonds in Retirement

    David McKnight kicks this episode off by explaining how, for decades, conventional financial wisdom has been saying that, as you approach retirement, you should begin dialing down your stock exposure and increasing your bond allocation. A 60-year-old, for example, would have 40% of their portfolio in stocks and 60% in bonds.  Historically, bonds served three primary functions: They provided income, they reduced portfolio volatility, and they protected retirees from so-called sequence of returns risk. David touches upon how the sequence of returns risk works. Retirees who get hit early often run out of money earlier – in some cases, even 15 years prior to life expectancy. The old approach to retirement planning assumes that bonds could provide meaningful returns while still acting as a stabilizer. However, recent years have shown that bonds are not risk-free. Back in 2022, for instance, the Bloomberg U.S. Aggregate Bond Index lost 13%. Long-term treasuries did even worse, as many lost between 25 to 30% due to rapidly rising interest rates. David stresses that an annuity can do something bonds cannot do: It can guarantee income that you cannot outlive. It's important to realize that whenever your basic living expenses are covered, something profound happens psychologically: You stop depending on your investment portfolio to solve every problem. Furthermore, you feel as if you now have permission to spend. Studies show that those who have guaranteed lifetime income spend 22% more than those who rely strictly on a stock bond portfolio. A properly funded IUL can create a pool of tax-free money that's insulated from stock market loss and available during downturns. David unpacks a strategy that can increase the sustainable withdrawal rate on your stock portfolio from 4% to as high as 8% with a 95% success rate. When you combine guaranteed lifetime income from annuities with a volatility shield in the form of IUL, you are no longer reliant on bonds, says David. He also touches upon why retirees who adopt the no-bond power of zero approach begin to take a lot more risk in their stock market allocations. David wraps things up by sharing insights on what retirees should think about and do to increase the likelihood that, in retirement, their money will last as long as they do.     Mentioned in this episode: David's new book: The Secret Order of Millionaires David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight 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 Bloomberg U.S. Aggregate Bond Index

  8. Jun 3

    This Small Trick Could Increase Your Retirement Income by 22%

    A recent landmark study from BlackRock caught David McKnight – he shares what it was all about and why you should care in this new episode of the Power of Zero Show. For decades, Americans were told that if they simply contributed faithfully to their 401(k) and avoided emotional decisions during market downturns, they would have enough money in retirement. According to the BlackRock study, retirees who incorporated guaranteed lifetime income in the form of an annuity into their retirement portfolio experienced an average increase of 22% in potential retirement spending. That number became approximately a 25% increase for lower income retirees! The increase came primarily from giving retirees greater confidence to spend money because a portion of their retirement income was guaranteed for life. David explains that, while 30 or 40 years ago retirees could rely on company pensions that provided predictable monthly income for life, the modern retirement system has shifted enormous responsibility onto the shoulders of ordinary Americans. Employers used to bear the responsibility for generating the income stream and ensuring that retirees did not outlive their money.  Today, however, pensions have all but disappeared, and most Americans now rely on 401(k) or other tax-qualified retirement plans. One of the big problems is the fact that such tax-affirmed accounts can help you build wealth, but don't come with instructions on how to make sure your money lasts a full 30-year retirement. The BlackRock study echoes something that David has stressed several times on the show: retirees spend more when at least a portion of their retirement income is guaranteed. David clarifies that when he talks about guaranteed lifetime income, he does not suggest retirees place all of their assets into annuities or eliminate market exposure altogether. David talks about 100% stock allocation and why you can be much more aggressive in your stock market allocation once you create an income floor in retirement. The current status quo of the American fiscal system – and exploding national debt – appears to be painting a picture where future tax rates will be significantly higher than they are today. David is a strong advocate for tax-free investment accounts in retirement. In particular, he points to six different tax-free income streams: Roth IRAs, Roth 401(k)s, Roth conversions, RMDs up to standard deductions, certain types of cash value life insurance as a volatility shield in retirement and, if you can keep your provisional income low enough, your Social Security can be 100% tax-free. David touches upon a strategy that can give you guaranteed tax-free income for life. The old retirement model gave Americans confidence through company pensions. The modern model requires retirees to create their own personal private pension in the form of an annuity. It's important to understand that retirement isn't just about accumulating wealth, but also about creating a stream of lifetime income that's guaranteed to last as long as you do. David concludes by explaining what retirement planning should accomplish beyond merely maximizing account balances.     Mentioned in this episode: David's new book: The Secret Order of Millionaires David's national bestselling book: The Guru Gap: How America's Financial Gurus Are Leading You Astray, and How to Get Back on Track Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight 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 BlackRock BlackRock's paper Who Benefits From Guaranteed Lifetime Income?

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Tax rates 10 years from now are likely to be much higher than they are today. Is your retirement plan ready? Learn how to avoid the coming tax freight train and maximize your retirement dollars.

Information

  • Creator
    David McKnight
  • Years Active
    2018 - 2026
  • Episodes
    402
  • Rating
    Clean
  • Copyright
    © The Power Of Zero
  • Show Website
    The Power Of Zero Show

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