The Power Of Zero Show

David McKnight
  • 4.6 (146)
  • Investing
  • Updated Weekly

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. 19h ago

    Dave Ramsey's 8% Retirement Rule: What Could Possibly Go Wrong?

    Dave Ramsey says retirees can safely withdraw 8% a year from the stock market, but does his retirement planning math actually hold up? David McKnight breaks down why Ramsey's approach overlooks a critical risk, and why annuities may be the missing piece to sustainably boosting your retirement income beyond the traditional 4% Rule. In this episode, David McKnight examines Dave Ramsey's 8% withdrawal rate claim and why retirement planning may need annuities, and not just the stock market. For Ramsey, you can take 8% per year out of your stock market portfolio in retirement, despite what other financial planning advisors may say. Ramsey believes that advisors suggesting their clients follow the so-called 4% Rule are misadvising their clients. Wade Pfau, one of the most respected retirement researchers in the U.S. looked at what would happen if a retiree invested 100% of their money in stocks and took an 8% annual withdrawal each year, adjusted for inflation. The attempt to make that money last for 30 years failed in an astounding 63% of the cases. David thinks that Ramsey's calculations are flawed because he didn't take into consideration the sequence of returns risk. He shares an example that illustrates how Ramsey's 12% growth rate actually ends up falling apart (and costing retirees their hard-earned money). Once you're taking distributions, the order in which you experience sequence of returns can make the difference between your money lasting for the rest of your life or running out sooner. While David agrees with Ramsey in that retirees shouldn't settle for a 4% withdrawal rate in retirement, he believes that there are more reliable ways to improve upon the 4% Rule. The irony is that the most reliable ways to improve upon the 4% Rule is to use financial instruments Ramsey has spent decades telling his audience to avoid. Those tools are guaranteed lifetime income annuities and permanent cash value life insurance. David discusses the volatility shield, an account outside your stock portfolio that holds 3-5 years of discretionary expenses. The idea is to live out of that account in the year following a down year in the stock market. That way, your stock portfolio has a chance to recover before you take further distributions. This act alone can increase the sustainable withdrawal rate on your stock portfolio from 4% to as high as 8% with a 95% confidence rate. David's preferred vehicle for accomplishing that is properly structured, property funded indexed universal life insurance (IUL). An Ernst & Young study focused on what happens when you combine investments with permanent life insurance with guaranteed lifetime income annuities. What they found is that when you adopt an integrated approach that incorporates both cash value life insurance and annuities, you draw more retirement income with better outcomes than if you relied on investments alone. While David agrees with Ramsey's point that a 100% stock allocation in retirement makes sense, there's something he disagrees with – he explains what it is and their views differ. "Perhaps, Dave Ramsey isn't wrong about wanting retirees to enjoy an 8% level of income, he's just using the wrong tools to get there", David argues. 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 Dave Ramsey Wade Pfau Ernst & Young

  2. Aug 26

    The Three Biggest Reasons Americans Hate Annuities

    Most Americans hate annuities and would tell you to avoid them… But what if the version you've been warned about isn't the only option for retirement planning? David McKnight breaks down a strategy that's quietly helping retirees sleep better at night and safeguard themselves against the 3 biggest annuities-related problems.  In this episode, David McKnight looks at three perfectly legitimate reasons why Americans have been reluctant to embrace annuities, as well as a solution. The first problem is liquidity. David points out that one of the biggest fears in retirement is running out of money before you run out of life. He shares an example that shows you how, in the process of purging longevity risk from your retirement, you create an entirely different problem. The second reason why people dislike annuities has to do with what happens if you die early – what happens to what an insurance company promised to pay you for life? The third problem has everything to do with inflation. Sure, your income may be guaranteed for life but, with inflation, the lifestyle that income supports certainly isn't. David wonders whether there's a way to get guaranteed income you can never outlive without having to accept the three traditional drawbacks. "Over the years, life insurance companies recognized the shortfalls of the traditional guaranteed lifetime income annuity, so they designed a solution known as the Fixed Index Annuity", says David.  With many Fixed Index Annuities (FIAs) you can access up to 10% of your contract value annually during the surrender period without paying a surrender charge.  When you consider that most Americans with stock portfolios are relying on the 4% rule in retirement, 10% withdrawals are an absolute smorgasbord of liquidity. David explains how FIAs help with the second reason why Americans hate annuities, and what happens even if you end up living for a long time. He then illustrates how FIAs can come into play to help you deal with inflation – and why the so-called piecemeal internal Roth conversion feature is something you may want to explore.  Remember: not all annuities are created equal. If you're interested in the benefits of guaranteed lifetime income without all the pitfalls that go along with traditional single premium immediate annuities, fixed index annuities may be a viable alternative. 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

  3. Aug 19

    Should High Earners Contribute to a Roth 401k?

    Should every dollar go into a Roth 401(k) if taxes will be higher? David McKnight reveals why that instinct could actually be one of the most expensive tax decisions a high-income earner can make when it comes to retirement planning. In this episode, David McKnight addresses two frequently asked questions: "If tax rates are going to be higher in the future, should I be putting every dollar into a Roth 401(k)?" and "Should I be converting as much of my IRA to Roth as quickly as possible?". David believes that the current tax rates are as low as we're likely to see in your lifetime. The national fiscal trajectory is apocalyptic: there is over $39 trillion in debt that's going to increase by $2 trillion per year over the next 10 years, and over $200 trillion in unfunded obligations for Social Security, Medicare, and Medicaid. Despite all of this, politicians on both sides of the aisle seem unwilling to make the tough decisions necessary to address the crisis. Many people hear that taxes will be higher in the future and conclude that every retirement planning contribution should be immediately redirected into Roth accounts. However, if you're a high-income earner contributing heavily into a Roth 401(k) today as part of your retirement planning may actually be one of the most expensive tax decisions you can make. When evaluating whether to contribute to a traditional 401(k) or a Roth 401(k), the question isn't whether taxes will be higher in the future. Rather, it's "Will my effective tax rate in retirement be higher than the tax rates I'm currently paying on the marginal dollar today?". David discusses the so-called Retirement Income Valley, the period of time after your paycheck stops but before social security and RMDs fully kick in. An Ernst & Young study examining what happens when retirees allocate a portion of their retirement savings to a maximum-funded index universal life policy produced striking results. 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. David stresses that an IUL isn't designed to replace the investment portion of your portfolio, rather to protect it. 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 Ernst & Young

  4. Aug 12

    The Latest Proposal to Tax Roth IRAs: Should you be worried?

    Should you stop doing Roth conversions as part of your retirement planning after Senator Ron Wyden's new legislation targeting specific retirement accounts? David McKnight breaks down the key aspects of the proposal and what it actually means for the average American (and their retirement).  Show Notes In this episode, David McKnight looks at whether you should stop doing Roth conversions following Senator Ron Wyden's introduction of legislation for taxing Roth IRAs. For David, 99.9% of Americans should continue investing in Roth accounts with a high degree of confidence. One of the biggest misconceptions floating around is that Congress wants to start taxing everyone's Roth IRA.  However, that is simply not what Senator Wyden's proposal does, as its focus are so-called mega-retirement accounts. These are retirement accounts – whether traditional IRAs, Roth IRAs, or Roth 401(k)s – that have grown to extraordinary sizes, often tens or even hundreds of millions of dollars. Senator Wyden's proposal only applies to taxpayers with very high incomes ($400,000 for individuals; $450,000 for married couples) and only if your combined retirement accounts exceed $10 million. In other words, if you don't have more than $10 million spread across your retirement accounts, the proposal doesn't apply to you. Do you exceed that threshold? Then, know that the proposal would require annual distributions from the excess amount. The rule becomes even more restrictive when balances exceed $20 million. David believes that the average American shouldn't be nervous about investing in Roth accounts – he shares four reasons why. Reason #1: Congress likes Roth accounts, because, from a Government's perspective, Roth accounts accelerate tax revenue. The second reason is the fact that Roth assets are still a relatively small piece of the retirement landscape. "Most retirement money in America is still sitting inside traditional tax-deferred accounts", he explains. Reason #3: the Government has always had an implicit agreement with America on Roth accounts. The fourth reason why David doesn't believe you should be nervous about investing in Roth accounts is that they're still your best protection against what's coming down the road. The national debt is set to grow by $2 trillion per year over the next 10 years and $3 trillion per year after that. According to a Penn Wharton study, once the country hits a debt-to-GDP of 200% in 2040, no combination of increasing taxes or cutting spending will prevent the nation's financial collapse. That's why, David is confident that around 2035 Congress will have little choice but to tax increases. 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 Senator Ronald Wyden Penn Wharton (The Wharton School, University of Pennsylvania)

  5. Aug 5

    The Hidden Reason Married Couples Need Roth Conversions

    One spouse passes away, and suddenly the survivor is filing alone, pushed into tax brackets they never saw coming. David McKnight explains why a Roth conversion, done now through smart retirement planning, could spare your loved ones the painful surprise known as Widow's Penalty. Show Notes In this episode, David McKnight discusses something that could cause your taxes to rise dramatically even if Congress never raises taxes by a single percentage point! That's the so-called Widow's Penalty, and it's a critical piece of retirement planning that too many people overlook. The U.S. national debt consists of hundreds of trillions of dollars in unfunded obligations for programs like Social Security, Medicare, and Medicaid. At some point, David points out, the Government is going to need huge infusions of cash to meet those obligations. Most people don't realize that a surviving spouse often inherits a tax problem at the moment in life when they're least equipped to deal with it – David explains the repercussions of this common scenario and why a Roth conversion can help. David stresses that one of the most important retirement planning windows in your entire lifetime occurs during the years when both spouses are still alive and filing jointly. During those years, you have an opportunity to take advantage of wider tax brackets and proactively reposition money from tax-deferred accounts into tax-free accounts through a Roth conversion. When people contemplate the prospect of future higher taxes or the widow's penalty, they often panic and reflexively convert all of their IRAs and 401(k)s to Roth over one or several years. That's an approach to Roth conversion that causes you to pay much more taxes than was really required. The key to avoiding that, as part of any sound retirement planning strategy, is to move money slowly enough that you don't rise into a tax bracket that gives you heartburn. And, on the other hand, move money quickly enough that you get all the heavy lifting done before tax rates increase for good. 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

  6. Jul 29

    What If I Retire Into A Market Crash?

    David McKnight addresses one of the biggest fears people have as they approach retirement: "What if I retire right into a market crash?". Not only this represents one of the biggest challenges in retirement planning but it's also one of the reasons why David advocates for protecting yourself from sequence of returns risk.  When it comes to long-term stock market investing, it's important to understand the difference between retirement years and accumulation years. Sequence of returns is the order in which market returns occur in your portfolio.  That order, David stresses, can make or break your retirement unless you've taken steps to prepare your portfolio ahead of time. The danger isn't simply that the market goes down, as markets always recover eventually. The danger is being forced to sell investments while they're down in order to fund your lifestyle.  David touches upon the dot-com collapse and 2008 mortgage meltdown as extraordinarily difficult periods for retirees who only relied on investment portfolios for income. There are two approaches David recommends adopting.  The first one is to build a guaranteed income floor before retirement – ideally 5-10 years before retiring. The role of the guaranteed lifetime income is for it to cover essential expenses so that your lifestyle is no longer entirely dependent on the performance of your stock portfolio. Remember: by living off your guaranteed streams of income you give your portfolio a chance to recover from down years in the stock market. The second approach is the so-called Volatility Shield strategy, which sees a properly funded cash value life insurance – in the form of Indexed Universal Life (IUL) – play a critical role. The first step of the Volatility Shield way is to begin funding an IUL well before retirement with 3-5 years of living expenses covered by day one of retirement. David breaks down the process that can increase the sustainable withdrawal rate on your stock portfolio from 4% to as high as 8% with a 95% success rate. The Volatility Shield is a strategy that you can begin implementing much earlier than the guaranteed lifetime income one. You can use guaranteed lifetime income to help cover essential expenses, and an IUL volatility shield to get tax-free liquidity to cover discretionary needs during periods of market downturn. When people ask David "When is the ideal time to reposition money to avoid retiring into a market crash?", he always suggests not to wait for the crash, or to try to predict one, rather to build protection intentionally. 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

  7. Jul 22

    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

  8. 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

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About

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
    408
  • Rating
    Clean
  • Copyright
    © The Power Of Zero
  • Show Website
    The Power Of Zero Show

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