The Power Of Zero Show

David starts the conversation by describing why he believes Dave Ramsey is wrong about Fixed Indexed Annuities. In a recent live call, Dave Ramsey revealed why he is not a fan of annuities and what you should consider doing instead. Dave Ramsey's thoughts on Fixed Indexed Annuities - They have a floor that cannot go below a specific number, say 6%. Fees are double what you might get in a mutual fund and the advisor commissions are four times as high. David's response to Dave Ramsey's thoughts on Fixed Indexed Annuities. Indexed annuities don't have a 6% floor. If an index ever goes down in a given year, they simply credit you a zero. The floor is zero percent. Technically speaking, Fixed Indexed Annuities don't have fees. You cannot lose money to fees or end up with less than your original contribution. David goes through the benefits of investing in Fixed Indexed Annuities. One of the dangers of being a financial guru is you have to project to your listeners that you're an expert on every financial topic. For David, fixed Indexed Annuities are not a stock market alternative. They're a bond alternative. David believes that if you're a disciplined investor and want to purge longevity risk from your retirement picture, you should consider Fixed Indexed Annuities. It's clear that Dave Ramsey knows far less about annuities, and it's troubling that he consistently gives investment advice on subjects he's not familiar with. 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

David starts the conversation by describing how a financial guru, Derek Sall, allegedly lost $400k in an ill-advised Roth conversation. According to Sall, you're way more likely to have a lower income in retirement than you have today, so you'll likely be in a lower tax bracket in the future. But as we all know, tax rates must go up as early as 2026 to pay for unfunded government obligations. David made 3 observations to counter Derek's claims: Your income in retirement is not likely to be way lower than it is today. This is one of the huge myths foisted on a generation of baby boomers. The single largest factor that should determine whether you do a Roth conversion is whether you believe the taxes you pay will be higher now than in the future. You're not necessarily guaranteed to be in a lower tax bracket in retirement. More and more experts are beginning to predict that tax rates in the future will have to rise dramatically to pay for unfunded obligations. David explains that Derek might have unknowingly made a wise financial decision by making a Roth conversation at the 22% tax bracket. You should always consider doing a Roth conversion, especially when young. Chances are, you will make a lot of money in your later years, so it makes sense to pay taxes now since taxes will likely go up in the future. For David, Derek Sall did not make the wrong move by converting his 401K into a Roth. In fact, he didn't go far enough. He should have taken advantage of the 24% tax bracket as well. David reveals whether there are certain times it doesn't make sense for some people to do a Roth conversation. 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

Jeremy Schneider is a financial guru who claims to have retired at the age of 36 with four million dollars. He recently shared an anecdote about a young millionaire who owned around $90,000 in cash value life insurance. The reaction of the host was quite interesting, as none of the other millionaires interviewed for the show brought up life insurance as a means of building or holding their wealth. If you scroll around on social media though, there is a huge number of financial gurus recommending investing in Indexed Universal Life Insurance because of lax legislation that allows the conflation of the insurance product as an investment vehicle. The trouble with Jeremy's dismissal of the IUL product is that he fails to distinguish between the deceptive practices of unscrupulous insurance salesmen and the product itself. He also makes the incorrect comparison by saying indexed funds outperform the IUL over time, but that's like comparing stocks to bonds. They aren't the same thing. If he were to acknowledge that IULs had a proven track record of between 5%-7% net of fees over time without taking any more stock market risk than you are accustomed to in your savings account, then he would undermine his anti-IUL narrative. His gimmick only really works when he compares the IUL to a portfolio entirely composed of stocks, but when you consider bonds, an entirely different narrative emerges. Jeremy Schneider also fails to acknowledge the reason that 70% of all people over the age of 50 buy the IUL is for the long-term care advantage. IUL plans with a chronic illness rider give you the opportunity to access up to 25% of your death benefit to pay for long-term care. In the event you die without ever having the need to use the long-term care coverage, your heirs still get the death benefit, so there isn't that sensation of paying for something you hope you never have to use. As for his claim that no financial advisors would ever recommend an IUL, there are a number of experts and advisors that support the recommendation of the IUL. Ed Slott, America's IRA expert, is a big fan of cash value life insurance as a part of retirement planning. What Jeremy is really addressing is the number of financial gurus on TikTok claiming that historically only the rich used cash value life insurance to build their wealth. The narrative is clearly false, and it's important to realize that the IUL is not in competition with stock market investments and has some unique features that make it an attractive compliment to tax-free investment strategies. For almost all the millionaires mentioned, there is a case to be made for the IUL in their retirement strategies. 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

Regardless of your age, proximity to retirement, or financial profile, Dave Ramsey recommends the exact same investment allocation: divided equally among four types of funds; growth, growth and income, aggressive growth, and international. Dave's philosophy essentially boils down to investing in the stock market. The Money Guy show did a recent comparison between the Ramsey portfolio and the S&P 500. When the overall market was performing well, they both fared similarly, but the worst periods were considerably worse for the Ramsey portfolio because it's inherently more risky without the surplus returns that would justify the extra risk. The S&P 500 outperformed the Ramsey portfolio in the last 1 year, 3 year, 5 year, and 10 year time periods. Another glaring error is that the Ramsey portfolio does not contain bonds, no matter how far you are from retirement. One tried and true investment approach is to take your age and subtract it from 100. That's how much you should be allocating to the bond portion of your portfolio. Data supports this approach, but Dave feels they don't perform as well as stocks. When examined closely, the statistics don't support that conclusion. The Money Guy show did another comparison showing that the two different approaches have very different results. A 60/40 portfolio doesn't have the highs of an all-stockportfolio, but the lows are where the real risk lies. A bond portfolio ends up taking less risk but earning a greater return over a 22-year timeframe. If you are relying on your investments to support you in your golden years, one bad year in the market can completely derail your retirement. A 100% stock market portfolio exposes you to sequence of return risk that could send your retirement portfolio into a death spiral that it can't recover from. Dave Ramsey's might have some merit if he didn't unequivocally advise against guaranteed lifetime income annuities. With a bit of planning, an annuity when paired with a company pension and Social Security can completely cover your living expenses in retirement. This allows you to earmark your stock market portfolio for extra expenses and also take more risk in the stock market portion of your portfolio. With your lifestyle needs taken care of with this method, you could even remove the bond portion of your portfolio. By allocating 100% of your portfolio to higher yield stocks, you dramatically increase the likelihood your portfolio will last through your life expectancy. Dave Ramsey's one-size-fits-all anti-bond investment approach is contradicted by years and years of academic studies and empirical data. The question is why? The unfortunate truth is that as a financial guru, Dave Ramsey does not have the luxury of nuance and has to dispense one-size-fits-all advice. 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 Come Back America by David Walker

The national debt is fast approaching $32 trillion dollars, nearly double from only a few short years ago. Neither parties are blame-free for the situation we find ourselves in as of 2023. That $32 trillion does not include the unfunded liabilities and obligations that we will be paying for over the next ten years. We got to this point without including the added costs of Social Security, MediCare, and Medicaid. Politicians are facing a situation where they either cut those programs, which is a surefire way to get kicked out of office, or dramatically raise taxes. David Walker predicted that effective tax rates for Americans will rise to 45% by 2030. Right now, the effective tax rate for Americans on average is only 18%. Rising tax rates aren't just speculation, it's in the tax code. The tax rates are scheduled to rise already unless the law is altered. In 2026, the steps between tax rate tiers are going to get much less steep. The trust fund for MediCare is scheduled to go bust by 2027. The trust fund for Social Security is scheduled to go bust in 2032. Many people think we can print our way out of our problems, but that's not going to work with entitlement programs. Rising inflation due to printing money will ensure that we never really catch up with the problem. Historically, the highest tax rate in America was 94%. There is historical precedent for both raising taxes dramatically and cutting expenses. The trouble is that politicians haven't had the backbone in the past to deal with these issues before they become crippling to the economy and average Americans. Further trouble is due to the different circumstances in how we spend money. Unlike in the past, the debt-to-GDP ratio is worse and we are living beyond our means by a considerable margin. We are spending money like drunken sailors and there doesn't seem to be any willpower in Washington to change the direction. Politicians also have the tendency to avoidtelling people what they really need to hear. The Power of Zero strategy is basically the idea of systemically positioning your retirement savings to the tax-free bucket and protecting yourself from the ebb and flow of future tax rates. We could see tax rates rival the 1970's. The Trump Tax Cuts are the tax sale of a lifetime. Most people that David works with are good at saving and find themselves in the 22% tax bracket. By converting up to the 24% tax bracket, those people have much better odds of converting the majority of their savings to tax-free before tax rates rise, possibly for good, once 2030 comes around. 2026 is an important date, but not as important as 2030. People should take advantage of historically low tax rates while they are still around and get their houses in order by 2030. It can be especially challenging for widows in retirement when you factor in how the loss of a Social Security payment can impact cash flow and taxes. Recent changes to inheritance laws are also making legacy planning more difficult. If you delay required minimum distributions from an IRA, there's a good chance you can end up paying way more in taxes than expected. Now is the time to look at your tax plan. The antidote to all these issues is the Roth Conversion. If you die and your spouse inherits your Roth IRA, whatever the tax rates are at the time will no longer be an issue. Roth Conversions aren't the silver bullet. There are other strategies within the Power of Zero that allow you to truly reach the zero-percent tax bracket. Things like the Life Insurance Retirement Plan, Roth IRAs and 401(k)s, annuities, and multiple streams of tax-free income. 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 Come Back America by David Walker 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

There are a number of popular finance YouTube personalities like Graham Stephan talking about how you can be a millionaire by simply contributing $18 a day into a Roth IRA, but that doesn't tell the whole story. Not only is that advice too simple, it doesn't take into account the value of a million dollars thirty years in the future. Inflation will approximately reduce the spending power of that million into $250,000. The 4% Rule says that if you constrain yourself to only taking 4% of your day one retirement balance, adjusted for inflation as income, you have an 86% chance of your money lasting through your life expectancy. When you crunch the numbers, this would mean surviving on $10,000 a year in today's dollars in retirement. You have to be much more aggressive with your investing and saving as a 30 year old person. Instead of just fully funding your Roth IRA as a 30 year old, you could also befully funding your Roth 401(k). By investing $82 a day, your final balance after thirty years would be over $4 million, or roughly $1 million after you factor in inflation. According to a recent Ernst & Young study, if you were to earmark 30% of your retirement savings to cash-value life insurance you could as much as double your sustainable withdrawal rate in retirement. It gives your stock market balance a chance to recover from any down years during the crucial first decade of retirement. Even when you factor in that your Roth IRA and 401(k) will have lower balances, your ability to pay your lifestyle expenses allows you to take 8% distributions from your portfolio in retirement. Because your cash value life insurance is growing safely and productively, it effectively replaces the bond portion of your portfolio. This gives you a permission slip to take more risk in your stock market portfolio and yield a higher overall return on investments. When you factor all that in, with the 8% distribution rate, even with inflation, your distributions in retirement would be closer to the equivalent of $80,000 a year in today's cash value. If you heed these YouTuber's advice, it's a good start but you will end up with very little spendable cash flow in retirement. If you instead up your savings rate and fully fund your Roth IRA and 401(k), while allocating 30% to your cash value life insurance, you can supercharge to your tax-free retirement plan. 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 Come Back America by David Walker 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

Step one of the Power of Zero strategy is to realize that due to unfunded obligations for Social Security, Medicare, and Medicaid and interest on the exploding national debt, tax rates in the future are going to be dramatically higher than they are today. Step two is to understand that in a rising tax rate environment there is an ideal amount of money to have in your taxable and tax-deferred buckets. For your taxable bucket, that's around six months of living expenses. For your tax-deferred bucket, the amount should be low enough that your RMDs in retirement are equal to or less than your standard deduction and low enough that it doesn't cause Social Security taxation. For married couples, that amount is around $350,000, and for single filers, it's half that amount. If you have a sizable pension, the amount could be zero. Step three is to calculate how much time it will take to shift your balances to tax-free in order to achieve those balances. Preferably slow enough that you don't rise into a tax rate that will give you heartburn, but quickly enough that you get all the heavy lifting done before tax rates rise for good. 2030 is currently the target date. Step four is to see if you qualify for the Life Insurance Retirement Plan. With the LIRP, it gives you a death benefit that counts as long-term care and it can greatly extend the life of your stock market portfolio. One of the primary reasons you are paying for your LIRP is being able to access your death benefit if you need long-term care, but if you die peacefully in your sleep your heirs still get the death benefit. Step five is calculating your income shortfall in retirement. Figure out your after-tax needs in retirement that subtract any sources of guaranteed income like Social Security or a pension. Step six is to contribute a portion of your IRA to an annuity in the form of a fixed indexed annuity with the piecemeal internal Roth conversion feature. You want to contribute enough today so that by the time you have finished your Roth conversion it will produce enough tax-free guaranteed lifetime income that it will bridge the shortfall in your after-tax shortfall. 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 Come Back America by David Walker 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

Your LIRP functions as the ideal volatility buffer because it grows safely and productively in a tax-free way. According to a recent study by Ernst & Young, investors that contribute 30% of their retirement savings to a LIRP will have their savings last longer than people who put 100% of their savings into investments alone. This seems to fly in the face of every financial guru who has ever opined about cash value life insurance like Dave Ramsey and Suzy Orman. It's commonly understood that with an investment-only approach to retirement, you build up a large pile of money and take a modest distribution rate each year adjusted for inflation. If you take out higher than 4% per year, you drastically increase the odds of sending your portfolio into a death spiral during down years in the market. The most critical time is the first 10 years in retirement where you can expect two or three down years, any of which can cause your retirement portfolio survival odds to plummet. The LIRP serves as a volatility shield during those first ten years by allowing you to take tax-free loans from the policy during those first ten years of retirement. The LIRP has a few features that make it the ideal volatility shield. You can't combat market risk with an account that is exposed to market risk. LIRPs grow safely and productively. LIRPs in the form of universal indexed life insurance have a historical track record of 5% and 7% net over fees over time, making it easy to accumulate the amount of capital you need to shield yourself from volatility. LIRPs are tax-free. If you don't have to pay taxes during the accumulation and distribution phase, your money will grow more efficiently and you won't have to save as much money along the way. If you can take distributions tax-free, you aren't exposing yourself to tax rate risk and those distributions don't count as provisional income. If your LIRP is fully funded from day 1 of retirement, you will be in a position to pay for lifestyle expenses during the years following a down year in your stock market portfolio. According to the study, if you contribute 30% of your retirement savings to an LIRP you will find that your sustainable distribution rate skyrockets to as high as 8%. The study made a statistical case that shows the LIRP can extend the life of all your other investments significantly. The most viable retirement strategy is the one that gives you the highest likelihood that your retirement savings will last through life expectancy. 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

The biggest issue with Dave Ramsey's view on Roth Conversions, and most of his advice in general, is his one-size-fits-all approach which costs his listeners hundreds of thousands of dollars. Dave starts off on the right foot by recommending people pay the taxes up front for a Roth Conversion but then veers off the track pretty quick. Dave breaks down a hypothetical married couple filing in 2020 doing a Roth Conversion, but makes the mistake of conflating the 24% tax bracket as a trap of the Roth Conversion strategy. If you have more than a million dollars in your IRA, you will never convert to Roth before tax rates go up for good without taking advantage of the 24% bracket. Dave then goes on to say that you should never do a Roth Conversion unless you have money sitting in cash to pay the taxes. If Dave's advice were taken by everyone, only 5% of people would realistically be able to take advantage of the Roth Conversion. Some scenarios require you to pay cash for your Roth Conversion, but that's not the only choice you have. If you don't have the cash to pay the taxes on your Roth Conversion, there is no harm in having the IRS withhold the tax from the Roth Conversion itself. It's not optimal, but it's far better than the alternative of leaving your money in your IRA and watching tax rates double over time. Dave identifies the Five Year Rule on the Roth Conversion, but he fails to tell people that if you are older than 59 ½, the penalty won't apply to you. This leads people to believe the rule of thumb is everyone should avoid the Roth Conversion unless you are five years or more away from retirement. Dave Ramsey's explanation of Roth Conversions is disastrous at every turn. All three of his recommendations are almost completely backwards. When it comes to making important decisions about your retirement plans you should avoid financial gurus like Dave Ramsey at all costs. 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

We know for sure that we currently have three more years of historic tax rates. The good news is that it's fairly likely that those tax rates will be extended for another eight years, giving us a wider window of opportunity. Congress has essentially removed the limits on how much money you can convert to a Roth IRA. All you have to do is decide how much tax you want to pay. Most people assume that the 0% tax bracket is David's favorite, but it's actually the 24% tax bracket. For only an additional 2% in tax, you can convert an extra $170,000 to tax-free each year. The 24% tax bracket is the sweet spot in the Trump Tax Cuts. The 24% tax bracket is still lower than the future level of the 22% tax bracket. The average American is going to end up in the 40% to 45% tax bracket when everything gets settled, which will be a significant change for people in a negative way. Denmark has a 50% tax rate, but in exchange the population gets universal health care, paid sick leave, paid maternity leave, and more. When the US gets to that point, it will all go to service the national debt. David's least favorite tax bracket is the 32%. Even if the tax cuts aren't extended, which is unlikely, the future version of the 24% tax bracket is 28%, which is still lower than the current 32%. Don't preemptively bump up into the 32% tax bracket because you think you've got all the heavy lifting done before 2026. Everybody's situation is different so it's very important to work with a financial advisor and go through the financial planning process to find what's right for you. When doing a Roth conversion, the ideal method is to pay taxes from an account other than the conversion itself, preferably the taxable bucket. If you don't have enough money in your taxable bucket, withholding is your only other real option but you have to take into account the additional tax on withholding. 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