The Power Of Zero Show

Whether you like to talk about politics or not, the things that are happening in Congress right now will affect your retirement. All the unmitigated spending during the Covid pandemic is catching up with the US. Treasury Secretary Janet Yellin revealed further measures to avoid breaching the federal government's borrowing limit and also announced they would be suspending reinvestments for a number of retirement funds. Debt negotiations have always been a game of chicken between the Democrats and the Republicans, but there's more at stake right now. The Treasury uses emergency maneuvers to conserve cash so the government can keep making payments on its obligations. Once those measures run out, the Treasury could begin to miss payments which could trigger a default on US debt. A default on the debt in the US has never happened before, and if it did happen it would likely precipitate a global depression. There are only two things the federal government is Constitutionally required to pay: Civil War pensions, and interest on the national debt. Similar instances have happened in the past, like in 2011 when Standard and Poor stripped the US of its AAA rating for the first time. If we default on our debt, it could trigger a sovereign debt crisis, which will likely result in the costs of servicing the national debt to go up dramatically. The debt ceiling has been raised 98 times in the past, but it's possible for this time around to go differently. It's possible that the tipping point will occur mid-September and we could be seeing the consequences of this as early as October. We refinance the national debt every two years, so when interest rates go up it gets even more expensive to service the debt, and that can result is taxes being raised even earlier than we thought. The national debt is projected to increase by $3 trillion by the end of 2021. All of this is a backdrop to the Democrats trying to pass a $1 trillion infrastructure bill and a $3 trillion human infrastructure bill through Congress. The Democrats want the debt ceiling increase to be a bipartisan effort, but the Republicans are positioning themselves as opposing the increased spending and forcing the Democrats to own the bill. It seems like no one saw this spending initiative coming face-to-face with the fiscal constraints of the repercussions of unmitigated spending by both parties over time. Mitt Romney said that the Democrats would be wise to raise the debt limit in reconciliation and own the decision. Joe Biden's tax increase initiative is part of the drama. If this debt crisis implodes, he may not get anything that he wants and the Trump tax cuts may simply expire in 2026. Mentioned in this Episode: Janet Yellen to Enact Steps to Avoid Breaching Debt Ceiling - wsj.com/articles/janet-yellen-announces-measures-to-avoid-breaching-debt-ceiling-11627936540 McConnell vows no GOP help with debt limit hike - politico.com/news/2021/08/05/mcconnell-gop-debt-limit-502593

If Joe Biden can't get his tax legislation through before midterm elections, it's unlikely he will be able to pass it at all. The situation in Afghanistan has lost Biden approval points in polls across the nation and since the midterm elections usually involve the sitting administration losing either the Senate, the House, or both, there may be no opportunity for him to push it through later. The Senate, which is currently controlled by the Democrats, has proposed a $1 trillion infrastructure, which has bi-partisan support, and a $3.5 trillion human infrastructure bill, which has been opposed completely by the Republicans and doesn't have universal support from the Democrats. The Democrats have imposed a September 30 deadline to vote on both bills at the same time. Joe Manchin wrote an op-ed for The Wall Street Journal showing substantial misgivings for the human infrastructure bill. This gambit of Joe Manchin not only threatens the human infrastructure bill, but also Joe Biden's presidency. Joe hints at the implications of both borrowing more money and printing more money in the article. Joe Manchin has been echoing many of the sentiments from David Walker, Larry Kotlikoff, and Maia McGuinness. Joe Manchin warns about spending too much money when things are going well and what happens then when we have a real crisis on our hands and the coffers are empty. Manchin recommends that Congress should pause on the budget reconciliation legislation to give everyone more clarity on the situation with the pandemic and inflation. You should not push through legislation unless you have a full understanding of the implications of that legislation. If you can't get your constituency to agree to raising the taxes needed, you shouldn't be layering on additional unprecedented debt. According to David Walker, the death of Social Security and Medicare accelerated by three years due to the impact of COVID-19 spending. Joe Manchin has a pattern of putting up a lot of fight during the legislative process, but then almost always falls into line when it's time to vote. Given how well the economy is humming along, there is no clear and present danger to the country and this spending bill sets a very bad precedent. The biggest issue our country is facing is our own fiscal irresponsibility. The decision to vote for the two bills in tandem means that if there is any pause, then that is going to contribute to the perception of dysfunction and chaos, which is something voters do not like to see. The danger of the pause is it could set off a cycle of failure. Delay creates the impression of chaos, making Biden and Congress less popular, in turn reducing the popularity of any bills they pass, and making Congress less likely to support them. Joe Biden's tax proposal is part and parcel of the $3.5 trillion human infrastructure bill. If he can't pass the bill, he doesn't get the tax increases needed to pay for it. The next two weeks will be instrumental in determining what happens to tax law in America over the next eight years. Mentioned in this Episode: Why I Won't Support Spending Another $3.5 Trillion - wsj.com/articles/manchin-pelosi-biden-3-5-trillion-reconciliation-government-spending-debt-deficit-inflation-11630605657 Joe Manchin Has Put Biden's Presidency in Mortal Danger - nymag.com/intelligencer/amp/2021/09/joe-manchin-pause-biden-presidency-failed-danger-congress-democrats.html

In August 2016, the University of Michigan began a trend by offering their football coach a split-dollar life insurance arrangement as an alternative to deferred compensation. Other football coaches in different schools have similar arrangements. The overarching principles of these kinds of plans can apply to you as well without having to be rich or famous to take advantage of the benefits. This is a program where the employer agrees to loan dollars to an employee, generally over a period of 7 years, that are invested in a cash accumulation life insurance policy. Unlike traditional life insurance policies where you want the highest death benefit at the lowest premium, these plans are the opposite. The plan is attempting to mimic the best aspects of the Roth IRA without any of the limitations, and there are a number of limitations of a Roth IRA that would make them unattractive to people like Jim Harbaugh. At some point, the loan will be repaid, but in the meantime policy cash flow in excess of the balance can be accessed tax-free to supplement cash flow in retirement. It's a win/win arrangement for both parties. For the employer, they incentivize the coach to stick around and for the employee, they get to take advantage of a tax-free accumulation tool that otherwise wouldn't be available to them. As good as the arrangement is, it can be improved upon. Interest-free is not cost-free. Every year Jim Harbaugh has to pay tax on imputed income. Since the money is broken out over 7 years, the interest rate ebbs and flows, and the cost to him is variable. Jim Harbaugh won't know the full extent of his imputed income until the final seventh installment has been made. If they were to do this deal again, it would make more sense to make the loan all upfront and lock in the interest rate. The key to this approach is having an accumulation tool that's going to grow the money to the point where it far exceeds what the repayment of the loan has to be. Without that tool, you won't have the ability to grow. Rumour has it that the arrangement with Jim Harbaugh involved a whole life policy, but when they compared that to an indexed universal life policy it could have been even better. This kind of arrangement has two key components: the money has to grow safely and productively (net of fees 5% to 7%), and you need to look at how you get the money out. With whole life policies, we know they can have a net cost of borrowing. The problem comes when there is an arbitrage between the rate on your collateral account and the loan rate. One of the most important provisions in the life insurance retirement plan contract is the loan provision because if you give them 30 years to make up their mind, it's not always going to be in your favor. At its core, the purpose of the program is to promote the long-term retention of the employee in a tax-efficient manner. It works best when the employee is able to receive the maximum benefit possible from the dollars provided in exchange for expressing a long-term commitment. All of this reinforces the virtues of the life insurance retirement plan. Wealthy coaches have used this type of arrangement because they have attributes you can't find in any other type of retirement plan. There is no income limitation or contribution limits, and you can take the money out tax-free and potentially cost-free, and it comes with a death benefit. Mentioned in this Episode: Why College Coaches Are Being Paid With Split-Dollar Life Insurance - fa-mag.com/news/why-college-coaches-are-being-paid-with-split-dollar-life-insurance-56010.html?section=

Is it possible for the tax proposals moving their way through Congress to be retroactive for 2021? Biden has proposed raising the business tax from 21% to 28%, and when you add in the State corporate income tax of 7% that will put the US near the top highest corporate tax rates in the world. For individuals, Biden has proposed increasing the top income tax bracket from 37% to 39.6% for married couples making over $400,000 He has also proposed a large change to the FICA taxes. For people making $400,000 or more the FICA tax makes a comeback and when added up to all the other tax increases the baseline is 55.8%. In high tax states like California that total approaches 70%. Biden also wants to turn death into a taxable event and make the tax benefit for itemized deductions be limited for people making more than $400,000. If you're making less than $400,000 per year you don't have too much to worry about regarding taxes. If you make more than $400,000 you will find that the IRS's crosshairs are aimed squarely upon you and your retirement account. Many times throughout history Congress has either raised taxes, reduced exemptions, or some combination of the two. The latter seems to be the case right now. Long term capital gains will be taxed at the ordinary income tax rate of 39.6% on anyone making more than a million dollars. In a state like California your effective capital gains tax rate will be over 50%. Estate tax exemptions will also be affected by the tax proposals, as well as the lifetime gift tax exemption, and more. Joe Biden is proposing these tax changes to finance his spending initiatives. All this money is being earmarked for future spending, not for paying down debt. According to the Wall Street Journal, the Biden administration tax increases would be retroactive to April 28th, 2021 in order to avoid giving people the ability to plan for it. There is historical precedent for this kind of increase with it happening under the Clinton administration. The question is which taxes will be retroactive and which ones will come into effect in 2022? Right now, it's only the capital gains tax but there is precedent for it being applied to income taxes relatively late in the year as well. We don't know if any of the tax rates will go up this year or next year. The situation in Afghanistan may have lost him some political capital and slowed him down, but maybe not. Mentioned in this Episode: Bracing For Biden - fa-mag.com/news/bracing-biden-63031.html?section=47 Biden Budget Said to Assume Capital-Gains Tax Rate Increase Started in Late April - wsj.com/articles/biden-budget-said-to-assume-capital-gains-tax-rate-increase-started-in-late-april-11622127432

Legislative hijinks are happening in Congress right now and they are going to have an impact on the timing of a potential tax increase coming down the road. The Senate has struggled for a while now to come to an agreement on a $1 trillion infrastructure package, but with some bipartisan cooperation they've pushed it through. Democrats in Congress have turned their attention to a $3.5 trillion budget that is going to be a much bigger challenge. Any tax increase that gets pushed through will be part of this budget because it is going through budget reconciliation, which has several implications. Everything included in this bill will expire in 8 years because of the nature of budget reconciliation. The Speaker of the House, Nancy Pelosi, has declared that they won't vote on the $1 trillion infrastructure bill until she feels they have enough votes for the larger $3.5 trillion budget. The GOP has made it clear that they will oppose the larger bill at every turn which is why the Democrats are resorting to budget reconciliation to get the bill done. The proposal contains plans to expand healthcare coverage, universal Pre-K and free community college, ambitious federal programs to combat climate change, and a path to citizenship for qualified immigrants. There is a lot riding on this package for President Biden and the Democrats going into the 2022 midterms. There are a group of moderate Democrats that are uncomfortable with the size of the bill. Joe Manchin has spoken out against the high level of spending among other prominent Democrats. Progressives are pushing five things with the bill by recasting different political issues as economic. This is the argument for pushing the bill through the budget reconciliation process. Because of the lack of Democrat cohesion on the bill, it is unlikely to pass anytime soon. Biden needs a win going into the midterms and stalling now is not going to look good. Tied into that is the future of tax rates. Even with the increased taxes built into the bill, spending will still go up. The government will not have enough revenue to cover the cost of the bill, which means the debt will continue to rise. The tax cuts on middle America will likely be extended for another 8 years, and this means the debt is going to continue to compound and the fix in 2030 will be even more aggressive. These developments not only directly impact people making systematic shifts from tax-deferred to tax-free over the next eight years, but we need to consider the environment of fiscal instability coming down the road. Mentioned in this Episode: Here Are 5 Hurdles That Democrats Face Now For Their $3.5 Trillion Budget - npr.org/2021/08/12/1026184120/here-are-5-hurdles-that-democrats-face-now-for-their-3-5-trillion-budget

A new report says that retirees who convert their savings into guaranteed lifetime annuities effectively double the amount they are willing to spend each year on themselves and their families. This indicates that retirees holding more of their wealth in guaranteed income are more willing to spend on luxury items and experiences because of a higher comfort level with additional spending. The report looked at retired households with more than $100,000 in savings and spending more than $25,000 each year. They were making an apples-to-apples comparison between people that had a guaranteed lifetime income and those with enough assets that they could. They were looking at the most simple form of an annuity, the Single Premium Immediate Annuity. When people get into retirement they tend to get into a protective mode where they spend defensively. Without a baseline of guaranteed income, you're basically in fear mode throughout retirement. If these guaranteed lifetime income annuities are so great, why do so many Americans not take advantage of them? The first major hang-up for most people is the lack of liquidity. When you purchase a Single Premium Immediate Annuity those funds are gone from your balance sheet and that gives some people a lot of heartburn. Another concern is inflation. The payment may be sufficient for your basic lifestyle needs now but that may not be the case in the future. Solutions to this problem include purchasing an annuity that scales with inflation, or to buy more guaranteed income than you need, the trouble with both of those is that they end up compounding the liquidity issue. The third issue is the idea that a person's heirs may be disinherited if they die prematurely. The Mac truck factor may play out for you and that's a real worry for many Americans. The annuity industry is listening and has created another type of annuity called the fixed index annuity, which goes a long way to solve those problems. It solves the liquidity problem by not requiring you to take your income right away. During the deferral period you have 10% liquidity, which is often more than enough. Once you elect to take your income, the income is linked to the growth of a particular stock market index. In the case where the index declines you are protected from the loss. The last issue fixes the inheritance, where if you die prematurely your heirs will receive whatever your initial investment was plus the growth minus any distributions. One thing missing from the article is that if you do decide to do an annuity, it's important to have the ability to do a piecemeal internal Roth conversion. A fixed index annuity in your tax-deferred bucket can result in Social Security taxation, which can force you to spend down your other assets five to seven years faster. The piecemeal internal Roth conversion also helps mitigate tax rate risk. In a rising tax rate environment like we are in now, this is a very important feature. Once the money is within the tax-free bucket, it is no longer exposed to tax rate risk. If you combine all the advantages of a fixed index annuity and a piecemeal Roth conversion feature, you too can have a happy and fun retirement. Mentioned in this Episode: Opinion: Retirees with annuities have more fun - marketwatch.com/story/retirees-with-annuities-have-more-fun-11628192718

A Democratic representative out of California has introduced a bill to change the way that Social Security cost of living adjustments are calculated. It proposes to link the Social Security increase each year to the Consumer Price Index for the Elderly, instead of the CPI for Workers. The difference between the two indexes over the course of a 30-year period is roughly 0.2% each year, which doesn't sound like much, but when you compound that over the 30 years, it adds up quickly. The cost of living adjustment has only passed 2% twice since 2010. If you add up all the growth in the CPIE, it would amount to an increase of 10.1%, versus the CPIW which only amounted to 8%. Switching may not necessarily be good for seniors, with gasoline prices being weighted disproportionately between the two. Inflation has been in the news a lot recently. Increasingly as time goes on, politicians are going to be tempted by the Modern Monetary Theory proponents to print more money to solve their fiscal problems, and the end result is going to be inflation. The Senior Citizen's League is estimating that the Social Security cost of living adjustment could be as high as 6.1% in 2022, which would be the highest cost of living adjustment in a very long time. The proposed bill has yet to receive a vote, but the bill has overwhelming support from those currently on Social Security. Prior to Covid, we knew that Social Security was slated to run out of money in 2035. Because of the additional spending during the pandemic, Social Security could run out of money in 2032 with Medicare running out in 2023 instead of 2026. This means that the likelihood of higher taxes is closer than we thought. This bill would likely bankrupt the program at an even greater acceleration. A better way to increase your own Social Security is to position your assets from tax-deferred to tax-free. Anything above and beyond the ideal balance in your taxable and tax-deferred buckets should be systematically repositioned to tax-free. With the right amount of money in the first two buckets in a rising tax rate environment, and everything else positioned as tax-free, you can be perfectly positioned to insulate yourself from the impact of higher taxes, but also get your Social Security tax-free. Simply positioning your assets properly between those three buckets will add an extra five to seven years to your retirement. You can choose to rely on the government, or you can be proactive in positioning your assets.

Joe Biden campaigned on the platform of raising taxes on the top 1% of earners in America, yet six months into his administration, there haven't been any increases thus far. The main pillars of his proposal are to increase the corporate tax rate from 21% to 28% and to increase taxes on married couples earning more than $400,000 per year ($200,000 for individuals) from 37% to 39.6%. For those making $1 million or more, your long term capital gains tax rates would increase from 20% to 39.6%, effectively doubling. There are few reasons for the proposal running out of steam. The first is GOP opposition, as well as a number of economists warning that raising taxes now could jeopardize the economic recovery. Former George W. Bush Treasury official, Tony Fratto, says that the chances of big tax reforms in the near term seems reduced. There is a fear that tax reforms could squelch the growth of the economy as corporations are still trying to battle their way out of the quagmire of the Covid-19 recession. When corporate tax rates go up, those tax increases are typically passed on to consumers. We can look at major Wall Street players and how they are reacting or preparing for the proposal to get an idea of what the future may bring. Blackrock is mildly bullish on the tax rates going through with a number of senior strategists believing it to be likely but still hedging their bets. JP Morgan believes that Joe Biden will not be able to deliver on his tax proposal increases, but the discussion of increasing taxes may put a damper on market returns. Mitt Romney believes tax increases are off the table. Being able to pay for infrastructure bills with increased taxes is going to be extremely difficult to pull off. Tony Fratto says that borrowing is probably going to be how Biden will pay for all the various bills being proposed. As long as Democrats and Republicans disagree on how to pay for expenditures, borrowing is the easy solution. The US government has to refinance its loans each year, and they are directly impacted by interest rates. Interest rates may be low now, but they won't stay that way forever. If Joe Biden is going to push through his tax proposal, he has to do it soon. As a president, when you can't get things done in the first 100 days to one year, they tend to become lame ducks leading up to the next election. Biden is hoping to get all his initiatives done in the first year because polling indicates that Republicans will likely take back the House and the Senate. If he doesn't push it through soon, he may not have a chance at all. In terms of the Power of Zero worldview, this means that the status quo is likely to be maintained and that the Trump tax cuts will expire Jan 1, 2026. You have 5 years to reposition your assets from tax-deferred to tax-free. This isn't set in stone yet, we have until the end of the year before it becomes clear on what's going to happen with Biden's tax proposal. Mentioned in this Episode: Biden's plans to raise taxes on corporations and the wealthy are losing momentum - https://www.cnbc.com/amp/2021/07/07/biden-tax-plan-corporate-capital-gains-and-income-hike-uncertain.html

The 3% Rule says that if you want to have $100,000 per year in retirement, you would need $3.3 million saved up, which is not very attainable for most Americans. If you can offload longevity risk to a company that can handle it better than you can, you have to save far less. If you take a portion of your liquid investment portfolio and purchase an annuity, you can potentially achieve the same income flow at roughly half the cost. An annuity from an insurance company also mitigates withdrawal rate risk. If you have an income guaranteed in retirement by an insurance company, you won't have to rely on your stock market portfolio to take care of your lifestyle needs. Long-term care risk is one of the most pernicious risks for most Americans. Almost, but not quite dying, is much worse than simply dying. In that case, the surviving spouse is often left with a subsistence living instead of the retirement lifestyle they planned for. People don't love paying for long-term care insurance for a variety of reasons, but there are alternatives to traditional long-term care insurance that accomplish most of the same things. If you give an insurance company a chunk of your liquid assets, they will give you a guaranteed stream of income that will live as long as you do. Your assets get pooled with thousands of other people's and statistical averages work everything out over time. Mathematically, the single premium immediate annuity is going to give you the most bang for your buck but there are three things that people tend not to like. The first is giving up some amount of liquidity, the second is the lack of inflation protection, and the third is the risk of dying early. The alternative is a fixed index annuity, which allows you to tie the growth of your income to a stock market index. This protects you from inflation, comes with a death benefit, and gives you a period of liquidity which addresses the three biggest concerns that people have with instruments that guarantee lifetime income. Your income in retirement can be guaranteed, but if you do that out of your tax-deferred bucket, the after-tax amount is not guaranteed. To plug that hole, most Americans dip into their stock market portfolio. This can also result in social security taxation, leading them to spend their stock market portfolio even faster. You should think very carefully before dropping a large amount of money into a single premium immediate annuity that doesn't have the ability to do a piecemeal Roth conversion. The Life Insurance Retirement Plan comes into play in retirement when you need to pay for discretionary expenses, typically after the 10 year mark. The years where the stock market is down are the perfect time to take money out of your LIRP. The LIRP is the perfect vehicle to fund discretionary needs like plugging the hole in your roof or taking the grandkids to Disney World without withdrawing anything from your stock market portfolio. Most LIRP companies also allow you to receive your death benefit in advance of your death to pay for long term care. If you die peacefully in your sleep, your kids can inherit the death benefit which negates the feeling of paying for something you never receive. The ideal amount of money to have in your taxable bucket is about six months worth of expenses. Any more than that is a great candidate for funding your LIRP. It's crucial for life insurance that the money be growing safely and productively. With some products, your cash value ebbs and flows with the stock market. There are scenarios where people can run out of money and death benefit, as well as long-term care. A whole life policy or an indexed universal life policy are your best choices. David favours the indexed universal life policy for most people. The IRS has strict limits on how much money can be put into a life insurance policy. Those limits were premised on what the interest rates were over time, but since interest rates have changed, they adjusted the rule and consumers can put almost twice as much money into those programs for the same amount of death benefit. People up to the age of 62 can still make use of the LIRP since they still have time to let it gain steam. Once you get to the age of 65, it's not the best option if your objective is to accumulate wealth. Insurance companies are in the business of predicting how long you will live so the viability of the LIRP is directly related to your health and life expectancy. If you can figure out which spouse is going to live the longest, it informs many different decisions regarding the overall retirement plan. Joe Biden will likely honor his campaign promise to not raise taxes on anyone making less than $400,000, which means there's a lot of opportunity to take advantage of the tax sale of a lifetime before taxes go up for good.

David's first appearance on the podcast was one of the most downloaded episodes. Back in 2014, David wrote the Power of Zero book and since then the national debt has grown considerably. We are now at $28 trillion in debt and the primary problem is that much debt is only affordable as long as interest rates stay historically low. At some point in the near future, the US will no longer be able to borrow money at the current rate and this will result in the cost of servicing the national debt will grow and consume more and more of the national budget. Many experts are saying that tax rates will have to raise dramatically or the US will go broke as a country. Everybody has been saving the lion's share of their money in tax-deferred accounts. In doing so they are entering into a partnership with the IRS where the IRS gets to vote on what percentage of your profits you get to keep. The best way to insulate yourself from higher taxes is to get into the zero percent tax bracket. Taxes are evolving at a rapid pace. We have to approach retirement with a sense of flexibility and be nimble enough to make changes to the strategy. Joe Biden's tax plans are going to have major repercussions for every American, whether that is now or eight years from now. David's belief is that Joe Biden is going to extend the tax cuts under budget reconciliation for another 8 years and if that happens the government is going to have to crank taxes up to make up for lost time. Everyday Americans need to take advantage of the current historically low tax rates, stretch out their tax obligations out over the next few years, and position as much of their money to tax-free. Historically, the highest marginal tax brackets are bellwethers for all other marginal tax rates. Maya MacGuinneas did a study that showed that the government would have to raise taxes on everyone making above $40,000 to 40% just to prevent the debt from growing each year. Even though Joe Biden has made the promise that he's not going to raise taxes on the middle class, mathematically it's just not tenable. If he refuses to broaden the tax base sooner rather than later, the fix on the back end is going to be much more aggressive. Raising taxes can be a catch-22, where it stifles economic growth and lowers revenue in the end. The reality is that there are not a lot of good choices to fix the situation, but the later we wait the harder the choices are going to become. Harvard Business School did a study to discover at what point do people feel comfortable with the amount of money they have saved and whether they will run out of money. Nearly everyone said they were worried. Ultimately, the study asked the question "do you need to have $15 million in your investment portfolio to feel like you won't ever run out of money before you die, or is there another way to mitigate longevity risk?" People's greatest fear in retirement is running out of money before they die. In today's financial planning world, not a lot of people can mitigate tax-rate risk and longevity risk within the same financial plan. If you have a stream of guaranteed income from social security, an annuity, or a company pension can be the difference between being comfortable in retirement and not worried about running out of money and the fear that your money won't last. Saving more money doesn't solve your longevity risk. It's not about your assets in retirement, it's about your income. The people that have guaranteed streams of income are happier in retirement and they generally live longer lives than people that don't. Even high net worth people can benefit from guaranteed streams of income because it gives you permission to take much more risk in your stock market portfolio. Even if they don't need the income, they can take it and reinvest it. Sequence of return risk references the order of which you experience returns in your stock market portfolio. If you have a sequence of negative returns early on in your retirement, it can send your portfolio into a death spiral from which it never recovers. Sequence of return risk can be devastating. The 4% Rule used to be the prevailing wisdom for people taking money out of their stock market portfolio. As recently as 2010, those projections are outdated and the 3% Rule has become the norm. The problem with this approach is that it is extremely expensive. Having an annuity is your tax-deferred bucket, which 97% of people do, you are exposing yourself to tax-rate risk as well as social security taxation risk. Using a piecemeal internal Roth conversion to convert it tax-free insulates you from rising taxes. The problem comes from not being able to do that Roth conversion all at once and you need another solution for the first five to seven years of retirement. This is where a time-segmented approach can come in.