The Power Of Zero Show

The simple answer to the question of whether or not you can have too much money to get to the 0% tax bracket is no. The thing someone would be afraid of in that regard is paying so much tax in the process that it wouldn't make sense to try to get there. It really comes down to whether the next seven years will be a good deal in terms of how much taxes you can pay now versus pay later. Much of the answer relies on Required Minimum Distributions. RMDs are designed to force you to pay taxes on all the dollars in your tax deferred account before you die. There is about $22 trillion in the cumulative retirement accounts in the US and the IRS wants to have some tax predictability. If you have $5 million in your tax deferred bucket for example, you're going to be forced to take out roughly $175,000 each year, and before you know it, you could be in the highest marginal tax bracket. The whole point of the Power of Zero world view is that tax rates are going to be dramatically higher in the future than they are today. The equivalent of the 37% tax bracket after 2026 could be 50%. You have to look at everything in context. Another thing to keep in mind is that not all couples die at the same time. There could be a number of years where you end up basically paying double the taxes after your spouse dies. There is currently legislation in the House and the Senate that could eliminate the ability of your children to stretch out your IRA money out over their lifetimes. Currently, if you are a non-spouse beneficiary you can stretch out the RMDs over your lifetime, which can allow you to avoid bumping up into a higher tax bracket. The legislation would force you to pay taxes over a ten-year period. What would happen to your beneficiaries if they were forced to receive hundreds of thousands of dollars each year? They would likely pay tax at the highest tax bracket, and if you're planning on dying after 2025, that will be at least 39.6%. The US government is hurting for tax revenue and they are willing to force your children to pay taxes on their inheritance that they would otherwise be able to stretch out over their lifetime. There is a good chance that they will only be able to keep half of it. Ask yourself, does it make sense to have large amounts of money in your IRAs, having your spouse be forced to potentially pay taxes at double the rate, or for your children to pay taxes on that money over a ten-year period? If you have lots of money in your taxable bucket, that may be a different story. If you can shift your taxable money over to tax free, that money can grow more productively, particularly in life insurance. As we slip further into insolvency as a country, the US is going to put all options on the table in order to garner more revenue. If you have a lot of money, the IRS is going to get their money one way or another. The question is, if you're not going to pay that tax then who is going to pay?

The Power of Zero paradigm changes a bit when you have a pension. The best case scenario in terms of tax rates that you are going to experience is likely to be while you're working. Let's say we have two 60-year-olds that want to retire in 5 years. They have $500,000 in their IRA's and 401(k)'s, and one of the spouses has a pension of $5,000/month. They are currently in the 22% tax bracket. If you have a $5,000 pension, that is construed as provisional income by the IRS. This means that up to 85% of this couple's social security becomes taxable. When they couple the pension and social security together they are looking at filling up the 10% tax bracket and most of the 12%. Any dollar that the example couple takes out after retirement is going to flow into their taxable cylinder and they will pay taxes at the 22% tax rate or in the future the 25-28% tax bracket. We have a situation where if the couple wants to take money out of their IRA, the best case scenario is that they will be able to keep 78% of their money, and that doesn't count state taxes. Where the opportunity lies when someone has a pension, is we can make the case that since they will be in the 22% tax bracket in retirement, they might as well be converting and maxing out that tax bracket until they are 65. We want to drain those IRA's and 401(k)'s before they reach retirement so the money will come out tax-free. We worry about the things we can control, not the things we can't, and we can't control the fact that their pension and social security will be taxable but they can control the rate at which they get taxed on all their other assets. If they only convert $70,000 per year to maximize the 22% tax bracket, they won't get all the shifting done in the next 5 years. That means they will have to pay higher taxes on the balance. They really need to get the money out before tax rates go up for good in 2026 and converting up to the top of the 22% tax bracket isn't going to cut it. For only 2% more, they can convert an extra $150,000 per year which is a great deal (comparatively). Even if they pay an additional 2%, that will still be lower than the 25% tax bracket that the 22% bracket will be after 2026. If you are already in the 22% tax bracket, and that is most people, and you have a pension that will likely cause your social security to be taxed, you're in a situation where there is no real reason not to max out the 22% tax bracket and probably the 24% as well. Every year that goes by where you fail to take advantage of the current 22% tax bracket is a year where you will be paying at least 25%. The real concern is when the US has a sovereign debt crisis, which is where countries will no longer loan us money and we can no longer print money to escape the issue. Social security and Medicare are pegged to inflation so printing money won't be a solution, the only viable option will be to raise taxes. If taxes raise dramatically over the next decade, we'll look back at the current time as an opportunity of historic proportions. Any sort of residual income will be taxed the same way and could cause up to 85% of your social security to become taxed. The bottom line is to take a look at what your tax bracket is today and what the best case scenario is going to be once your pension and social security fill up the first two tax brackets. You'll see that not a year should go by where you are not taking advantage of these historically low tax rates. Your tax rates are going to double no matter what. When a spouse dies the cost of unlocking dollars from your taxable accounts doubles. If you're thinking that you can just live off of your pension and social security and leave everything in your IRA, there is legislation being considered right now that may limit or greatly affect that plan. If you have an IRA, you should really shift those dollars to tax-free with a Roth Conversion or a LIRP. When we cut taxes, we did just the opposite of what economists said to do. Instead of cutting costs and raising taxes, we cut taxes and raised costs. Mainstream media outlets are starting to acknowledge that we have a debt problem and we'll need to address it eventually. If you have a pension, make sure you assess what your tax bracket is today and recognize that taxes now are lower than they will be in the future. The highest marginal tax rate in 1960 was 89% and the poorest among us were paying 23%. We haven't seen these tax rates in a long time but they are being talked about, experts across the country are making the case that we are at a crisis point. Weigh the evidence and decide if tax rates down the road will be higher. Every year that goes by is a year beyond 2026 where you will be paying the highest tax rates you're going to see in your lifetime.

Let's say we've got two 60 year olds that want to retire at the age of 65. They've got $300,000 in their taxable bucket, $700,000 in their tax deferred bucket between their IRA's and 401(k)'s, and nothing in the tax free bucket. The first step to getting into the Power of Zero paradigm is being convinced that tax rates in the future are going to be dramatically higher than they are today. The second step is that given that tax rates are going to be higher in the future than they are today, realize that there is a perfect amount of money to have in your taxable and tax deferred buckets. Given the starting point, these two people have way too much in their taxable bucket, and they should be systematically shifting that money to tax free over the next seven years. They can do that through the Roth IRA, the LIRP, and they can also pay taxes on the shift from tax deferred to tax free out of the taxable bucket. They know they need the balance in the tax deferred bucket to be low enough so that when the IRS forces them to start taking money out, the RMD's are equal to or less than their standard deduction and that avoids their social security to be taxed. Assuming they don't have a pension or any form of additional income, the ideal amount of money in the tax deferred bucket is around $300,000. It's okay to leave some money in your tax deferred bucket. You want your balance to be low enough that your social security doesn't get taxed, but you also want to be able to take advantage of your standard deduction. In order to shrink it down to the optimal number, the example couple would need to shift about $92,000 each year. Remember you want to stay in a tax bracket each year that doesn't give you heartburn. Lucky for these people, they can shift an additional $150,000 each year for only an extra 2% tax, which they can pay out of their taxable bucket. Keeping the taxable bucket around $50,000 will go a long way towards insulating yourself from tax rate risk. The LIRP is meant to mitigate one of the biggest risks for people over the age of 60, namely a long term care event. Without a plan for long term care, they could potentially burn through their entire portfolio. What they should do is get a death benefit that's impactful. That means a fully funded LIRP which looks like around $35,000 each year. With $35,000 going to the LIRP, $55,000 should be going to their Roth Conversions. If they have any money leftover in their taxable bucket, they should probably put that money into their Roth IRA's because they should have as many streams of tax free income as possible by the time they retire. Tax free streams of income include Roth IRA's, LIRP's, and Roth Conversions. With all those combined, they could get to the zero percent tax bracket while also getting their social security tax free.

The five key takeaways of The Power of Zero message have evolved considerably, especially since the recent Trump tax cuts. The first takeaway is that tax rates in the future are likely to be dramatically higher than they are today. Politicians are extremely averse to cutting spending in any way because cutting the programs that are going to consume the most in terms of resources like Medicare and Medicaid is the third rail of politics. We are at $22 trillion in debt and it will continue to grow because we are not able to even broach the subject of cutting spending. This means the only option at this point will be to double taxes, cut spending in half, or some combination of the two. Tom McClintock believes that if the US doesn't change course in a serious way, it will end up like Venezuela in 8 years. The only way to insulate yourself from the effect of higher taxes is to get to the zero percent tax bracket. Worry about the things you can control, not the things you can't. If you have money in an IRA and 401(k), why not shift all that money to tax free at the lowest tax brackets you are likely to experience in your lifetime? It is nearly impossible to get to the zero percent tax bracket by relying on just one stream of tax free income. Putting your eggs all in one basket is terrible advice, you need multiple streams of income to get the zero percent tax bracket. Each stream of income strategy has its own advantages that others don't. Leaving a small amount of money in your IRA in retirement can lead you to the holy grail of financial planning. You get a deduction on the front end and your required minimum distributions on that account get offset by your standard deduction. When it is low enough, it won't cause your social security to be taxed. Social security can be tax free, it functions like an annuity in that the longer you live the greater the investment you get out of it. It also functions as a volatility shield by providing you money to rely on for your lifestyle, instead of drawing from your portfolio in down years. The Life Insurance Retirement Plan gives you safe and productive growth, is tax free, and it can also give you a death benefit that can solve your long term care insurance problem. As of January 1st, 2018, tax rates went on sale. Given the Trump tax cuts and the sunset provisions on those cuts we now know the exact day that tax rates will go up. People are afraid to do things like Roth conversions because of the possibility of tax rates going down in the future, but at this point taxes going up is all but guaranteed by 2026. You want to pay as little tax as possible and stretch out the tax liability over the next seven years, but you also want to do it quickly enough to get all the heavy lifting done before tax rates go up. [ Whether you did your financial planning wrong is up to you. If you treat the next seven years perfectly you have a chance to make it right. You now have the next seven years to move your money from tax deferred to tax free and wring the most out of your retirement dollars.

When you take social security ultimately comes down to how long you are going to live. If you can accurately predict how long you are going to live you can accurately predict at what age you should draw social security. The question becomes "how do you figure out how long you're going to live?" One of the best answers is to simply go through the underwriting process for the Life Insurance Retirement Plan. When you go through the underwriting process you get one of thirty different ratings and you can use that to help determine when the best age to take social security is. If you presuppose that you are going to live a nice long life you should put off social security for as long as you can. For every year after your full retirement age that you put off taking social security your monthly benefit increases by 8% per year. A Roth Conversion counts as provisional income. If you do that in the years that you are taking social security you could cause up to 85% of your social security to become taxable. This is why it's not a great idea to take your social security at a young age. If you take social security at 62, you are also locking yourself in to the lowest amount of social security you could get. If you are doing Roth Conversions while taking social security at the age of 62, not only are you taking the lowest amount, you are also having your social security taxed. Any money taxed could have gone to accrue interest that would have benefitted you for the rest of your life. The longer you live, the better off mathematically you are taking social security as late as possible. It also gives you more time to get your Roth Conversions done. There are a lot of benefits to pushing your social security off, especially if you are going to live a long life and plan on doing Roth Conversions. It comes down to going through the underwriting process and seeing if you can qualify for a Life Insurance Retirement Plan. If you get a good rating, it makes sense to puch social security off as much as possible. If it looks like you're not going to live very long, then take your social security as soon as you can. There is a huge opportunity cost when you pay a tax that you didn't otherwise have to pay. Not only do you lose that tax, you lose what the money could have earned for you by investing it.

You're saying tax rates are going up, so you mean I've done this all wrong? Not necessarily… you want to put money into your tax deferred bucket when the deduction means the most to you, when tax rates are historically high. You want to take money out of your tax deferred bucket when taxes are low. Most people put money into their tax deferred accounts during a time when tax rates were higher than they are today. Starting Jan 1, 2018 and going until Jan 1, 2026, we have currently have as a low a tax rate as we will experience in our lifetime. Whether this becomes a deal of historic proportions for you will depend on what you do over the next 7 years. We now know the year and the day when tax rates will go up so if you play your cards right you can reposition your money from tax deferred to tax free and do all the heavy lifting to protect those assets. It's easy to get discouraged when talking about the fiscal realities facing our country. In 2035, Social Security will go bust, the same will happen for Medicare in 2026. It's important to start repositioning your money to be tax free quickly enough to get it done before 2026 but slowly enough that it doesn't give you tax heartburn. We will look back at 2019 as a time when tax rates were at historically low levels and it was the tax deal of our lifetimes. David has been saying that tax rates are going to go up for a long time now, so some people are beginning to doubt whether or not the message is true. With the 2018 Trump tax cuts, we did the exact opposite of what we were supposed to do. This means that when the tax rates do come due, and they will, they will be all the more draconian and austere. We always kick the can down the road and wait as long as possible simply to avoid making the tough decisions because tough decisions are what get politicians voted out of office. Finland is going through a similar situation as America, they are trying to reform their universal health care because the program is going bankrupt but now they are mired in a major financial crisis because no one would vote for the reform. This is your window of opportunity to take advantage of historically low tax rates. If you have a ton of money in your tax deferred bucket, this may be the perfect time to reposition it into your tax free bucket.

The question often comes up, which is better? A chronic illness rider or a long term care rider? For 50 to 65 years, the primary benefit of the Life Insurance Retirement Plan is the ability to receive your death benefit in advance of your death in order to pay for long term care. The long term care rider basically says that for an extra charge you can receive your death benefit in advance of your death at a certain rate per month. Requiring assisted living in two out of six activities of daily living triggers eligibility for this benefit. One critical thing to note is that since it's a long term care rider, the insurance company is going to underwrite you for long term care. This means that if you have an existing health problem it can be cause for rejection of your application. It also comes with an additional cost where you are paying for the option to take your death benefit early on the front end. If you die peacefully in your sleep without ever needing long term care you don't recoup that money. The chronic illness rider is essentially the same as the long term care rider with the same trigger conditions and a similar pay out. The main difference is that the insurance company doesn't charge you on the front end, they charge you on the back end. The insurance company will discount the payout based on a function of your age as a way of compensating themselves for giving you the money prior to when they expected they would. Another difference between the two is that the insurance company will not underwrite you for long term care with the chronic illness rider. Even if you have an existing health problem they will accept you which makes it a great option for people that would otherwise not qualify. One of the biggest problems with the traditional long term care approach is that you are paying for something you hope you never have to use and if you don't use it you don't get the money at the end. It's not that different from the long term care rider. You're paying extra up front and that is money that could have been invested in your growth account. David prefers the chronic illness rider over the long term care rider mainly because if you do die peacefully in your sleep without having used the money you don't lose any money along the way. There is no drag on your cash value or opportunity cost of paying for something you never wanted to use. Being able to qualify for a chronic illness rider if you have an existing health condition is also a big advantage, and it neutralizes the single biggest source of heartburn that comes with traditional long term care approaches. The primary motivation for many of David's clients that use the LIRP is the long term care aspect and David typically recommends a chronic illness rider. It comes with many of the benefits and nearly none of the downsides. [ Between the two options for your traditional life insurance approach to long term care, the chronic illness rider is probably your best option.

After seeing what happened in 2008, Doug has been interested in creating films that can move the needle for society, specifically topics like the national debt, exercise, education, healthcare, and finances. In 2009, David Walker produced the landmark movie "IOUSA" that exposed the fiscal challenges facing the United States, and in many ways, he was the person that got Doug interested in the topic of national debts. Films have a finite lifespan, so creating another film on the topic is another chance to reach new audiences that haven't heard the message yet. The audience for the Power of Zero film is geared more towards financial advisors. It is more focused on how to protect yourself and is less about a call to action to prevent anything. That time has passed already. 8 million Baby Boomers are marching into a future where tax rates are likely to be much higher than they are today given our fiscal reality. The movie not only raises your awareness of what's happening, it also tells you what you can do about it. There are a number of prominent guests interviewed in the movie and in many ways, it was a major challenge getting them on board. There are almost no documentaries being made on the topic and it's a major hurdle to get people to talk about it. Many economists were reluctant to speak on the topic after "An Inside Job" came out and people saw the way the featured economist was treated. Doug had to get a few prominent economists on board before anyone else would entertain the idea. There were two people that really stood out to Doug who were in the film, Martin Eichenbaum and Tom McClintock. Everything Dr. Eichenbaum said would happen has come true. His message was basically "It doesn't matter how we look at the problem, taxes are going up." Tom McClintock was interesting for different reasons, mainly because of his ability to pull back the curtain of what really goes on in American politics. One of the things Tom McClintock talked about was a sovereign debt crisis which happens when countries stop loaning us money because they believe we won't be able to pay it back. When that happens, that's when we really run into trouble. It's not possible to print our way out of the problem. Many of the social programs are tied to inflation so if we print money, the cost of those programs go up commensurately. If we can't print money or borrow money, the only remaining options are raising taxes or cutting spending. Seeing what the real numbers are, and understanding the fact that even if taxes were raised it wouldn't do too much to fix the problem, has Doug deeply concerned about the issue. There is no scenario that Doug sees where taxes do not get much higher than they are now and he's expecting some tough times ahead for the United States. Doug didn't want the film to be too focused on the doom and gloom aspects of the problem. It will get ugly, but it's not the end of the world. When you get down to it, the country is either going to have to double taxes, cut spending in half, or some combination of the two. Many of the film's guests believe that we can still avoid a catastrophe if we change things soon enough. The biggest difference between the Power of Zero and when IOUSA was released is the latter came out right at the beginning of the Great Recession. We have been enjoying an economic boom since then and that would have been the perfect opportunity to be fiscally responsible. We have never had this kind of deficit spending during peacetime in the history of our country. There seems to be no concern about the national debt right now which is why it's so important to get the film's message out there into the public discourse. The fiscal gap should go on the balance sheet of every country in the world. Nearly every country has adopted that way of accounting except for the United States. If we were to measure our debt the way that Japan measures theirs, it would be over 1000% of GDP. No matter what the numbers turn out to be, we are facing a huge problem. The canary in the coal mine will be when we start having trillion dollar deficits, which has since happened after the launch of the movie. The film has been theatrically released and now it's also available for private or commercial screenings as well. You can obtain the license from tugg.com and can show the film in whatever venue you want. At thetaxtrain.com, you can select the quantity of codes you want which you can then send to your clients so they can get free access to the Power of Zero film. You can also go to realhouse.com and purchase a copy of the film as a gift for someone and send it to them directly.

The best way to pay for long term care protection is by way of a permanent life insurance policy. If you die peacefully in your sleep 30 years from now someone is still getting a death benefit. You are better off dying than requiring long term care, at least if you die your spouse becomes the beneficiary on all of your retirement accounts. Long term care insurance can prevent your spouse from enduring a bare-bones subsistence living in retirement if you end up needing to pay for long term care. 70% of people will need long term care insurance in retirement. There are four ways to insure the need for long term care. The first is a Traditional Long Term Care policy but they are falling out favor because the prices are not guaranteed on these programs. Actuaries have been mostly unable to predict how much money to set aside. They are one of the least expensive options overall but the insurance company can increase the price at their leisure. The big number on Traditional Long Term Care is 0. If you pay into the policy and die without ever having used it, your spouse gets nothing back at the end. There is no death benefit. The second option is known as Hybrid Life Insurance or Asset Based Insurance. It's more expensive than the Traditional LTC option but it comes with a slightly superior payout for long term care and the death benefit at the end is little more than a refund of the money paid into the policy. The third option is Permanent Life Insurance. The biggest benefit of this option is that the death benefit is passed on to your heirs tax-free. David relates the story of a life insurance agent that was working with a farmer client who wasn't sure what approach to take. He gave the client a copy of the Volatility Shield and that convinced the client to opt for the Permanent Life Insurance policy. The fourth option is a Deferred Income Annuity, many of which come with long term care options. It requires a lot more money up front but it accomplishes both long term care coverage and a decent death benefit for your beneficiaries. When you compare all the options, Permanent Life Insurance really stands out due to the considerably larger payout upon death. You also don't have to liquidate your assets right away in the year that you die to pay for expenses if the market is down. The Permanent Life Insurance can be used to pay for expenses because it isn't affected by the decline in the market and it can serve as a Volatility Shield of sorts. This is why the LIRP can be a great strategy. You get the long term care coverage as well as the death benefit to pass on to the next generation if it turns out you don't need it.

The audio version of the Volatility Shield won't be released for another three weeks, so David gives you a sneak peek at the opening chapter of the book. The story opens with Jack driving down the highway preparing to leave his life behind and start something new. His plans change when he receives a call from his stepfather Ted. Jack visits Ted at his sports store and gets some surprising news. Ted has sold his business and needs a little help from Jack. Ted always seems to have some sort of ulterior motive; in this case he's hoping Jack can take a look at his finances to make sure that his retirement portfolio will last the rest of Ted and his mother's life. Jack takes a look and notices that the financial plan in front of him may have some problems with it. It may be less a 'set it and forget it' than Ted's financial advisor first told him. If Ted's portfolio can average a 9% return each year, theoretically they will never run out of money. Jack asks for a favor that Ted is reluctant to give. The Volatility Shield has a great plot, a nice twist ending, and a $5 million dollar crime that needs to be solved and Jack Wheeler is on the trail. Get your copy of the book on Amazon or pick up the Audible copy when it's released in a few weeks.