The Power Of Zero Show

If you've built up $1M in your IRA and $1M in taxable investments, David McKnight has a warning: every year that money stays put, the IRS gets to vote on your tax rate. He breaks down a retirement planning strategy for gradually converting your IRA to Roth – fast enough to beat rising rates, slow enough to avoid painful brackets. In this episode, David McKnight looks at what you should do if you have accumulated $1M in taxable investments, and $1M in traditional IRAs and are concerned about the possibility of higher taxes in retirement. He stresses that having money in IRAs is like going into a business partnership with the IRS – every year they get to vote on what percentage of your profits they get to keep… The solution to the IRA problem is relatively straightforward: start doing Roth conversions. True, by doing so, you'll pay taxes on the conversion today, but you'll be doing so at near historically low tax rates. Remember: the key is to convert money slowly enough that you don't rise into a tax bracket that gives you heartburn, but quickly enough that you get all the heavy lifting done before tax rates go up for good. David predicts that, given the trajectory of the American national debt, the window of time to execute that strategy is about ten years. Beware: just because you believe taxes are going to increase, it doesn't mean that you should reflexively convert all your money to tax-free. You want to leave enough money in your traditional IRA to take advantage of your standard deduction in retirement. If you're married and retiring today, your standard deduction is $32,000. Single? Then, it's half that amount. David shares a couple of strategies that can help you skinny down the $1M in your taxable bucket. The first and most efficient way to shrink this bucket is to use it to pay the taxes on your Roth conversions. The second strategy, which applies if you're still working, is to fully fund your Roth 401(k) or Roth 403(b). One challenge with this approach is that those contributions must come out of your paychecks, which may lead you to have less money available to cover your monthly lifestyle. The next strategy comes into play once you retire and it's about living out of your taxable account during the first few years of retirement (which may be the lowest income years of your adult life). Furthermore, you may want to consider repositioning a portion of your taxable account into a properly structured cash value life insurance policy – such as an indexed universal life policy or IUL. David warns that IULs are not for everyone, as they require a sufficient funding period, careful design, and ongoing policy management. However, when structured correctly, IULs can serve as a volatility shield in retirement. The idea is, in the year following a down year in your stock market portfolio, to pay for your living expenses out of your IUL. Doing so gives your portfolio a chance to recover before you take further distributions. That act alone can increase the sustainable withdrawal rate of your stock portfolio from 4% to as high as 8% with a 95% confidence rate. 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

When is a good time to start your Social Security? David McKnight reveals why smart retirement planning means waiting until age 70 for reasons that have nothing to do with a bigger check… and everything to do with the years in between being your best window for Roth conversions. In this episode, David McKnight addresses one of the most common questions he gets from people approaching retirement: "When should I start taking Social Security?" David believes that there's a compelling reason for having 70 as your default Social Security claiming age – and that isn't so that you get a bigger Social Security check… One of the key reasons to wait until 70 is something that rarely comes up in the traditional Social Security discussion: it has to do with taxes. David stresses that the years between retirement and age 70 can be some of the most valuable years of your entire financial life. Why? Because they may represent your best opportunity to execute Roth conversions. David touches upon the so-called Retirement Income Valley and the benefits it brings about. With a wrong approach, you may lock yourself into a permanently smaller Social Security check, and may have caused much of that check to become taxable because you simultaneously do Roth conversions. David suggests a different approach: retiring, delaying Social Security, and spending the next several years aggressively repositioning your tax-deductible dollars to tax-free. Once all that heavy lifting is done, you can then turn on Social Security. By following that strategy you accomplish two things: you lock in a substantially larger Social Security benefit and potentially reduce the other income that could cause that larger benefit to become taxable. Remember: delaying Social Security doesn't automatically make your Social Security tax-free. David talks about the IRMAA objection some may make as they hear his recommended strategy, and also touches upon his so-called "rip the band-aid off" approach to Roth conversions. David stresses that his interest isn't in whether a Roth conversion causes you to pay an extra few thousand dollars in Medicare premiums in one particular year. What he's interested in is whether the strategy reduces the total amount you pay in taxes and Medicare premiums over the balance of your retirement. "Social Security shouldn't be thought of as an investment, it's more like longevity insurance", says David. According to the 2026 Social Security Trustees Report, the Retirement Survivors Trust Fund is projected to exhaust its reserves in 2032 if Congress does nothing. However, that doesn't mean it's going to disappear, ongoing payroll tax revenue would still be sufficient. If higher taxes ultimately become part of the solution, then that only reinforces the importance of getting to tax-free before that happens. Your goal shouldn't simply be to maximize Social Security, it should be to maximize all of your after-tax streams of income. 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 2026 Social Security Trustees Report

Should you stop your Roth conversions at the 22% tax rate, or push into the 24% bracket? David McKnight responds to a viewer's detailed case for stopping early, revealing why optimizing this year's tax bill can be the wrong retirement planning move over a 30-year horizon. You'll discover his "rip the band-aid off" approach and why saving money on taxes today isn't a victory if it costs you more tomorrow. In a recent video, David McKnight explained why he believes the 24% tax bracket is the sweet spot in the current tax code for Roth conversions. In this episode, he addresses a viewer's comment that laid out a pretty detailed case for why he believes it makes sense to stop at the 22% bracket. The main difference between these approaches, David stresses, is that his viewer is optimizing the tax bill in the year of conversion – while David tries to optimize your tax bill over the balance of your lifetime. David illustrates why those two approaches can lead you in two entire different directions. Depending on the size of your IRA, the amount you're spending every year, your expected rate of return, and how many years you have before RMDs begin, you may simply not have enough space in the 22% bracket to get any meaningful amount of conversion done. Most of David's clients don't have $100,000 per year of taxable investment income coming out of a brokerage account. The lion's share of their retirement savings tends to be sitting in IRAs and 401(k)s, and they're generally taking distributions from those accounts to support their lifestyle. David discusses his so-called "rip the band-aid off" approach to Roth conversions. The biggest problem with his viewer's argument is the focus on calculating what it costs to convert the money today, without asking what it's going to cost if we don't convert it. The choice may be between paying a somewhat painful tax rate today or allowing that money to compound inside the IRA for another 10-15 years. That may lead you to deal with larger RMDs, potentially higher tax rates, more taxation of social security, potentially more IRMAA, and the eventual death of one of the spouses. David wonders whether, with the approach suggested by his viewer, you're actually solving the problem or just postponing it. "Because saving money on taxes today isn't much of a victory if doing so ultimately causes you to pay even more over a 30-year retirement", he concludes. 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

Is putting your entire retirement planning strategy into 30-year treasuries really the safe bet it seems? David McKnight reveals why this approach could expose you to two hidden risks, and explains how the stock market and annuities might hold the real key to protecting your income. In this episode, David McKnight looks at whether putting your entire retirement portfolio into 30-year treasuries is the way to go. While it may seem like a pretty compelling argument, there's a major problem with this strategy – and it comes down to two things: taxes and inflation. The U.S. just crossed $40 trillion in national debt. It will continue to grow $2 trillion per year over the next 10 years, and $3 trillion per year after that… with no end in sight. David points out that buying a 30-year bond with this status quo isn't just making an interest rate decision, it's making a 30-year tax bet. The problem with inflation is that, with a conventional Treasury bond, your retirement income doesn't get automatically indexed to keep up with inflation. Try to think of the impact of a 3% inflation on your income over the next 30 years. "The issue with declaring victory at retirement and putting everything into a 5.25% 30-year treasury is that you exchange one type of risk, market volatility, for two other catastrophic risks: rising taxes and inflation", says David. The solution to this problem is to give different portions of your retirement assets different jobs. The strategy starts with inflation-adjusted, tax-free, guaranteed lifetime income and continues with the so-called Volatility Shield. David recommends paying for discretionary expenses out of your Indexed Universal Life Policy (IUL) during a flat or down market. That will give your stock portfolio a chance to recover before you start taking more withdrawals. That act alone can nearly double the sustainable withdrawal rate on your stock portfolio over a 30-year retirement. When it comes to investing, David prefers allocating about 70% in a total U.S. stock market index and 30% in a total international stock market. Remember: over a 30-year retirement, it isn't much about how much interest you earn, it's how much you can spend after taxes and inflation are figured into the equation. 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 John Bogle

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