Today’s episode covers the last secret to mitigating the two most concerning risks of people planning to retire. People are afraid of running out of money before they run out of life. Traditionally the way you can mitigate that risk is by accumulating a lot of money and restricting your distributions to 3% which gives you a statistical likelihood of not running out of money. The alternative is by guaranteeing your income by way of an annuity. Economists say that the ideal way to guarantee an inc...
Nov 17, 2020•15 min•Season 1Ep. 107
In the previous episode, David explained the surprising benefits of having a guaranteed income stream in retirement via an annuity, including living longer. If there are so many benefits of owning a guaranteed lifetime income annuity, why aren’t more Americans taking advantage of these programs? There are three major barriers that are preventing people from ever entering into the transaction. The first issue that Americans have has to do with liquidity. In order to pull off the annuity deal, you...
Nov 11, 2020•20 min•Season 1Ep. 106
This is the first of three podcasts leading up to the release of David’s latest book, Tax-Free Income For Life. According to a number of surveys, the number one risk that retirees are most concerned about is outliving their money. One of the ways to mitigate longevity risk is by having an annuity. There are a number of benefits that come with guaranteed lifetime income annuities, the first of which is retirement predictability. The first benefit of a guaranteed lifetime income annuity is closing...
Nov 04, 2020•16 min•Season 1Ep. 105
Joe Biden is coming for your 401(k) and it’s actually worse than David portrayed it in previous episodes of the podcast. Under Joe Biden’s tax proposal he is going to equalize the tax benefits of retirement plans. David breaks down exactly what this means for people in different tax brackets and what the implications of this plan are. In order for Joe Biden’s plan to be tax neutral the rate at which you receive a tax credit is 26%. This essentially means that anyone in a tax bracket under 26% is...
Oct 28, 2020•14 min•Season 1Ep. 104
Today’s podcast is based on a recent article penned by Maya MacGuineas titled The Debt is Huge Because Trump Kept His Promises. Maya also appeared in David’s documentary The Tax Train is Coming. Much of what Maya says is that we shouldn’t be surprised by what happened during Trump’s first term since it has been exactly what he campaigned on. The debt that has accumulated has been a result of President Trump’s campaign promises of steep tax cuts and increased spending on both defense and veterans...
Oct 21, 2020•19 min•Season 1Ep. 103
In every single book David has written he talks about why it’s so important to have a trusted and trained advisor in the Power of Zero paradigm. There are dozens of pitfalls standing between you and the zero percent tax bracket which is why it’s crucial you have a qualified guide to show you the way. You should work with an advisor that has internalized the Power of Zero principles to help you mitigate both tax-rate risk and longevity risk at the same time. The Elite POZ Advisor Group is a colle...
Oct 14, 2020•12 min•Season 1Ep. 102
Should Donald Trump win a second term in the Presidency there could be significant changes to the tax code. Donald Trump hasn’t laid out a fully realized tax proposal in the same way that Joe Biden has but he has outlined some of the things he would do. One of the things that Donald Trump has already done is unilaterally implemented a payroll tax deferral as an answer to the financial repercussions of Covid-19. It’s currently deferred, which means that the money would have to be paid back in 202...
Oct 07, 2020•14 min•Season 1Ep. 101
There is a benefit in the tax code that goes largely ignored. The holy grail of financial planning is an investment that gives you a tax deduction on the front end, lets your money grow tax-deferred and allows you to take that money out tax-free. In the Power of Zero paradigm that usually means a combination of Roth conversions and LIRP conversions. For most married couples, the ideal balance of the tax-deferred bucket is between $300,000 and $350,000. In that situation it qualifies as the holy ...
Sep 30, 2020•14 min•Season 1Ep. 100
A quick recap of the first principles covered in the previous episode. #1 Mitigate longevity risk with an income annuity. #2 Your income annuity only needs to cover your basic lifestyle expenses. #3 Your income annuity needs to have a guaranteed lifetime income feature, inflation protection, liquidity, and a death benefit feature. #4 Cover discretionary expenses with your stock market assets in your LIRP. #5 Always draw your guaranteed lifetime income from your tax-free bucket. #6 Your LIRP must...
Sep 23, 2020•16 min•Season 1Ep. 99
There are 12 basic principles that make up the Grand Unified Theory when it comes to retirement planning. The first section tackles mitigating longevity risk. We know there are two basic ways to mitigate longevity risk, the first simply being to save up enough money. If you save enough money you can weather all the ups and downs of the stock market. Historically, there has been a 4% Rule that makes the calculation simple. More recently the rule has been revised. The new 3% Rule is more common. I...
Sep 16, 2020•20 min•Season 1Ep. 98
Joe Biden has historically said that taxes won’t go up for anyone that makes less than $400,000 annually , but that may not be the case. Some people may lose some deductibility in their 401(k) contributions which would result in an effective increase in the tax they are paying. If you are in the highest marginal tax bracket of 37%, when you contribute $1 to your 401(k) you essentially save $0.37 in tax. Joe Biden’s perspective is that for people in higher income tax brackets, the tax savings is ...
Sep 09, 2020•12 min•Season 1Ep. 97
There are five important elements your LIRP must have if you are going to have it for the rest of your life. Similar to getting married, these are things you need to look for before committing to the plan. You don’t want to get 10 or 20 years in before you realize there is a ticking time bomb in your LIRP. The first thing your LIRP must have is the ability to get a guaranteed zero percent loan. The best strategy for your LIRP is to work with a company that allows you to take a loan against your ...
Sep 02, 2020•21 min•Season 1Ep. 96
It is possible to convert too much money to your Roth IRA and not leave enough money in your IRA to use when you’re ready to retire. The first principle you have to realize is that in a rising tax rate environment, it’s okay to have some money in your tax-deferred bucket. You have to be very strategic about how you shift your money to tax-free and shouldn’t be too reckless when it comes to converting. You can have too much money in your tax-deferred bucket, you can have too little, what we are l...
Aug 26, 2020•16 min•Season 1Ep. 95
A government can’t simply print however much money they want to be able to buy whatever it is that they want. The Deficit Myth was recently released and in the book the author argues that because the government issues its own currency, it doesn’t have to operate like a traditional household. According to the author, all we need to do is print $239 trillion and the US will be funded for the next 75 years. Stephanie Kelton is a proponent of what’s known as modern monetary theory, which is essentia...
Aug 19, 2020•17 min•Season 1Ep. 94
There is a well-known economist named William Bernstein who originally asked the question “When you’ve won the game, why keep playing?” But should people who are retired avoid the stock market completely? An article on the Motley Fool follows the same line of thought. You do need a plan for withdrawing your money in retirement that is different from your plan for building your nest egg and it needs to be in place before you need to withdraw from your assets. A good rule of thumb is to not have m...
Aug 12, 2020•20 min•Season 1Ep. 93
The Piecemeal Internal Roth Conversion (PIRC) may be indispensable to your retirement plan. There are two massive risks that could waylay your retirement journey and prevent you from living a happy and stress free retirement. The first is tax rate risk, the risk that tax rates in the future will be dramatically higher, and the second is longevity risk, where you run out of money before you die. Historically, financial planners have been decent at mitigating either one or the other of those risks...
Aug 05, 2020•22 min•Season 1Ep. 92
David often gets the question of whether a person can be too old to implement an LIRP and like most questions the answer is “it depends”. There are a number of great reasons to implement an LIRP, but you have to keep in mind that it’s not a silver bullet for your retirement and should be paired with other streams of tax-free income. The first benefit of the LIRP is that the money in your account grows safely and productively, but that also means that you’re not going to hit any homeruns inside t...
Jul 29, 2020•15 min•Season 1Ep. 91
In past episodes of the podcast David described the impact of a blue wave in the upcoming November election and what may happen to your finances if Joe Biden becomes the next president. The first major change would likely be the loss of the stepped up basis which could result in a large increase in the taxes on money you inherit in the future. No matter who gets elected in November tax rates will have to go up. There is a rumour that a fifth part of the Covid-19 relief bill will be coming in the...
Jul 22, 2020•20 min•Season 1Ep. 90
Time-segmented investing is a critical concept in the Power of Zero paradigm. The traditional approach says that you can have an investment portfolio balanced in such a way as to protect against systemic risk, but this approach has a serious risk associated with it. A couple of down years in the stock market during a time when you are withdrawing funds from your portfolio can lead to you running out of money up to 15 years faster than you expected. The 4% rule is how people typically protected t...
Jul 15, 2020•19 min•Season 1Ep. 89
David Walker has been saying that tax rates are going to have to double since 2008. We didn’t do that. So that means the national debt will continue to accumulate until we reach $53 trillion, at which all the money flowing into the Treasury will only be enough to pay the interest on the debt. Many people other than David Walker are starting to speak about the future of tax rates as the national debt continues to skyrocket. Ray Dalio has said that the US will have little choice but to raise taxes...
Jul 08, 2020•16 min•Season 1Ep. 88
The Before and After Comparison is an indispensable part of the financial planning process and you can get help with yours over at davidmcknight.com . The comparison is made up of three different projections within some sophisticated financial planning software of side-by-side-by-side life scenarios. The comparison reveals the impact of using the Power of Zero paradigm on your retirement funds. The first projection shows what happens if you continue doing what you are doing right now under the u...
Jul 01, 2020•15 min•Season 1Ep. 87
Every once in a while the idea of fixing all our fiscal problems by taxing the top 1% of the population is proposed, but it’s time to do the math and see if it’s true. The Committee for a Responsible Federal Budget put out a report a few years ago, prior to the latest spending due to Covid-19, where they analyzed what it would take to actually balance the budget. The first scenario looks at balancing the budget by not adding any more to the existing debt. The challenge with this scenario is that...
Jun 24, 2020•18 min•Season 1Ep. 86
David moved his family to Puerto Rico about three years ago and within six weeks of arriving they experienced something that completely changed their lives. It’s been three years since Hurricane Maria hit Puerto Rico, but there are still residents with significant damage to their house. When deciding to move his family to Puerto Rico, the idea of a hurricane wasn’t even a concern since the last major hurricane to hit the island had happened in 1928. Unfortunately for David and his family, Hurric...
Jun 17, 2020•15 min•Season 1Ep. 85
Not everybody is going to get an inheritance but there are some very important strategies you can implement to minimize your taxes if you are going to receive one. The ultimate goal of the IRS, no matter how you inherit money, is to get all of the inheritance money into your taxable bucket within the next 10 years, preferably immediately, because that is how they make the most money. We know that if you inherit money from a taxable bucket you get a stepped-up basis for those investments. Since t...
Jun 10, 2020•17 min•Season 1Ep. 84
A Coronavirus-Related Distribution (CRD) is any distribution by a person diagnosed with Covid-19, this can also include a spouse or dependent. Alternatively, if you’ve been adversely affected by the Coronavirus in some way, for example being furloughed, you may qualify as well. The CRD allows you to withdraw up to $100,000 from your qualified plan and if you’re younger than 59½, the 10% penalty is waived. Another benefit is you are allowed to pay the money back over the course of the next three ...
Jun 03, 2020•14 min•Season 1Ep. 83
The US is very likely to default on its debt at some in the future, but we’re just not sure exactly when. What we do know is that the sooner it happens to smaller the impact will be, but that doesn’t seem like it’s going to be the case. The reality of our financial situation as of May of 2020 is the US is on course for a $3.7 trillion deficit this year. According to Jerome Powell, we are going to need another stimulus package and could be looking at a deficit of over $5 trillion, a number which ...
May 27, 2020•17 min•Season 1Ep. 82
The federal government has waived the Required Minimum Distributions for 2020. There are 20% of Americans who don’t spend their RMD’s which means that 80% of the population relies on those RMD’s to pay for daily expenses. This change affects anyone who had an RMD due in 2020 from their 401(k), IRA, and other retirement accounts. The IRS takes the value of your account in December of the year prior. In this case the stock market of December 2019 was considerably higher than it is now. Over the pa...
May 20, 2020•13 min•Season 1Ep. 81
Can you be in the 0% tax bracket and still be a good citizen?’ is a common question that David gets fairly frequently. David relates an exchange he had with a listener on Facebook where they stated that paying less taxes is inherently selfish and paying taxes is how we take care of people as a society. Most people have the thought of “what happens to society if everyone is in the 0% tax bracket?” The trouble is they are coming at the question from the wrong angle. Everyone who earns an income wi...
May 13, 2020•14 min•Season 1Ep. 80
Families that aren’t quite rich enough to be affected by the Estate Tax, but have built wealth over time, have another benefit available to them called the step-up-basis loophole. Essentially, what happens with the step-up-basis loophole is when you pass on an investment to your beneficiaries, the present value at the time of your death becomes the new basis for that investment. This will wipe out the capital gains on that investment and can be a great deal which compares favourably to inheritin...
May 06, 2020•16 min•Season 1Ep. 79
Should you be contributing to your Roth 401(k)? The short answer is yes because anything with the word Roth in front of it is truly tax-free. What does it mean to be truly tax-free? Roth 401(k)’s pass both litmus tests for what makes something tax-free. If you’re younger than 50, you can put in $19,500 each year, and if you’re over the age of 50, you can catch up a bit with an additional $6,500. You can also still get the match when contributing to your Roth 401(k). Your company will put those d...
Apr 29, 2020•15 min•Season 1Ep. 78
