loader from loading.io

Suze Orman: Here’s Why Annuities Are So Bad! (Avoid Them at All Costs!)

The Power Of Zero Show

Release Date: 01/22/2025

The Problem with Target Date Funds show art The Problem with Target Date Funds

The Power Of Zero Show

David McKnight looks at Target Date Funds (TDFs) and why their set-it-and-forget-it approach to investing is NOT something you should rely on. David kicks things off by explaining how TDFs work, including why they tend to be a popular option for novice investors. While it sounds like an excellent approach, David points out two major flaws. “A lot of the problems with TDFs come down to sustainable withdrawal rates in retirement,” says David. The 4% Rule consists of you being able to withdraw 4% of your day one balance in retirement, adjusted every year thereafter for inflation....

info_outline
I've Maxed Out My 401(k), Now What? show art I've Maxed Out My 401(k), Now What?

The Power Of Zero Show

In this episode of the Power of Zero Show, host David McKnight discusses the scenario in which you have maxed out your 401(k) and are wondering where you should invest the rest of your money. The episode kicks off with David addressing the type of 401(k)s you should be investing in first. There are two types of 401(k)s: the traditional pre-tax 401(k) and the Roth 401(k). Should you go for a traditional 401(k) or a Roth 401(k)? It all depends on whether you think your tax bracket is likely to be lower or higher in retirement… With the national debt set to hit $62 trillion by the year 2035,...

info_outline
Why Does the Incoming SEC Chair Paul Atkins Have 54 Life Insurance Policies? show art Why Does the Incoming SEC Chair Paul Atkins Have 54 Life Insurance Policies?

The Power Of Zero Show

In this episode of the Power of Zero Show, host David McKnight addresses the claim that sees Paul Atkins owning 54 life insurance policies for an astounding 10% of his $327 million net worth. Someone may ask themselves why someone with such a massive net worth would own so many life insurance policies…and even why someone who has equity in Chinese tech giant Alibaba, holdings in cryptocurrency, and stakes in venture capital firms would also want their wealth growing in cash value life insurance policies. Looking at Atkins, who’s President Trump’s nominee to chair the Securities and...

info_outline
The 8 Taxes You Could Pay When Doing a Roth Conversion (Is it worth it?) show art The 8 Taxes You Could Pay When Doing a Roth Conversion (Is it worth it?)

The Power Of Zero Show

In this episode of the Power of Zero Show, host David McKnight looks at every possible tax or cost that may result from a Roth conversion. The first tax you’ll have to pay when executing a Roth conversion is federal income tax.  Whatever portion of your IRA you convert to Roth is realized as ordinary income and piled right on top of all your other income. David is an advocate for not converting to Roth unless you think your federal tax rate in retirement is likely to be higher than it is today. The second tax you could end up paying when doing a Roth conversion is state tax. The...

info_outline
Should You Take More Risk in Your Roth Accounts Than Your Other Investments? show art Should You Take More Risk in Your Roth Accounts Than Your Other Investments?

The Power Of Zero Show

This episode of the Power of Zero show explores whether you should be taking more risks in your Roth accounts than in your other investments. Host David McKnight kicks things off by stating that if you have Roth IRAs or Roth 401(k)s in your portfolio, you should be allocating 100% of these dollars to a stock allocation. That’s because these are your most tax-efficient investments and they’ll remain tax-free right up until your death – and even 10 years beyond. Remember: you want the biggest returns in your portfolio to take place in a tax-free environment. David explains which of your...

info_outline
Debunking Doug Andrew’s Roth IRA Hit Job Video show art Debunking Doug Andrew’s Roth IRA Hit Job Video

The Power Of Zero Show

In this episode of The Power of Zero Show, host David McKnight looks at Doug Andrew’s recent video in which he implored his audience to never use a Roth IRA or a Roth 401(k) again. Andrew sees Indexed Universal Life insurance (IUL) as far superior and believes it should be the source of the vast majority of your distributions in retirement. While David likes IUL in certain circumstances, he isn’t a fan of sales strategies that debase every other viable tax-free alternative in an effort to exalt IULs. For David, the video is riffed with errors, exaggerations and omissions. Moreover,...

info_outline
What Percentage of Your Retirement Savings Should You Have in Traditional IRA vs. Roth? show art What Percentage of Your Retirement Savings Should You Have in Traditional IRA vs. Roth?

The Power Of Zero Show

What percentage of your retirement savings should you allocate toward traditional IRAs and 401(k)s vs. Roth IRAs and Roth 401(k)s? That’s what this episode explores. Traditional financial guru advice says that it’s impossible to predict where tax rates are going down the road. Therefore, you may hear that your best bet is to simply have 50% of your money in tax-deferred and 50% of your money tax-free. David is somehow perplexed by the guru’s point of view about the future of tax rates being an unknown. However, signs that things won’t be the same appear to be evident. The current...

info_outline
The Five Cardinal Rules of Roth Conversions show art The Five Cardinal Rules of Roth Conversions

The Power Of Zero Show

David McKnight goes through his five cardinal rules for doing a Roth conversion. The first principle is simple: don’t do a Roth conversion that bumps you into a tax bracket that gives you heartburn. Not sure about what a heartburn-inducing tax bracket looks like? David shares a simple “rule of thumb” you can follow. In your zeal to get your Roth conversion done before tax rates go up for good, don’t bump into the 32% tax bracket along the way. The second cardinal rule ties into the almost certainty that Congress will extend the Trump tax cuts through 2033 – make sure to stretch your...

info_outline
How to Take Advantage of the Retirement Income Valley for Roth Conversions show art How to Take Advantage of the Retirement Income Valley for Roth Conversions

The Power Of Zero Show

Wondering when you should start thinking about a Roth conversion? That’s exactly what David McKnight dives into in this episode of The Power of Zero Show. The retirement valley is that dip in taxable income that happens after you retire but before RMDs kick in – at age 73 or 75, depending on your birth year. David walks through an example: you’ve got $2 million in your IRA and want to convert all of it to Roth. If you take action during that valley, you can convert more while staying in the 24% tax bracket the whole time. Not taking action now? Think of 2035 as the year tax rates are set...

info_outline
In What Order Should I Spend Down My Assets in Retirement? show art In What Order Should I Spend Down My Assets in Retirement?

The Power Of Zero Show

David McKnight addresses the most efficient order in which to spend your assets in retirement. Online programs and algorithms that forecast and run calculations related to your retirement assets suggest starting with your tax-deferred assets like 401(k)s or IRAs. Such tools recommend spending down your tax-deferred assets now, when tax rates are low, and your tax-free assets later – when tax rates are likely to be higher than they are today. Reminder: regardless of the distribution strategy you choose, it should aim to maximize the likelihood that your money lasts as long as you do....

info_outline
 
More Episodes

David McKnight takes a closer look at Suze Orman’s take on annuities – and at why she recommends her audience avoid them at all costs.

Suze Orman labels the 5.4% compounded annual rate of growth one of her audience members (Janet) has had over the last six years as “horrific in today’s market.”

David believes that the main issue with Suze Orman’s approach is that it engages in a classic case of apples to oranges comparison.

According to David, index annuities are a bond alternative and were never meant to be a stock market replacement.

David makes the case for index annuities performing far better than bonds – with a lot less risk.

The average return on corporate bonds is between 4% and 5%, the one for treasury return is 3-4%, while the average return on municipal bonds is 2.12%.

In David’s opinion, Janet should only feel bad about her 5.4% return over the 6 year time frame if the advisor who sold it to her sold it as a stock market alternative.

Suze Orman’s audience member Janet purchased a so-called non-qualified indexed annuity, which tends to get a “last in, first out” treatment for tax purposes.

David isn’t big on non-qualified annuities for the fact that a person purchasing them will have to pay tax on the growth before they’re able to access the principal tax-free.

Another flaw in Orman’s assessment: she doesn’t tell you that you can hold an annuity in an IRA and pay ordinary income, or you can hold an annuity in your Roth IRA and pay no taxes at all…

Something financial gurus like Suze Orman have in common: they DON’T have the luxury of nuance.

Dollars earmarked to retirement accounts generally have a 10% penalty when you access them pre-59 and a half.

David points out how Suze has wittingly demonized all forms of annuities – even the IRA and the Roth variety.

While Suze is right saying that most annuities have surrender charges, she misses the entire point of why people usually get annuities: to get a guaranteed stream of income they can never outlive.

401(k) has a surrender charge that’s far more punitive than any annuity David has ever seen.

 

 

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

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Suze Orman

Standard & Poor’s 500 Index

USA Today