Suze Orman: Here’s Why Annuities Are So Bad! (Avoid Them at All Costs!)
Release Date: 01/22/2025
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
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?
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
Suze Orman Says Have 3 to 5 Years of Living Expenses in CASH During Retirement (Good Idea?)
The Power Of Zero Show
Today’s episode of The Power of Zero Show looks at a recent podcast episode in which Suze Orman recommended having three to five years of living expenses in cash during retirement. Experts have long debated the rate at which retirees can draw down their assets while maintaining a high likelihood of not running out of money before they die. Since the early ‘90s, the gold standard for sustainable distributions has been the 4% Rule. According to the 4% Rule, whether the market goes up or down, you can reliably withdraw 4% each year with high confidence that you won’t outlive your money....
info_outline
5 Huge Benefits of the Roth IRA!
The Power Of Zero Show
Today’s episode addresses five reasons why a Roth IRA is one of David KcKnight’s favorite tax-free investments. Unlike other retirement accounts, Roth IRAs give you 100% liquidity on all contributions. While David isn’t necessarily suggesting that you use your Roth IRA as an emergency fund, it’s nice to know that you won’t have to wait until age 59 ½ to be able to access those funds. If you happen to take out your Roth IRA contributions, you can put that money back within 60 days as long as your Roth IRA was not involved in a rollover during the 12 months preceding the date of...
info_outline
Two Huge Problems with Whole Life Insurance
The Power Of Zero Show
This episode of The Power of Zero Show is part of David McKnight’s podcast interview with Caleb Guilliams and Tom Wall, PhD. David touches upon a recent Ernst & Young study where whole life insurance was used as a buffer-type strategy. When it comes to the “risk continuum”, David sees IUL as slightly on the right side of whole life insurance. IUL is something worth doing only if you think that risk premium can get you a slightly higher rate of return over time. David recognizes that IUL has risks but that, in exchange for those risks, you can get somewhat of a higher rate of...
info_outline
Academics LOVE Annuities – Why Do Investors HATE Them?
The Power Of Zero Show
Today’s episode of The Power of Zero Show features part of David McKnight’s conversation with Caleb Guilliams and Tom Wall, PhD. David kicks things off by addressing the liquidity issue. Handing a chunk of your retirement savings over to an insurance company in exchange for a stream of income that’s guaranteed to last as long as you do sounds great in principle, but people often have consternation about it… The thought of losing liquidity on a significant portion of their net worth is what prevents some Americans from opting for SPEAs and DIAAs. David explains why a fixed index annuity...
info_outline
How IUL Fits in a Balanced Approach to Tax-Free Retirement
The Power Of Zero Show
This episode of The Power of Zero Show is part of David McKnight’s conversation with Caleb Guilliams and Tom Wall, PhD. David touches upon the “dangerous partnership” between the American people and the IRS. David is an advocate for a balanced, comprehensive, approach to tax-free retirement – he explains why that’s the case. One of the things David likes about IULs is the fact that they can perform specific applications that no other stream of income, such as Roth IRAs and Roth 401(k)s, can do. David goes over the unique trait of each of the streams of tax-free income he sees as key...
info_outline
Your Authoritative Guide to Tax-Free Retirement Planning in 2025
The Power Of Zero Show
In this episode of The Power of Zero Show, David McKnight addresses different strategies for tax-free retirement planning in 2025. Most Americans are a little nervous when it comes to the fiscal trajectory of the U.S.. According to expert forecasts, the likely extension of the 2017 Trump tax cuts would take the current $36 trillion of national debt beyond the estimated $54 trillion by 2034 – taking it all the way to $59 trillion. A recent Penn Wharton study predicts that if the U.S. doesn’t right its fiscal ship of state by 2034, no combination of raising taxes or cutting spending will...
info_outline
Expecting a Pension? Strongly Consider a Roth Conversion
The Power Of Zero Show
David McKnight discusses a couple of really good reasons for doing a Roth conversion when you’re expecting a pension in retirement. David sees the American tax system functioning in a similar way as a graduated cylinder. Your income goes in and flows all the way down to the bottom. Some of your money gets taxed at 10%, at 12%, 22%, some at 24%, 32%, at 35%, and some at 37%. Jeff Bezos, too, has some of his earned income taxed at 10% (only for about 3 seconds, though!). If you’re planning on receiving a pension in retirement, understanding how this “tax cylinder” works will...
info_outlineDavid 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
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