Two Experts Debate When You Should Take Social Security—But here’s the TRUTH!
The Power Of Zero Show
Today’s episode revolves around one of the biggest financial debates among pre-retirees and retirees: When should you take Social Security? Host David McKnight touches upon the recent debate of two of the smartest voices in the field – Dr. Laurence “Larry” Kotlikoff and Dr. Derek Tharp – on this exact question. Dr. Tharp, out of the University of Southern Maine, notes that economists commonly recommend delaying social security benefits until age 70. Boston University’s Dr. Kotlikoff agrees and explains that delaying can give you a 76% higher monthly benefit compared to taking...
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What REALLY Happened with Kyle Busch's $8 Million Lawsuit against Pacific Life
The Power Of Zero Show
David McKnight looks at what happened when NASCAR legend Kyle Busch reportedly lost $8+ million in what was supposed to be a tax-free retirement plan. The plan Busch relied on was built around an indexed universal life insurance policy. According to Kyle and Samantha Busch’s lawsuit, they paid more than $10.4M into several IUL policies issued by Pacific Life Insurance between 2018 and 2022. While these policies were pitched as a safe, self-funding, tax-free retirement plan, things didn’t go as promised… Poor design, unrealistic expectations, a delayed 1035 exchange, and poor...
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The Financial Guru Hall of Shame--Who's Leading You Off a Cliff?
The Power Of Zero Show
David McKnight focuses on three of the biggest names in personal finance – Dave Ramsey, Suze Orman, and Ken Fisher – and why you should be careful with following their advice. David emphasizes that anyone trying to wring the most efficiency out of their retirement savings should focus on advice that’s backed by math… not soundbites. While David Ramsey is the right person for people who are making less than they are spending, the same can’t be said for his retirement planning advice. For instance, he claims that 100% of cash value life insurance sucks 100% of the time. For...
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Suze Orman Says 3%, Bill Bengen Says 4.7%--Who’s Right on Sustainable Withdrawal Rates?
The Power Of Zero Show
David McKnight compares the approach of some of the biggest names in personal finance: Suze Orman, and William “Bill” Bengen (the man who invented the 4% Rule). In a recent interview covered by MSN, Suze Orman declared flat out that the 4% Rule is dead since markets are volatile, interest rates fluctuate, and people are living longer. David shares the “origin story” of how the 4% Rule came to be – and its creator Bill Bengen. Interviewed by MSN, Bengen updated his research and concluded that, based on current data, a 4.7% withdrawal rate is now sustainable. David compares Orman’s...
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Why Dave Ramsey’s Roth Conversion Advice Could Cost You a Fortune
The Power Of Zero Show
David McKnight discusses one of the most destructive pieces of retirement advice he has ever heard: that you should never do a Roth conversion in retirement or within five years of retiring. Dave Ramsey believes you should forego doing a Roth conversion if you’re within five years of retirement or are already retired – because of the so-called Five-Year Rule. The problem with this approach, according to David, is that Ramsey is misinterpreting what that rule actually means, in addition to confusing multiple rules and applying them to the wrong people. Ramsey’s advice, continues David,...
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Four Ways to Pay Tax on Your Roth Conversion
The Power Of Zero Show
David McKnight addresses something that can make or break your Roth conversion strategy: how you actually pay the tax. David kicks things off by sharing that Federal and state estimated tax payments are usually made in four equal installments: April 15th, June 15th, September 15th, and January 15th of the following year. Did you know that doing a Roth conversion in December, like many people do, will lead to the IRS pretending that income was earned evenly throughout the year? If you don’t account for that, you could get hit with an underpayment penalty (8% of the underpaid amount)....
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I’m 52 Years Old and Have No Bonds in My Portfolio (Smart or Dangerous?)
The Power Of Zero Show
David McKnight explains why he has chosen to avoid bonds entirely and why you might want to rethink how you protect your portfolio as you approach retirement. David kicks things off by illustrating the so-called sequence of returns risk. According to conventional wisdom, bonds tend to be less volatile, so they help smooth out the rough years in the stock market. However, bonds aren’t the safety net they used to be. And over long periods of time, bonds tend to underperform stocks by a wide margin. David warns against “stuffing your portfolio with bonds just to be safe.” The...
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Dave Ramsey is Right About Bonds, but Not for the Reasons He Thinks
The Power Of Zero Show
David McKnight addresses something Dave Ramsey has been saying for years: “You should NEVER own bonds in retirement!” David points out that the tool that actually solves the problem Ramsey has been trying to avoid is the same one he spent years mocking on his call-in show: the Fixed-Indexed Annuity. Ramsey’s argument is that stocks outperform bonds over time – hence, bonds should be avoided as they’re “slow, underperforming, and risky.” David indicates what Ramsey is half right about, as well as something he’s missing the mark on… David discusses how bonds can act as a sort...
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What is the Power of Zero Retirement Philosophy?
The Power Of Zero Show
David McKnight walks you through what he believes to be the retirement strategy of the future: the Power of Zero approach. Congress recently passed the One Big Beautiful Bill Act, which makes the Trump tax cuts permanent. The brackets were set to expire in 2026, but now we’re told they’re here to stay… By 2035, the U.S. will need massive infusions of cash just to cover the interest on the debt of $37 trillion, not to mention Social Security, Medicare, Medicaid, and defense. When the Government needs money and no one else will loan it the money, it does the one thing it’s always done in...
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Greatest Retirement Mistake
The Power Of Zero Show
While on the golf course with his son, David McKnight got asked a question, by a couple of men in their early 70s, every pre-retiree and retiree wonders at some point: “What’s the biggest mistake people make when preparing for retirement?” Many people spend their entire career saving money in tax-deferred accounts like 401(k)s and IRAs. As that balance grows larger every year, it’s easy to get the illusion that all that money belongs to you, while a larger portion actually belongs to the IRS. How much of that sum you ultimately get to keep depends on what tax rates happen to be...
info_outlineIn today’s episode, David McKnight focuses on whether you should do a Roth conversion, how much you should convert per year, and whether it’s possible to over-convert to Roth.
David explains that an effective tax rate is the actual percentage of your income that you pay in taxes after accounting for deductions, exemptions, and credits.
For David, the only reason you should do a Roth conversion is if you believe that your effective tax rate in retirement will be higher than your marginal tax rate today.
David touches upon a couple of reasons why your effective tax rate in retirement could be higher than your marginal tax rate today.
Remember: the national debt is projected to be $57 trillion by 2035. If Trump extends his tax cuts, you can layer another $5 trillion right on top of that…
According to a recent Penn Wharton study, if the U.S. doesn't right its fiscal ship of state by 2040, no combination of raising taxes or reducing spending will arrest the nation’s financial collapse.
Before undertaking your Roth conversion strategy, you have to remember that in retirement, absent any other deduction, the IRS will give you a deduction called standard deduction.
The standard deduction is $30,000 if you retired today as a married couple and $15,000 as a single filer.
David illustrates a scenario that can lead you to fall into the Roth IRA over-conversion trap.
Your goal should be to keep your balance in your IRA or 401(k) low enough that required minimum distributions in retirement are equal to or less than your standard deduction, but also low enough that they don’t cause Social Security taxation.
David has done the math: if you don’t have a pension or other residual taxable income, you want to keep between $300,00 and $400,000 in your 401(k) or IRA in retirement.
Got a sizable pension or another significant source of taxable income? Then, your ideal balance would be much closer to zero.
It’s crucial that, when converting your money, you do it 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.
If Trump ends up extending his tax cuts, they’ll expire at the end of 2033. That means that somewhere between 2034 and 2040 tax rates will likely rise in dramatic fashion.
By including the 2025 tax year, that gives you nine full years during which you can execute your Roth conversion strategy.
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