Why Not Put Your Entire Retirement into 5.25% Treasuries? (Have You Won the Game?)
The Power Of Zero Show
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....
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Dave Ramsey’s 8% Retirement Rule: What Could Possibly Go Wrong?
The Power Of Zero Show
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...
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The Three Biggest Reasons Americans Hate Annuities
The Power Of Zero Show
Most Americans hate annuities and would tell you to avoid them… But what if the version you’ve been warned about isn’t the only option for retirement planning? David McKnight breaks down a strategy that’s quietly helping retirees sleep better at night and safeguard themselves against the 3 biggest annuities-related problems. In this episode, David McKnight looks at three perfectly legitimate reasons why Americans have been reluctant to embrace annuities, as well as a solution. The first problem is liquidity. David points out that one of the biggest fears in retirement is...
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Should High Earners Contribute to a Roth 401k?
The Power Of Zero Show
Should every dollar go into a Roth 401(k) if taxes will be higher? David McKnight reveals why that instinct could actually be one of the most expensive tax decisions a high-income earner can make when it comes to retirement planning. In this episode, David McKnight addresses two frequently asked questions: “If tax rates are going to be higher in the future, should I be putting every dollar into a Roth 401(k)?” and “Should I be converting as much of my IRA to Roth as quickly as possible?”. David believes that the current tax rates are as low as we’re likely to see in your...
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The Latest Proposal to Tax Roth IRAs: Should you be worried?
The Power Of Zero Show
Should you stop doing Roth conversions as part of your retirement planning after Senator Ron Wyden’s new legislation targeting specific retirement accounts? David McKnight breaks down the key aspects of the proposal and what it actually means for the average American (and their retirement). Show Notes In this episode, David McKnight looks at whether you should stop doing Roth conversions following Senator Ron Wyden’s introduction of legislation for taxing Roth IRAs. For David, 99.9% of Americans should continue investing in Roth accounts with a high degree of confidence. One of...
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The Hidden Reason Married Couples Need Roth Conversions
The Power Of Zero Show
One spouse passes away, and suddenly the survivor is filing alone, pushed into tax brackets they never saw coming. David McKnight explains why a Roth conversion, done now through smart retirement planning, could spare your loved ones the painful surprise known as Widow’s Penalty. Show Notes In this episode, David McKnight discusses something that could cause your taxes to rise dramatically even if Congress never raises taxes by a single percentage point! That's the so-called Widow's Penalty, and it's a critical piece of retirement planning that too many people overlook. The U.S....
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What If I Retire Into A Market Crash?
The Power Of Zero Show
David McKnight addresses one of the biggest fears people have as they approach retirement: “What if I retire right into a market crash?”. Not only this represents one of the biggest challenges in retirement planning but it’s also one of the reasons why David advocates for protecting yourself from sequence of returns risk. When it comes to long-term stock market investing, it’s important to understand the difference between retirement years and accumulation years. Sequence of returns is the order in which market returns occur in your portfolio. That order, David stresses,...
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The Five Biggest Roth Conversion Traps
The Power Of Zero Show
In this episode, David McKnight walks you through the five biggest Roth conversion traps, and how to avoid them. He is a big believer in Roth conversions. Because of the apocalyptic fiscal trajectory of the U.S., taxes in the future are likely to be dramatically higher than they are today. Hence, every dollar you reposition from tax-deferred to tax-free at these historically low tax rates may be one of the smartest financial decisions you ever make. However, while many people understand Roth conversions in theory, they still get them wrong in practice – David has seen some very costly...
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High Earners: Stop Making This Roth vs. Traditional Tax Mistake!
The Power Of Zero Show
David McKnight addresses one of the most common questions he gets: “If tax rates are going to be dramatically higher in the future, shouldn’t I be putting every dollar into a Roth 401(k)?”. Moreover, people often wonder whether they should be converting as much of their IRA to Roth as quickly as possible. David is a firm believer that the current tax rates are as low as we’re likely to see in our lifetime. The U.S. has over $39 trillion in debt and it’s going to increase by two trillion per year over the next 10 years and over $200 trillion in unfunded obligations for Social...
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What REALLY Happens When Your Kids Inherit Your IRA
The Power Of Zero Show
In today’s episode, David McKnight discusses what many people don’t get about the IRS and what happens to their IRA and what their children are supposed to get at some point. Many people spend decades building up tax-affirmed retirement accounts without fully appreciating what happens when those accounts pass to the next generation. When a spouse inherits an IRA, they get the most favorable treatment under the tax code. In fact, they have options that nobody else gets - like the spousal rollover. David touches upon the so-called Stretch IRA, which he considers one of the greatest estate...
info_outlineDavid McKnight breaks down the approach he would follow if he were to invest a $2 million 401(k) in retirement.
David points out that when you retire, you’re no longer just investing for growth; you’re investing for income.
Remember: If you get this wrong, you don’t get a do-over.
In the case David discusses, many financial advisors would recommend investing the $2 million in the market and withdrawing whatever your lifestyle requires.
The problem with that way of doing things, however, is the exposure to the sequence of returns risk.
If the market crashes early in retirement and you’re pulling money out at the same time, your portfolio could go into a death spiral from which it never recovers.
The main trap those planning their retirement and retirees should avoid is running out of money before running out of life.
David touches upon the role that a guaranteed lifetime income annuity plays in retirement planning.
As far as annuities are concerned, he’s in favor of annuities that have what he refers to as “piecemeal internal Roth conversion feature."
That means being able to gradually convert that annuity from tax-deferred to tax-free during the annuity’s deferral period.
David recommends investing discretionary funds with the following ratio: 70% in a total U.S. stock index, 30% in a total international stock index.
He would automatically rebalance if his allocations ever got more than about 5% out of alignment.
The reason why David’s approach lacks bonds is simple: if your portfolio goes down in your retirement years, your guaranteed lifetime income gives you the luxury of watching it recover before you take further distributions.
Long-term care is a piece of the strategy that most advisors completely ignore – David explains why it shouldn’t be overlooked.
Moreover, the cash value inside that policy can also act as a volatility buffer.
David brings up a move that can increase the sustainable withdrawal rate on your stock portfolio from 4% to as high as 8% with a 95% confidence rate.
“I believe we’re currently experiencing the lowest tax rates we’re likely to see in our lifetime," says David.
Many experts believe that by 2035, when the debt-to-GDP ratio will hit about 150%, the Federal Government would have to begin phasing in tax increases over time to avoid an all-out economic crisis.
That’s why David would like to convert his IRA to Roth, little by little, over the next 10 years in the most tax-efficient way possible.
David provides a bird’s eye view of the entire strategy, which by his own admission, “checks every single box.”
An Ernst & Young study looked at this type of strategy combining investments with insurance-based solutions like annuities and life insurance – David discusses its findings.
“I’m proposing a strategy that gives you certainty where you need it most, your income and tax-free flexibility everywhere else,” he adds.
Such an approach allows you to neutralize longevity risk and tax rate risks all in one cohesive strategy.
Mentioned in this episode:
David’s new book, available now for pre-order: The Secret Order of Millionaires
David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track
Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight
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