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...
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The Hidden Reason Married Couples Need Roth Conversions
The Power Of Zero Show
David McKnight kicks off this Power of Zero Show episode by stressing that, in his opinion, tax rates in the future are likely to be much higher than they are today. Why? Because the U.S. has a national debt that continues to grow at an alarming rate. It has hundreds of trillions of dollars in unfunded obligations for programs like Social Security, Medicare, and Medicaid. At some point, the Government is going to need huge infusions of cash to meet such obligations. The so-called “Widow’s Penalty” is a very compelling reason, David believes, to consider doing Roth conversions while...
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Did Suze Orman Just Endorse Annuities?
The Power Of Zero Show
David McKnight discusses the Woman’s World article Suze Orman Reveals When to Buy an Annuity - and the One Question You Must Answer First. For years, Orman has warned investors away from annuities, often lumping them into the category of expensive financial products that enrich salespeople at the expense of consumers. David has been surprised by what the current views of Orman appear to be, completely in line with what David has been preaching for years. Orman’s analysis begins with a key consideration: annuities can be a helpful tool in retirement, but whether they make sense for you...
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The Truth About Buy-and-Hold Investing in Retirement
The Power Of Zero Show
In this episode, David McKnight addresses one of the biggest myths in retirement planning: once you retire, you need to dramatically reduce your exposure to stocks. The reason why most financial advisors recommend reducing stock exposure in retirement has very little to do with stocks and everything to do with sequence of returns risk. Sequence of returns risk is what happens when you’re forced to withdraw money from your investment portfolio during a market downturn. If the market falls 30% and you’re simultaneously taking withdrawals to pay for your living expenses, you’re locking in...
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The New Case Against Bonds in Retirement
The Power Of Zero Show
David McKnight kicks this episode off by explaining how, for decades, conventional financial wisdom has been saying that, as you approach retirement, you should begin dialing down your stock exposure and increasing your bond allocation. A 60-year-old, for example, would have 40% of their portfolio in stocks and 60% in bonds. Historically, bonds served three primary functions: They provided income, they reduced portfolio volatility, and they protected retirees from so-called sequence of returns risk. David touches upon how the sequence of returns risk works. Retirees who get hit early...
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This Small Trick Could Increase Your Retirement Income by 22%
The Power Of Zero Show
A recent landmark study from BlackRock caught David McKnight – he shares what it was all about and why you should care in this new episode of the Power of Zero Show. For decades, Americans were told that if they simply contributed faithfully to their 401(k) and avoided emotional decisions during market downturns, they would have enough money in retirement. According to the BlackRock study, retirees who incorporated guaranteed lifetime income in the form of an annuity into their retirement portfolio experienced an average increase of 22% in potential retirement spending. That number became...
info_outlineDavid McKnight kicks this episode off by explaining how, for decades, conventional financial wisdom has been saying that, as you approach retirement, you should begin dialing down your stock exposure and increasing your bond allocation.
A 60-year-old, for example, would have 40% of their portfolio in stocks and 60% in bonds.
Historically, bonds served three primary functions: They provided income, they reduced portfolio volatility, and they protected retirees from so-called sequence of returns risk.
David touches upon how the sequence of returns risk works.
Retirees who get hit early often run out of money earlier – in some cases, even 15 years prior to life expectancy.
The old approach to retirement planning assumes that bonds could provide meaningful returns while still acting as a stabilizer. However, recent years have shown that bonds are not risk-free.
Back in 2022, for instance, the Bloomberg U.S. Aggregate Bond Index lost 13%.
Long-term treasuries did even worse, as many lost between 25 to 30% due to rapidly rising interest rates.
David stresses that an annuity can do something bonds cannot do: It can guarantee income that you cannot outlive.
It’s important to realize that whenever your basic living expenses are covered, something profound happens psychologically: You stop depending on your investment portfolio to solve every problem.
Furthermore, you feel as if you now have permission to spend.
Studies show that those who have guaranteed lifetime income spend 22% more than those who rely strictly on a stock bond portfolio.
A properly funded IUL can create a pool of tax-free money that’s insulated from stock market loss and available during downturns.
David unpacks a strategy that can increase the sustainable withdrawal rate on your stock portfolio from 4% to as high as 8% with a 95% success rate.
When you combine guaranteed lifetime income from annuities with a volatility shield in the form of IUL, you are no longer reliant on bonds, says David.
He also touches upon why retirees who adopt the no-bond power of zero approach begin to take a lot more risk in their stock market allocations.
David wraps things up by sharing insights on what retirees should think about and do to increase the likelihood that, in retirement, their money will last as long as they do.
Mentioned in this episode:
David’s new book: 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