The Power Of Zero Show

One of David's jobs as the host of the Power of Zero Show is to constantly remind listeners of the horrifying fiscal outlook the U.S. is facing. This episode looks at components that are contributing to this "fiscal apocalypse". David Walker, former Comptroller General of the Federal Government, sees the Debt-to-GDP ratio as something worth focusing on. Currently, it's about 108% – about the same percentage as in the immediate wake of World War II. However, it's projected that it could increase up to 185% by 2052. Not being able to find a way to live within our means seems to be the root cause of this issue. By 2052, Federal spending will equal 30% of GDP, while actual revenue will remain at about 18% (based on current tax rates). David discusses the cost of servicing the U.S.' burgeoning national debt – which currently sits at about 1.5% of the country's GDP but that number is projected to reach 7.2%. The fact that the Fed has begun increasing interest rates in a historic way has been evident. On June 15th, for instance, they raised the Federal rate ¾ of a point, the largest increase since 1994. And most economists predict an additional ¾ of a point in July. David talks about non-discretionary spending, the spending over which we have absolutely no control. We're either required to pay by law, like in the case of Social Security, Medicare, and Medicaid, or by the U.S. Constitutions – like in the case of interest on national debt. David shares that, as we head toward 2052, non-discretionary spending tends to level off. However, the cost of Social Security, Medicare and Medicaid, as well as the interest on national debt, begins to shoot through the roof. The main issue isn't discretionary spending, but rather non-discretionary spending, and that's what will eventually either bankrupt the U.S. or force your taxes to double. According to David, the aging of America is the main driver of all this debt. It's estimated that the cost of healthcare will rise to 20% of the entire economy. Additionally, by 2030, an astounding 70 million Americans will be age 65 or older and will qualify for Medicare, Medicaid, and Social Security. And if that wasn't enough, it's estimated that the number of Americans contributing to Social Security for every one person that takes money out will drop from the current 2.8 to 2.2 by 2042. David shares that in order to fully fund Social Security between now and 2035, the U.S. would have to have $2.9 trillion, but the country currently has no funds. With Social Security trust funds likely to be depleted by 2035, Social Security will have to be funded purely off of incoming revenue. There are three scenarios that you could potentially face: a cut in your Social Security, a tax increase, or some combination of the two. When it comes to consequences for individual families, David predicts a paycheck decrease: a four-person family will lose about $4,000 by 2028, $8,000 by 2038 and $16,000 by 2048. As far as people planning on financing their retirement through distributions from IRAs or 401ks, all of this translates into them taking much less money home after-tax. Mentioned in this episode: PGPF.org (Peter Peterson foundation) David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

Life insurance retirement plans or LIRPs are long-term propositions. They only really work if you think of them like a marriage, meaning they work best if it's until death do you part. Don't start an LIRP unless you're planning on dying while it's enforced, even if that means you have to keep it for 40 or 50 years. Your LIRP needs to be a 0% loan. One of the things that makes the LIRP so appealing is that you can take the money out tax free, and you do that by way of a loan.. An LIRP may be tax free, but it's not cost free. For starters, you aren't actually taking a loan from your own policy. You're taking the loan from the life insurance company and you're using your policy's cash value as collateral for that loan. I will explain how it works in this episode. Some companies say that their current practice is to charge you 3%, but they reserve the right to charge you four, five or eight percent at their leisure, sometime down the road. And the longer you give them to decide, the more detrimental. Your loan provision is the single most important provision in the entire contract. You absolutely have to make sure that you understand your loan provision and its implications before you ever sign on the dotted line. The second thing your LIRP absolutely must have is interest charge in arrears (vs charge you interest in advance). If you give it to them at the beginning of the year, as opposed to the end of the year, you'll lose out on what that money could have earned for you. The third thing you must insist that your LIRP have is daily sweeps. Some companies are so small that they have to wait anywhere from three to six months to pull up enough assets to where it's cost effective enough to purchase the options required to make those assets grow. In other words, it's not going into your growth account and making you money right away. Make sure your LIRP has an overloan protection rider. This means that when your cash value drops to a certain point, the insurance company will give you the option of having them essentially take over the policy. They will reduce your policy's death benefit to the point where the remaining cash value essentially pays the policy up. What if you die before the policy is up? Don't worry - you won't have paid something and never get it back. Someone's still getting a death benefit, probably your kids or your grandkids. So there isn't really that sensation of having paid for something you hope you never have to use. Mentioned in this episode: David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

Today's episode addresses the question 'Do we continue to let inflation run roughshod over our purchasing power, or do we raise interest rates and risk plunging our country into a recession?' David states that Federal Reserve Chair Jerome Powell is fast approaching a grim crossroad in which he may have to raise interest rates in order to rein in out-of-control inflation. David explains how Venezuela recently had inflation approaching 40%, and its government decided to raise interest rates to 42% – and he feels that, soon, Jerome Powell may have to decide whether to take similar action. In other words, Powell seems to be destined to push the U.S. economy into a recession in order to rein in inflation. David cites Bloomberg Economics' chief U.S. economist Anna Wang, who put the chance of recession in 2022 at 1 in 4, while a year from now it will go up all the way to 3 and 4. She sees a downturn this year as an unlikely event and says that a recession in 2023 will be tough to avoid. Mentioned in this episode: David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

This episode focuses on the unsettling math behind Dave Ramsey's recommendation to buy term and invest the difference. David shares the definition of the 'Buy Term and Invest the Difference' approach, and talks about Ramsey's claim that permanent life insurance is a rip-off. For David, Dave Ramsey makes a big mistake for the fact that his analysis doesn't include two major expenses: the cost of term life insurance and the expense ratio inside Roth accounts. David feels that Dave Ramsey omits key details about permanent life insurance over time, in an attempt to justify his claim that permanent life insurance is a rip-off. David suggests making your permanent life insurance the bond portion of your overall investment portfolio. His advice is to reach into your current investment portfolio, take out your bond allocation, and replace it with permanent life insurance. David discloses that he isn't trying to make the case that you should put all of your money into the LIRP – what Dave Ramsey calls permanent life insurance. He suggests that Ramsey has taken a disingenuous approach in his claim that 'Buy Term and Invest the Difference' is the only way to go. Mentioned in this episode: David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

David shares a stat from the US Labor Department: as of May 11th, inflation over the last 12 months through April of 2022 has been 8.3%. David explains that the general belief is that inflation doesn't necessarily translate to more taxes because the IRS has been historically good at indexing tax brackets to keep up with inflation. However, he says, there are a few thresholds in the IRS tax code that aren't indexed to keep up with inflation – and could result in you paying higher taxes. Social Security, for instance, counts as provisional income. This represents a problem because as your Social Security rises to keep up with inflation, you get pushed closer to the provisional income thresholds. This may not seem like a big deal if inflation increases at the historical rate of 3%, but initial projections show that, in 2023, Social Security could go up to 8%. Selling your primary residence is another area where inflation could cause you to pay more taxes. David explains that profits up to $250,000 – or $500,000 if you're married – from a sale of your primary residence are tax-free. However, since this number hasn't been adjusted to keep up with inflation since 1997, you run into the risk of your profit being subjected to capital gains tax if your home value increased as a result of inflation. The Obamacare surcharge is another area where inflation can "hammer you", says David. David discloses that inflation could force you to pay a double tax on the sale of a home. The Salt Tax, a $10,000 limit on the Federal tax deduction, hasn't been changed since 2018. This means that if your income goes up, your state and local taxes rise commensurately – and a smaller and smaller percentage of that ends up being deductible on your Federal tax. A "tax bracket creep" is when tax brackets fail to adjust for changes in consumer purchasing power due to inflation. Some experts, David shares, think that the adoption of the Modern Monetary Theory in the form of printing tons and tons of money would also cause a dramatic rise in taxes. David believes that getting to the 0% tax bracket in retirement is the best way to shield yourself against all the taxes impacted by inflation. Mentioned in this episode: TaxFoundation.org David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

"I don't want to pay the taxes on my Roth Conversion" is the single greatest objection David sees every week. David believes that whoever makes that argument is basically saying that they don't want to pre-emptively pay a tax before the IRS absolutely requires it of them and that they think their tax rate down the road will be lower than it is today. He sees the latter point as the greater concern. For David, if you're in the 22% or 24% tax brackets – meaning that your taxable income is between $83,550 and $340,100 – but are pushing the payment of taxes on your Roth Conversion down the road, you're actually missing out on a good deal. Ten years from now, he argues, when the country's tax rates will have risen dramatically, you're going to end up realizing that you missed out on a deal of historic proportions. David sees not being convinced that tax rates in the future are likely going to be higher than they are today and being reluctant to pay the cost of admission to the tax-free bucket as the greatest roadblock in getting you to the 0% tax bracket in retirement. In case you feel as if you're in the situation described above, David suggests educating yourself on what independent, third-party, experts have to say about the future of tax rates – and he recommends reading chapter 1 of his book Power of Zero and watching the documentary The Power of Zero: The Tax Train Is Coming. David shares that, historically, tax rates have been substantially higher than they are today. Marginal tax rates post WWII were 94%, and marginal tax rates in the '70s were 70%. The highest marginal rate today is 37%. These rates have nowhere to go but up. All the experts that were interviewed for The Power of Zero documentary said the same thing: if we don't change course immediately, ten years from now tax rates will have to rise dramatically or we'll go broke as a country. Some of them even said that tax rates will have to double or we'll go broke as a nation. David touches upon quotes from a MarketWatch article of his that featured insights from Ray Dalio, Leon Cooperman, Ed Slott, Larry Kotlikoff, and Larry Swedroe regarding the future of tax rates in the next ten years. David brings up a key question you should ask yourself: wouldn't you rather pay taxes today, on your terms, than postpone the payment of those taxes until the IRS forces you to pay them on their terms? Mentioned in this episode: David McKnight vs Financial Guru (Part 1): powerofzero.com/blog/Power-of-Zero-vs-White-Coat-Investor-David-McKnight-Response David McKnight vs Financial Guru (Part 2): powerofzero.com/blog/the-white-coat-investor-responds-and-i-rebut-his-response David McKnight vs Financial Guru (Part 3): powerofzero.com/blog/power-of-zero-vs-white-coat-investor-final-response The Power of Zero: The Tax Train Is Coming--TheTaxTrain.com MarketWatch Article: marketwatch.com/story/heres-a-way-to-make-your-retirement-savings-last-longer-2020-12-08 POZ episode 181: Should High Income Earners Do Roth Conversions--podcasts.apple.com/us/podcast/should-high-income-earners-do-roth-conversions/id1441026169?i=1000558116209 David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

Today's podcast explains why it might be a massive mistake to invest in municipal bonds. The reason why this is such an important topic is our unusual fixation with municipal bonds when trying to set up a tax-free retirement. Interest from municipal bonds counts as provisional income. That means that it counts against the thresholds that cause Social Security taxation. So, while you may be looking for a stable, predictable, tax-free income stream, you could unwittingly lose a portion of your Social Security along the way. Municipal bonds are usually very attractive for retirees and would-be retirees because they promise low-risk and tax-free income. However, David has noticed five glaring issues about municipal bonds and explains why you should be extremely cautious about investing in them. Municipal bonds are not always entirely tax-free. Yes, they are free from federal tax, but they are often taxed at the state level if it's not a bond issued by your resident state. Currently, 43 of the 50 states charge state tax on out-of-state municipal bond interest. So, as state taxes rise over time, you could, unfortunately, fall prey to tax rate risk. According to David, the whole point of a tax-free municipal bond is to get a superior rate of return when compared to a corporate bond equivalent. The problem is, even though municipal bonds are tax-free, they offer returns that are often far less than their taxable corporate bond equivalents. One of the biggest problems with municipal bonds is the purchasing power risk. For example, in the high-inflation environment we're currently in, you're actually losing spending power by locking into even the most productive municipal bonds. Your returns will lag inflation and massively reduce your spending power over time. If you're trying to get consistent, predictable tax-free income in retirement, one of your best bets is owning an annuity inside a Roth IRA. Annuity companies have massive economies of scale and can get rates of return in their bond portfolios that far exceed what you can get on your own. Mentioned in this episode: David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

For David, the problem is that the U.S. has promised its people way more than it can afford to pay. The debt clock says $30 trillion, which is a mind-boggling figure. According to other experts, however, the real number is actually higher than that. It is close to the $125 trillion mark. Citing Dr. Larry Kotlikoff from Boston University, David reveals that, according to a fiscal gap accounting, the projection over the next 75 years isn't $30 trillion, nor $125 trillion… it sees true national debt in the U.S. sitting much closer to $239 trillion. One of the key questions David brings up is: for a retiring generation of Baby Boomers who saved the lion's share of their retirement savings and tax-deferred vehicles like 401ks, what rate are their postponed tax payments going to be taxed at? David shares that, with the exception of a small period in the early '90s, taxes haven't been as historically low as they are today in 80 years. He advises to do all the heavy lifting now by preemptively paying taxes on IRAs and 401ks before tax rates go up on January 1st 2026. David talks about the fact that after January 1st 2026, tax rates are going to revert back to what they were in 2017. This means that each day that goes by where we fail to take advantage of historically low tax rates is potentially a year beyond 2026 where we could be forced to pay the highest tax rates we are likely to see in our lifetime. David shares his insights about how retirees and retirees-to-be can transition these assets before January 1st 2026 arrives. David advises those who have too much money in their 401k or IRA to start repositioning that money systematically to the tax free bucket by way of a Roth conversion. The Roth conversion has no income limitation. Social Security, Medicare, Medicaid, is just borrowing money that they don't have. Every year that Congress doesn't fix the problem means new consequences. (aka higher tax rates). Mentioned in this episode: David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

In this episode, David wants to share the truth about Dave Ramsey, look at the two pillars of his financial worldview, and deconstruct those beliefs. David believes that if Dave Ramsey's audience followed his advice on paying off high-interest credit card debt, the U.S. would be a much healthier place from a financial perspective. In David's assessment, Ramsey's audience is made of lower to middle-income America, people who are making $50,000 per year but who are spending $60,000. With his approach, Ramsey seems to be dispensing one-size-fits-all financial planning advice in an attempt to appeal to the masses. David notes that Ramsey's audience isn't the Power of Zero audience. Power of Zero audience members have generally done a good job of saving money, and they are in tax-deferred buckets. They're trying to figure out how to distribute their retirement savings in the most tax-efficient way possible. It's the person who's making $50,000 per year, but spending 60,000 it's lower to middle income America, who are struggling to pay their bills, so he's dispensing one size fits all financial planning advice in an attempt to appeal to the masses. The first Dave Ramsey principle that runs afoul of Power of Zero thinking has to do with his recommendations of going back into the tax-deferred bucket with all of the unintended consequences that go along with it. What Power of Zero thinking suggests in these cases is for you to make contributions to the LIRP in an effort to enjoy the benefits of getting to the 0% tax bracket in retirement. For David, Dave Ramsey doesn't seem to understand or appreciate the role that a properly structured LIRP can play in helping you get into the zero percent tax bracket and retirement, particularly in a rising tax rate environment. David believes that financial gurus like Dave Ramsey often find themselves on the outside of the tax-free paradigm looking in trying to interpret what they're seeing through the lens of their tax deferral worldview. While their intentions are often knowable, he says, their recommendations – if accepted at face value – can lead to a cascade of financial consequences, many of which could actually prevent you from ever getting to the 0% tax bracket in retirement. The second pillar of Ramsey's David has an issue with his lack of understanding of how the fees and the LIRP are structured. David sees Ramsey as someone who fixates on what the LIRP fees are in the first few years and extrapolates those fees out over the life of the program. The problem is that by fixating on the fees of the LIRP in the first few years without considering the broader picture, Ramsey perpetuates the myth that all LIRPs are too expensive. David explains how LIRPs work. Their fees are higher in the early years and much lower in the later years. However, when you average it out over the life of the program, it's going to cost you between 1-1.5% of your bucket per year. The longer you keep your LIRP, the lower the average annual expenses over time. For David, Dave Ramsey is so fixated on the fees of the LIRP in the first few years that he fails to see the forest for the trees. He fails to recognize that the longer you hold your LIRP, the greater the internal rate of return. A situation David has seen happening is when some people get to the point in their policy when the fees start falling through the floor and, after reading a book or listening to a podcast episode by Dave Ramsey, they drop their policy because of what they have heard him say. Just when the LIRP was starting to build a head of steam, they succumb to Ramsey's mischaracterization of LIRP fees – which leads to them dropping their policy, losing their death benefits, and incurring unwanted surrender fees along the way. David recommends having the following retirement planning approach in a rising tax rate environment. You want to have between four and six different streams of tax-free income, none of which show up on the IRS's radar, but all of which contribute to you being in the 0% tax bracket. Mentioned in this episode: David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

David explains how Obamacare surtax, which was introduced back in 2013 when Obamacare passed, works and who it affects. The 3.8% of Obamacare surtax only applies to the investment income that reaches above and beyond specific thresholds: $200,000 for an individual person and $250,000 for a married couple filing jointly. David addresses the question of how this could affect you if you're planning on doing a Roth conversion at some point in the next 10 years. According to David, not many people pay the Obamacare surtax and he reminds us that any distributions from Roth IRA, from Roth 401k, from Roth conversions or loans from cash value, and LIRPs don't count towards that $200,000 or $250,000 threshold the Obamacare surtax applies to. David considers the Obamacare surtax a pesky little tax that will affect the top 1% of Americans fairly consistently and middle-income America only occasionally, particularly in the years where they have only a one-time windfall event. David cautions against postponing the payment of a capital gain tax or a Roth conversion to some point much further down the road to avoid paying this 3.8% Obamacare surtax because you may end up being surprised with a much higher tax on your ordinary income or on your capital gains. Mentioned in this episode: David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

This episode revolves around when you should draw social security in a rising tax environment. David believes that if you have taken stock of the fiscal landscape of the U.S., it seems fairly obvious that tax rates will have to rise dramatically in the next 10 years to keep the country solvent. This should have a bearing on when you elect to receive your social security. As David explains, each year you delay taking social security past age 62, your benefit will increase. The amount of the increase you'll experience varies from person to person. On average, it's going to be about 7.4% per year. David discusses another scenario, one in which you postpone taking your social security until your full retirement age of 67. In this case, because you postponed taking your benefit for five years, you'd experience an average growth of 7.4% on your benefit over a shorter period of time as compared to the scenario in which you'd take social security at age 62. The third scenario is one in which you'd take social security at age 70. This is the age at which delaying social security no longer makes sense because you're no longer going to be getting that 7.4% increase. Mathematically and financially speaking, it just doesn't make sense to delay any longer. If you'd like to reach your break-even point, you should create an Excel spreadsheet, create 3 columns, and add up the cumulative benefits you'd receive. David shares a couple of ways to get an estimate on how long you're going to be living for. On the one hand, there's the website you can use to get an estimate: Blueprintincome.com. This will give you an imprecise – unofficial – ballpark life expectancy prediction. One the other hand, there's a much more precise way to find out how long you're going to be living for: going through the life insurance underwriting process. David perceives life insurance underwriters are sort of like oddsmakers in Vegas. Depending on the method you use to get a ballpark life expectancy prediction, it may make more sense to get all of the money out of the account(s) as soon as possible, when you reach the age of 62. David goes over a couple options in terms of what would happen if you were to do a Roth conversion. Mentioned in this episode: blueprintincome.com David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

This episode focuses on a question David recently got from a couple – they made $650,000 per year and wanted to know whether they should consider doing a Roth conversion. Some details about the California-based couple who asked David their question: they're both age 50, with $1.5M in their old IRAs and 401k. They had a lifestyle need of approximately $100,000 after tax, and had about $1M in liquid savings in their taxable bucket. And, lastly, they were contributing $100,000 per year to that bucket and were growing it in plain taxable mutual funds. The couple, which represents the case-study for this episode, are in the highest marginal tax bracket (at 37%). In addition to that, they would have to pay another 11.3% in California State tax. This means that, were they to do a Roth conversion, they would be paying tax on top of all their other income, and they would be paying tax at 48.3%. In other words, they would be giving away nearly half of whatever portion of their IRAs or 401k they converted back to the IRS. Having all of the information above, the question becomes: does it make sense for a couple of 50 year olds to undertake a Roth conversion? For David, if they believed that the rates at which they'd be forced to pay in the future are going to be higher than today's rates, then the answer is yes. Then, they should pay the tax today before the IRS absolutely requires it somewhere down the road, at higher rates… However, if they don't believe that taxes down the road are going to be higher than they are today, then they shouldn't do a Roth conversion. David discusses the fact that, sometimes, we get so caught up in the idea of getting to the 0% tax bracket at all costs that we fail to do the math along the way to see whether the cost of doing so actually makes sense. For David, Roth conversions tend to make sense for people who will be in a similar income range in retirement – particularly if they're currently in the 22 or 24% tax brackets. David warns against allowing ourselves to become so consumed by the fear of higher tax rates that we make irrational decisions about the timing of our payments. We have to be patient, thoughtful and methodical. David shares the fact that the situation this podcast episode revolves around is a classic case where it may make sense to utilize the tax-free qualities of the LIRP (Life Insurance Retirement Plan). With the LIRP, we're getting as little death benefit as the IRS requires, and we're stuffing as much money into it as the IRS allows, in an attempt to mimic all of the tax-free benefits of the Roth IRA without any of the limitations of a Roth IRA. Mentioned in this episode: David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

In May 2021, David recorded a podcast that focused on the Secure Act 2.0, the follow-up to the Secure Act that completely killed the stretch IRA and the stretch Roth IRA. Today's episode looks at the big surprise that has surfaced in the latest updated iteration of the Secure Act 2.0 that's currently gaining steam in Congress. In last year's podcast episode, David outlined six major changes to retirement planning that this law is proposing. According to David, the one thing that the previous version of the Secure Act 2.0 did not address was what happens if a beneficiary inherits a retirement account where the original account holder had already begun to receive required minimum distribution. This is something that wasn't sitting well with the financial planning community. David explains how things are different with the latest piece of legislation, as it spells it all out perfectly the two crucial criteria that are connected to how and whether the 10-year rule of the Secure Act 2.0 applies or not. The first crucial criteria is whether or not the original IRA account holder died before their required beginning day. The second is whether they had begun receiving minimum distributions, and secondly, whether the beneficiary is eligible. There are different people who could potentially qualify as an eligible designated beneficiary (or EDB): a surviving spouse, a minor child, a disabled person, a chronically-ill person, and a person not more than 10 years younger than the account holder. David discusses the fact that, if you're an eligible designated beneficiary of an IRA, the 10-year distribution rule doesn't apply to you. You get to continue to receive RMDs from the account based on your life expectancy. There are a couple of possibilities if you happen not to be an EDB and you inherit an IRA. In the case of a beneficiary who inherited an IRA from someone who had not yet reached the required beginning date for that person, the 10-year rule applies. You'll have to withdraw 100% of that IRA within 10 years from the death of the account holder. If you're not an EDB and the person from whom you inherited the IRA had already begun to take their RMDs, then you would have to take RMDs based on your life expectancy and completely withdraw all the money within that 10-year period. Then, there's the scenario in which you aren't an EDB and you inherit a Roth IRA - Roth IRA owners aren't subject to RMDs and, therefore, they're always considered to have died before their required beginning date. This means that, if you inherit a Roth IRA, you'll never have to take required minimum distributions, regardless of whether you're an EDB or not. When it comes to POZ planning, all of this serves as motivation for you to get your money shifted to the tax-free bucket, shifted to the Roth IRA – pay taxes that are at these historically low tax rates so that your beneficiaries won't have to pay the taxes at the apex of their earning years at a period of time when taxes are likely to be much higher than they are today. Additionally, by having your money in Roth, you spare your beneficiaries from having to worry about taking RMDs should you actually die after your required beginning date. Mentioned in this episode: POZ episode - The Secure Retirement Act 2.0 – 6 Things You Need to Know David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

In this episode, David focuses on the true fiscal day of reckoning for the U.S., and how it should inform important retirement decisions when it comes to the Power of Zero paradigm. For David, asking yourself 'Over what time frame should I be shifting my tax-deferred retirement assets to tax-free?' is one of the most important variables to consider when executing your Power of Zero strategy. David's view is to consider shifting money slowly enough so 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. The problem, however, lies in the fact that if Congress were to do nothing between now and 2026, the Tax Cuts and Jobs Act will expire – leading to an increase in tax rates. When it comes to executing strategies, David recommends having an approach that isn't either too alarmist or heavy-handed. It's important to ask yourself what the Government is likely to do to tax rates, over what time frame, and act accordingly. Over at DavidMcKnight.com, you can find a "magic number" calculator in the upper right-hand corner of the webpage. The calculator shows you how much money you should be shifting to get to your IRA balance over a given time frame. David asks a key question: 'What if 2026 is not really the deadline we should be concerned with?' Perhaps, he says, 2026 may be regarded merely as the year in which tax rates return to historically normal levels. David refers back to the 2021 interview with Brian Beaulieu, an economist who has been working with Fortune 500 companies for the last four decades to predict what the economy is going to do in the future – and he has done so with an almost 95% success rate. According to Brian Beaulieu, the deadline we should really be concerned with is 2030, the year in which he predicts the U.S. will go into a Great Depression. The reason for this prediction is the trajectory of national debt and the increasingly high number of Baby Boomers reliant on Social Security, Medicare, Medicaid, and interest on the national debt. If Beaulieu's prediction were to be correct, it would mean that you shouldn't really be fixating on shifting your dollars from tax-deferred to tax-free over four years, especially if you have large amounts of money in your tax-deferred bucket. In this scenario, you would have the opportunity to spread your tax obligation out over a longer period of time, which would keep you in a much lower tax bracket along the way. For David, 2024 is going to be a key year for the fact that, if Republicans were to take the House, the Senate, or the Presidency, then there's a good chance that the Tax Cuts and Jobs Act would be extended for another eight years. As a result, the current low tax rates would be extended through 2032. However, this approach of "kicking the fiscal can" further down the road, would mean that the fix on the back end will be much more aggressive – something nobody would like on the back end. Mentioned in this episode: 2021 interview with Brian Beaulieu David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

The idea behind today's episode comes from a conversation David had with someone at a recent event he spoke at. He praised the LIRP as the "perfect Swiss Army knife-type of investment," and couldn't understand why more people didn't make it their only investment tool. David isn't a fan of conversations that position the LIRP as a "Holy Grail" of financial planning. David shares examples of questions and conversations of the arguments that may be made by someone who's a big believer in the LIRP in these terms. David discusses potential scenarios and conversations you may find yourself having. The Power of Zero strategy calls for multiple streams of tax-free income, none of which show up on the IRS' radar but all of which contribute to you being in the 0% tax bracket. There are four streams of tax income: the Roth IRA, the Roth 401k, the Roth conversion, and the RMD that's up to standard deduction limits out of your IRA. David discusses how they're being invested in, and how some licensed life insurance agents persuade people against investing in the stock market. As David illustrates, there are some shortcomings in the approach similar to the event attendee he was chatting with, as the approach doesn't appreciate the broader role that the stock market plays, in a balanced approach to tax-free retirement planning. The LIRP, especially that in the form of a puppy and in the form of the IUL Index Universal, can generate up to 5-7% annual rate of return. "The LIRP is not designed to be the primary source of retirement", says David. "Savings are designed to be a supplemental source of retirement savings". David goes over the type of life insurance agents you want to stay away from, and why you may want to embrace a stock market-type approach to investing. When it comes to the LIRP coming into play, the focus should be on an approach that involves both stock market and LIRP – as they both play an indispensable role in a comprehensive, and well-balanced, path to retirement planning. Mentioned in this episode: David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

Today's episode focuses on the difference between your effective and marginal tax rate and which one is relevant in different financial planning contexts. For David, the American tax system works exactly like a graduated cylinder: your money flows in and it goes all the way down to the bottom. Some of it gets taxed at 10%, some at 12, 24, 32, 35 or 37% – even Bill Gates briefly has some of his earned tax income tax at 10% before it goes all the way to 37%. David explains that the marginal tax rate is the rate at which you pay tax on the last dollar in your tax cylinder, while effective tax rate is your tax as a percentage of your table income. As a "rule of thumb", remember that your effective tax rate is always lower than your marginal tax rate. David shares that the single greatest decision on whether to undertake a Roth conversion is whether your tax rate will be higher now or in the future. He discusses a scenario in which you should use your marginal tax rate, and not your effective tax rate. Evaluating the benefits of certain deductions and calculating short-term capital gains are two additional scenarios in which you should use marginal tax rate. As a general rule, David recommends remembering that the higher your federal marginal tax rate, the more it makes sense to invest in a Roth IRA instead of in a taxable investment or brokerage account. 'Want to calculate what your effective tax rate is? Take your marginal tax rate and subtract 7,' says David. When it comes to mistakes, a common one people make is on deciding between the effective and the marginal rate – and this usually happens with a Roth conversion. Mentioned in this episode: David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

David explains how, normally, we think of the sequence of return risk as the risk associated with the order in which you experience investment returns in your stock market portfolio in retirement. There are a couple of different ways you can safeguard yourself against sequence of return risk. The first one is to allocate money to an annuity that provides for your income during those early years of retirement so that you aren't forced to take money out of the stock market. The second option is to build up cash value as long as you start with enough time before you retire. You can build up cash value inside your LIRP, and you can use that to pay for lifestyle expenses during the down years in the first 10 years of retirement. Lastly, you can shift money out of your stock market portfolio into what David refers to as time-segmented portfolios – short-term debt instruments designed to mature when you need the money. Segmented portfolios are a safe and productive way to mitigate sequence of return risk in the first 10 years of retirement. In Power of Zero, David describes 3 basic types of LIRP: the growth in your cash account being linked to investment bonds in the insurance companies of the general portfolio, the Interest Rate Sensitive Universal Life, and the so-called Variable Universal Life (VUL). For those of you who have VUL, it isn't necessarily time to panic, says Nelson. Mentioned in this episode: David's books: Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code DavidMcKnight.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube

There are dozens of contexts in which life insurance gets used, but 95% of the time, and from a Power of Zero planning standpoint, it gets used in two different ways. David explains how having a certain amount in your taxable bucket may sound great because it's liquid and you can access it, but by taking the inefficiencies in the taxable bucket, you amortize them out over the balance of your lifetime – and this may end up costing you hundreds and thousands of dollars. There are different ways you can skinny down your taxable bucket. The first one is utilizing your least valuable asset – your taxable bucket – and use that to pay for your lifestyle. Maximizing your 401k or, even better, your Roth 401k at work is a second way to skinny down your taxable bucket. The third way is to simply contribute to the Roth IRA. David suggests never letting a year go by where you don't contribute to the Roth IRA. The fourth way to skinny down a bloated taxable bucket, on the other hand, is by using those dollars to pay for the taxes on your Roth conversion. As David notes, if you're younger than 59 and a half, the only way to do a Roth conversion is if you have money sitting in your taxable bucket that you can earmark for the tax on that Roth conversion. And in case you try to have the IRS withholding tax from your Roth conversion when you're younger than 59 and a half, you'll get a 10% penalty even though you may be taking that money out and giving it back to the IRS in the form of taxes. If you're younger than 59 and a half, you can have taxes withheld directly from the Roth conversion itself, even though David doesn't recommend doing it. The last way you can spend down on a taxable bucket that has a balance that's far too high is by way of the LIRP. David explains that the LIRP is not designed to compete with your stock market investments, rather to serve as a bond replacement. Reaching into your investment portfolio, 'pulling out the bonds' and replacing them with the LIRP will get you a greater return, lower risk, and a lower standard deviation. It's just a more effective way to grow your money as a bond replacement. David sees growing your money between 5 and 7% without taking any more risk than what you're taking in your savings account as a safe and productive way to grow at least a portion of your retirement savings. David goes over how the LIRP can be much more efficient than simply growing dollars in the tax-free bucket.

David discusses how Mitt Romney is at the forefront of trying to save Social Security, Medicare, Medicaid, solve the national debt problem, all while simultaneously trying to save the country. In a recent interview with former Power of Zero Show guest Maya MacGuineas, Mitt Romney discusses something that should resonate with you if you care about national debt and the future of the country. David believes that if Romney were to get through the Trust Act he has proposed, he could very well save the Republic. And he appreciates the fact that while some may avoid saying things that could get them voted out of office, Romney isn't afraid to speak his mind – something that David sees as a sign of integrity. In his interview with MacGuineas, Senator Romney talks about the frightening issue of the additional debt and the already existing debt, and points to the fact that over $400 billion was spent on the interest alone in 2021. David sees raising interest rates as the only way to combat inflation. Argentina, which has its inflation at 50%, recently raised their interest rates 250 basis points, from 40 to 42.5. For Senator Romney, at some point, the U.S. is going to be spending more on the interest than they are on their military (currently $700 billion). He isn't sure as to how you can be the leader of the free world if you're having to pay hundreds of billions of dollars in interest and can't even keep up with your military, education, support your health care system, and so forth. David Walker, author of America in 2040: Still a Superpower? A Pathway to Success, shared a similar feeling on the Power of Zero Show about a year ago – saying that a country can't remain a superpower for long if it can't get a handle on its finances. In the interview with Maya MacGuineas, Mitt Romney also touched upon the importance of taking action before trusts such as Social Security, Medicare, and Medicaid run out of money. His words seem to indicate that dramatically cutting these programs for baby boomers isn't really in the cards, which leaves higher tax rates as the solution. An additional point Senator Romney made during his interview with MacGuineas is the fact that continuing to add debt at a time like this is threatening our future, as well as the future of our kinds and grandkids. Seniors need to be protected with Medicare and Social Security, as well as Medicaid and keep America strong. As history of great civilizations has taught us, a characteristic of their failures is the beginning of massive spending that was greater than the money that was taken in. For David McKnight, these possible solutions might be too little, too late, but he still admires Romney's willingness to discuss such a polarizing issue. In the interview, Senator Romney shares what he considers a possible solution to the issue at hand. And that is dividing the different trust funds and establishing a bicameral and bipartisan Rescue Committee of sorts for each one. This may not solve all four trust fund deficits but if a solution is found for any of them, and if it can bring balance and long-term solvency, it would create the impetus needed to take on the effort even further – and potentially solve all of them. David likes the fact that Romney brings Americans up by staying on the country's current fiscal path. Nobody would like for the U.S. to go bankrupt but people would like it even less when debt gets so large that the costs of service in it consumes the entire federal budget, and the benefits of the various programs would get cut dramatically. Baby boomers are the single largest voting block of the nation and they won't risk losing their Social Security, and Medicare benefits, as nobody wants to alienate that particular block of voters. However, it's going to be generation X and millennials who are going to pay the price – with Social Security age potentially being moved out to 72 or 75. Romney doesn't believe that most Americans realize that talks about balancing the budget are only matters related to one-third of the budget. David is encouraged by Senator Romney taking the problem head on, and identifying it as the foremost problem. He sees it as the type of leadership that David Walker called for in his most recent book. According to David, for people interested in adopting the Power of Zero approach to retirement, this means taking advantage of historically low tax rates while they're allowed every year. Mentioned in this episode: Interview between Maya MacGuineas and Mitt Romney

Mark Byelich doesn't know when taxes are ever going to be lower than they are right now. David sees Medicare, not Social Security, as the main issue because Medicare is five times more expensive and it's what's really going to be driving debt over time. David thinks that Social Security can easily be fixed by moving the age of retirement or by adding means testing like it happens in other countries. In his opinion, the challenge is how to renegotiate Medicare. It's what is increasing by 6% each year, on average. This, without taking into consideration that there are 10,000 baby boomers who are exiting the workforce. Mark confirms a question that was asked; the amount you can put in a Roth IRA annually, in 2022, is going to be limited. David believes that the direction capital gains are heading toward depends on who's in office. If you have Democrats at the Presidency, they're most certainly trying to raise them. Republicans tend to think that high capital gains affect the growth of the economy. If one leaves politics aside and looks at the math of it all, capital gains are going to have to rise precipitously – along with individual tax rates – or the U.S. is going to go broke as a country. David is a fan of extending the Roth IRA conversion period beyond 2026. In replying to a question that was asked, he discusses how he would prefer paying the 22-24% bracket up until 2026 rather than preventively paying the 32% bracket. He thinks that there is going to be a "perfect storm" in 2030; demographic, debt, and unfunded obligations – so you want to get things in order before then. There are a couple of things that have hit a nerve with David; bouncing into the 32% tax bracket and people wincing over IRMA. There's a trade-off, though; one can pay an increased IRMA in the short term to spare IRAs and Social Security from higher taxation over the long-term. If a person can get to 0% tax bracket in retirement by shifting most of their assets to tax-free, they would put themselves in a position where they wouldn't have to pay IRMA anymore, they wouldn't have to pay Social Security taxes anymore, and they would shield themselves from the impact of high tax rates down the road. David provides an overview of his books Power of Zero, Look Before Your LIRP, The Volatility Shield, Tax-Free Income for Life, and his upcoming one, the 75,000 word-long, The Infinity Code. David shares what is the greatest risk according to retirees; running out of money before you run out of life.

Normally, it takes a year to add $1 trillion to the national debt. With Covid-19, we have added $6 trillion to the debt. Something that usually happens in 6 years took place in 3 months. David believes that instead of cutting the various programs, the government is going to raise more taxes. Mark discusses main turning points of his career: being part of Ed Slott's mastermind group since 2011, seeing one of David's presentations, and getting a copy of The Power of Zero at a conference in San Diego back in 2015. Some of the studies Mark Byelich has done show that the average middle-class American will be in the 40 to 45% effective tax rate – within the next 10 years. David talks about the fact that some believe that rich people don't have the money for all that the government is offering. David answers a question related to what people should be doing. David wouldn't tell people 'Ok, we only have 4 years, now I'm going to bump up into the 32%.' David suggests people take advantage of these historically low taxes but don't succumb to the temptation to bump up into 32%. David discusses the fact that if Republicans were to get control of everything in 2024, they could extend the Trump tax cuts for another 8 years. For David, one of the tools they have to fight inflation is to raise interest rates. The problem is that the reason why the country is able to sustain this debt for a long period of time, is because the country has had historically low interest rates for so long. David shares something in the Constitution that says that the Federal Government is required to pay – simple work pensions, interest on the national debt, etc. Mark talks about the one item that's currently concerning him when it comes to the health of financial plans, and investing.

In a previous episode of the Power of Zero Show, David discussed the importance of having a guaranteed 0% loan provision in your LIRP. Beware: even if an insurance company has a guaranteed 0% loan provision, there's still another way that they can get you. There are two ways in which they can configure these loans: they can either charge you interest in advance or they can charge you interest in arrears. In the case of interest charged in advance, the insurance company charges you the interest rate at the beginning of the year in which you request a loan. If they were charging you 3% on a $100,000 loan, you would owe them $3000 at the beginning of the year. This means that since you need to pay out the interest at the beginning of the year – instead of at the end of the year – you lose out on the interest that money could have earned you had you been able to keep it inside your growth account and compounded it over the course of a year. With interest charged in arrears, on the other hand, you get charged the interest at the end of the year. This means the situation is very different, as you will have on hand the interest that they credited to your loan collateral account – and it pays for the cost of that loan. David shares that there's an insurance company out there that does charge interest in advance but goes about it differently. They credit your loan collateral account at an interest rate that's greater than the amount they charge you in advance – to compensate for the opportunity costs you lost out over the course of a year. In case you have a LIRP and would like to know whether your insurance company has interest in advance or arrears and what implications that might have, David recommends heading over to DavidMcKnight.com. You'll be connected to an elite member of the POZ advisory group. The Index Universal Life is the policy David prefers and recommends. The insurance company doesn't treat the premium the way a normal investment would get treated. There's a problem you may face, the problem of opportunity costs. As David explains, "if I give you a dollar that I didn't really need to give you, not only do I lose that dollar, but I lose what that dollar could've earned for me, had I been able to keep it and invest it over the balance of my life." According to David, the ideal scenario is working with a company that charges interests in arrears, offers a guaranteed 0% loan, and sweeps your money out of that on a daily or weekly basis.

Today's episode focuses on outlining the basic differences between long-term capital gains and ordinary income taxes, and showing how they interact with each other from a taxation perspective. The idea for the topic actually came from a question one of David's POZ advisors had received ahead of a recent webinar David hosted. Long-term capital gains typically get added to your Adjusted Gross Income (AGI), which is important, because your AGI determines whether you can contribute to Roth IRAs, or when you get phased out of certain deductions. Despite this, it's important to keep in mind that long-term capital gains get taxed in a completely different tax cylinder when compared to ordinary income. Long-term capital gains are completely different from short-term capital gains, in that they have their own tax cylinder that includes only three tax rates: 0, 15, and 20. The rate at which long-term capital gains get taxed depends on what your ordinary income tax rate is in a particular year. As David explains, it's important to remember that the amount of ordinary income you have – the actual amount of net taxable income – informs the taxes you pay on your long-term capital gains. For David, once you understand the difference between the two taxes, there are several interesting strategies you can implement. It's paramount to remember that ordinary income on the Roth conversion gets taxed first, while the long-term capital gains calculation takes place after that.

David's upcoming book, The Infinity Code, is a novel that talks about important financial concepts and themes, and that will keep you on the edge of your seat through the entirety of the read. The book will be available on Amazon and other stores soon. In David's opinion, starting a LIRP is a bit like getting married, so it's important to be meticulous in your research. When it comes to LIRPs, the IRS allows you to take a loan – the way these loans work is that instead of taking a loan from your cash value itself, you're taking it from a life insurance company. A zero cost loan, also known as a wash loan, is when, for example, you were charged 3% by the life insurance company. In order to make it an arms' length transaction, the amount they charge you and the sum they credit you is always the same. David warns against going for loans that don't have a guaranteed 0%. In an ideal-case scenario, you'd have tax-free and cost-free distributions. One of the issues that may raise has to do with the fact that for the IRS, if a person doesn't have at least $1 in their cash value when they die, then all of the tax-free loans they got along the way need to have their taxes paid back, all in the same year. David strongly believes that 0% spread loans are one of the stipulations that you must insist upon, when it comes to a LIRP. The cash value of a life insurance company might sound great, but it really is inconsequential when compared to what David sees as the most important provision: your loan provision. If you decide not to opt for a 0% spread that's guaranteed, then you run into the risk of having life insurance companies adjusting that in order to hit their quarterly forecast. Hence, it's paramount that you ask for a guaranteed 0% loan. For David, a good loan provision charges no net interest to the client, and it's also worded in a clear and unambiguous way. A band loan provision, on the other hand, not only has net interest, but it's also worded using nebulous terms, and has convenient escape clauses (convenient for the life insurance company, that is). David isn't convinced that most of the financial services industry understands the implications of these types of loans. Therefore, he recommends that, before you go down the road with a financial advisor talking about an LIRP, you insist upfront that they tell you all of the details of the loan provision of that particular contract. You should be familiar with your loan provisions because, otherwise, they will come back to bite you. The loan interest will accumulate, it will compound over time, and it will force you to go bankrupt years in advance than when you ever thought possible.

Episode 165 of the Power of Zero show covered how Joe Manchin gave a firm 'No' to Joe Biden's signature legislation, the Build Back Better plan, in its current form. This topic is of crucial interest in regards to Power of Zero planning, because had he gotten that legislation through, it would have required the changing of the U.S. tax code to pull it off – this would have extended the Trump tax cuts for middle America by another 8 years. Democrats managed to get Manchin back to the negotiating table but this came with a twist: they hadn't anticipated that he was prepared to bring forth a revised bill of his own. The $1.8 trillion compromise bill proposed by Manchin addressed the parts about climate change and childcare provision with the intention of changing them. According to anonymous sources, President Biden and Manchin were close to reaching a deal. Had they succeeded, the Trump tax cuts would have been extended for another 8 years. This would have been good news from a power of zero retirement planning strategy point of view but bad news for the fiscal condition of America. What transpired from a couple of articles published in The Washington Post and Yahoo.com was that the compromise proposal had been taken off the table – something that was later confirmed by an impatient-sounding Manchin himself. The likely outcome of all of this is the expiration of Trump tax cuts in 2025. As this appears to be the end of the Build Back Better plan, it's important to start looking at potentially stretching tax obligations out for more than 4 years. Also, the closer you get to 2026, the less sense it makes to try to get all of the heavy lifting done between now and then. David would warn against letting your shift plan go too long and get too close to 2030 and beyond, for the fact that the closer your shifting plans get to that year, the more likely the government will be to raise taxes to pay the interest on the national debt (which, as you may remember, is approaching $30 trillion). An economist David had recently listened to discussed how he had seen 3-4 interest rates happening over the course of the next 12 months. Paying the interest to service the national debt is likely to skyrocket, and it will consume more and more of the federal budget too. Year after year, every little uptick in interest rates increases the chances of tax rates rising dramatically between now and 2030 – otherwise, the U.S. could go broke as a country. These exploding interest rates may actually constrain the federal government to raise taxes. David suggests making sure that you get all of your asset shifting done before 2030. Unless Republicans gain control of the House and Senate, and the Presidency, in 2024, it looks like Trump tax cuts will expire in 2026. This will probably lead to many people not being able to get their shifting schedule completed before tax rates will go up for good.

As David explains, there are two ways of controlling our budget: raising revenue or reducing spending (or some combination of the two), just like an American household. Rebecca Walser thinks that Modern Monetary Theory (MMT) could be decimated by Covid-19. And there are a few key issues that have surfaced: the U.S. Government printing $8 trillion and the equity market going up over 40% (pre-Covid) with no economic fundamentals to support it, 10 million job openings, supply chain issues, as well as interest rates that are outrageous and inflation way too high year over year. Rebecca defines MMT as the theory that states that 'we can print money indefinitely and to perpetuity as long as we can service the debt.' However, MMT sort of requires that you don't believe in inflation any longer, for the fact that if MMT is true, then inflation will never occur. For Rebecca, the law of economics is just too big and too right to bow to the theory of MMT. As a result of that, we have a hard inflation that, despite manipulation by the U.S. Government by taking out food and energy, still leads to massive price increases year over year – increases that are not transitory. As Rebecca shares, from a perspective of tax law, life insurance is the only asset class that can have both tax-free income, a tax-free estate, and that can still be accessed during our lifetime. It's a combination of four different tax law provisions, no other asset class that has so many tax provisions specifically arranged around it. After seeing the impact of Corona – and the $8 trillion being spent – Rebecca has given up on rates normalizing over the next 20 years. She sees life insurance as the planning tool that can be leveraged from both an estate tax perspective, and what she refers to as a 'parallel wealth track'. The retirement of baby boomers represents the largest demographic shift in the history of America. 65 million more people coming out of the workforce and going on to social security and Medicare will lead the U.S. to have their back against the wall. According to Rebecca, the retirement of baby boomers is something that has been anticipated since the '70s but nothing has been done about it. As a result of this phenomenon, she predicts America will transition to a European taxation model. Rebecca doesn't consider herself a huge fan of leveraging income annuities, because she sees it as the equivalent of taking a pile of cash and creating a lifetime income stream. There's an exception to this last point, though: if Rebecca has a client she feels is going to really struggle to maintain their income for the rest of their life, then that is a perfect use for that particular vehicle. To Rebecca, it appears that people don't seem to realize that financial asset classes change over time. The downside is what makes retirees run out of money and it's something people don't plan for. However, it's a key factor because, as Rebecca explained, as long as you avoid the downside you "win the battle" – even if you planned on a mediocre 4% return for the rest of your life. As she shared, people are so used to chasing returns that they don't understand that there's a peak, a point in life at which a person moves from accumulation to distribution. Distribution rules are different from accumulation rules. There's a dilemma many of us face: how do we give our children something more than we had, without quenching their innate desire to make something for themselves because they have been challenged? This is one of the reasons why, in Rebecca's opinion, you see so many wealthy people's children going the wrong way - becoming addicted to a substance, etc. – because they just don't have an outlet for their individual need to become something.

Rebecca Walser thinks that the 401(k) is a failed experiment. In her opinion, the Revenue Act of 1978 was nothing more than a corporate tax dodge for highly compensated executives, and not a state retirement vehicle. While working as a benefits consultant, Rebecca was looking for a way to administer an alternative savings plan for a client as opposed to just a cash bonus savings plan. She came upon the 401(k) provision and noticed it was a "tax dodge" that could be leveraged. One of the main conditions for this to happen was to ask the IRS if they could allow for the provision to not be taxable – otherwise, Rebecca's client would have "phantom income." They needed the IRS to confirm that the money wouldn't be taxed until it was accessed. At that time, corporations were severely underfunding their pensions. On the benefits side, they were responsible for putting money away and investing the funds, as well as for having enough to honor those pensions and meeting those obligations. When the 401(k) provision came to be, it shifted the burden to individuals to elect to make the contribution – and all of this happened without any testing. In the late '70s and early '80s, it was a stockbroker's world. People had to call their stockbroker to invest in the market. Private banking and stock brokerages weren't something mainstream America had access to, and suddenly Wall Street had massive million-dollar-cost averaging and it was a way Wall Street had exploded. When it comes to longitudinal, long-term investments – and when you look at various indexes – Americans don't make the minimum averages of any index. There's one piece of advice that Rebecca considers to be absolutely right every single time, and that you can take to the bank: 'Buy Low, Sell High'. When you look at behavioral finance, you realize people have a fear of missing out when the market is high. Even though some people may have had their portfolio 40% higher pre-Corona, they're still thinking that there's space for it to grow, so they don't want to sell out. When some investors start to see a stock coming down, they keep their position of waiting for it to get to "one dollar higher." What happens in these cases is that the stock declines and reaches a low at which point the investor says, 'I can't afford to lose anymore' – and ends up selling when the stock is at the bottom. By nature, when we're managing our money, we do the opposite of what we're supposed to do. The DALBAR Statistics show that the average investor has done so much worse than the average and indexes themselves. Wall Street attached itself to pre-tax wealth-building. When pre-tax paying came about organically, people were intrigued by the idea of putting their money in a "silo," where they could save up and have to pay taxes on it only when they retired – and since they would eventually be in a lower tax bracket, they could pay less taxes. However, they forgot to tell people one thing: in order for you to be able to choose your tax rates when you're going through your lifetime, taxes have to remain relatively stable During Reagan's second term, with the passing of the Tax Reform Act of 1986, the top bracket to 28%. This widened the bracket, and people who were making $28k a year (after deductions) became part of that bracket. The retirement of baby boomers will shift us to the new phase of taxation in America. It's the thing that has been talked about since the '70s: this decade between 2020 and 2030 will be the decade where everything that has been pushed down the road will come to fruition. For the first time in the history of America, the country will have a European-styled system for a third of its people (one-third of Americans will be on social security and Medicare). Back in 2009-2010, David Walker stated that tax rates would have to double in order keep the U.S. solvent. Not only does he still stand by that statement but he also thinks that tax rates in the future will never be as low as they are today. Before the pandemic, Rebecca Walser was extremely concerned. Now, after having seen how the world dealt with Covid-19, she is mortified by how scary of a fiscal position America is in, especially because of its special status as the World Reserve Currency. Currently, there is over $8 trillion of printed stimulus currency in the U.S.. To give some perspective: Reagan took office in January of 1981. One trillion dollars of debt wasn't reached until October of that year. From October of 1981 till February of 2020, the Federal debt was under 29 trillion dollars. In the last 20 months, $8 trillion has been printed to deal with Covid-19. Before the pandemic, Rebecca was worried. Now, we're at a point where we're talking about a global Central Bank reckoning. The U.S. has been the World Reserve Currency since 1944. In the past, China and India wouldn't bilaterally trade in their domestic currencies, they would buy dollars and use those to trade. Then, you had the BRICS (Brazil, Russia,

David has been tracking Joe Biden's Build Back Better plan for the last 6 months – and the sticking points have been Joe Manchin and Kyrsten Sinema. Joe Manchin, in particular, has always been the one senator having issues with Biden's signature bill. He has had issues with the size of the bill, and whether it was going to have an effect on inflation which is something that has already been ruled by many economists as no longer transitory. Jerome Powell, the Chair of the Federal Reserve, has indeed confirmed that inflation is here to stay. There's been big news out of Washington: Joe Manchin has finally weighed in on whether or not he'll vote for the Build Back Better plan. After months of speculation on whether Manchin would fall in line with his fellow democrats or not, he has made it known that he won't back the BBB. One of the things Senator Manchin did was check what the Congressional Budget Office had to share in regards to the impact on inflation and other facets of the economy. Even though Jeff Levine (@CPAplanner on Twitter) seems to think that democrats could circle back after the New Year and could bring Manchin back on board, David finds that unlikely. Senate Minority Leader of the Republicans, Mitch McConnell, said that if Manchin became a Republican he would welcome him among the Republicans — this could cause a debate on whether Manchin is a Democrat at the end of the day. The Trump tax cuts will expire in 2025, and we'll see the same tax rates we saw in 2017. The 12% tax bracket will become 15%, the 22% will become 25%, and the 24% tax bracket will become 28%. Starting in January 2022, you'll now have 4 years (2022-2025) to be able to reposition to take advantage of these historically low tax rates – instead of having the 8 years that were thought to be possible under Joe Biden's BBB tax change legislation. According to David, this isn't great news for those trying to get to the 0% tax bracket. The goal is to stretch the tax allocation out over as many years as possible before tax rates go back up for good. As of today, it looks like that's going to be in 2026. If your listeners would like to get all the heavy lifting done, there's a greater likelihood that they would rise into a tax bracket that would give them "buyer's remorse" (as opposed to being able to stretch out those tax allocations over 8 years). Those who like government restraints would find significant the fact that, despite being paid for under its current iteration, the BBB would add $3 trillion of debt over a 10-year timeframe, were they to extend a lot of the spending initiatives that expired a couple of years into the program. This isn't good news for those who were hoping to stretch the tax obligation out over a longer period of time. David's gut tells him that Biden's signature legislation, his legacy as it were, has one chance to leave his footprint on America. However, it looks like it's just not going to happen. According to prognosticators, Democrats will lose majority in the House and majority in the Senate come midterms in 2022. Mentioned in this Episode: Joe Manchin's words on Fox News Sunday - youtube.com/watch?v=h61hhGMe_oA

David's latest book, the Infinity Code, is centered around the story of a shadowy cabal bent on transforming the US monetary policy and has recently been finished. The Fed is currently wrestling with raising interest rates in an effort to combat inflation, but they are facing an obstacle in the form of the national debt. If interest rates are raised, which is the way the Federal Reserve usually responds to inflation, the cost to service the national debt will rise dramatically and could force the US government to raise taxes on nearly all Americans to simply avoid defaulting on the debt. Defaulting on the debt would precipitate a global depression that would cause the stock market to tank. The debt has become so big that the main tool of the Federal Reserve has been taken away. One of the unintended consequences of such a large amount of debt is that the debt starts to call the shots and limits your options. The current state of the Build Back Better Plan is delayed. The legislation has been kicked down the road until 2022, and generally, legislation that wallows in Congress for too long becomes very unattractive. The Democrats have put a deadline on the legislation of Dec 28, 2021 but even Chuck Schumer admits that it would be very ambitious to accomplish that. Joe Manchin is in no hurry, particularly with the latest report that inflation in the US is running at 6.8% annually which is the highest it's been in over 20 years. Senator Lindsey Graham told reporters that he spoke with Manchin and and they are largely on the same page. One key issue with the plan is that programs that are set to expire over the next few years rarely do, and if that's the case, the true cost of the bill would be an additional $3 trillion over 10 years. At this point in time, we still don't know what will happen to tax rates over the next 10 years. If Biden does get the bill passed, he will likely extend the Trump era tax cuts until 2029. It comes down to whether you will be able to execute your tax shifting strategy over 4 years or 8 years. If you have to get all your shifting done before 2026, you will give more of your money to tax than you ever thought possible. Mentioned in this Episode: Democrats brace for Build Back Better delay into 2022 - https://www.axios.com/democrats-brace-for-build-back-better-delay-into-2022-b105d083-f716-418f-9e18-c83ec2b6f68f.html

The Baby Boomer Dilemma came about because of Doug's work with David in the past. After a podcast crowdfunding event last January, Doug received enough funding to get things off the ground. The Baby Boomer Dilemma is based around the simple choice families face between a defined benefits plan or a defined contribution plan. During World War 2, there were price wage controls in place, and it was illegal to lure recruits away from other companies with a higher compensation. This became the basis of the corporate pension. Right now, we have the opportunity to reevaluate our assumptions about retirement. Essentially, should people go for a big pile of money with a deferred compensation plan or go for something guaranteed? Doug has conducted several thousand interviews, but the most impressive interview Doug has done is with Olivia Mitchell. Not only was she charismatic, she had an incredible depth of knowledge on both social security and economics in general. When it came to annuities, she was the one that discovered that you could draw more in retirement by incorporating an annuity than with stocks alone, up to 40% more. The film dives into pensions, both corporate and public, and the global issue of social security. The Baby Boomer Dilemma is not unique to America. Doug's other favorite interview was with Dr. David Babel, an economist at UC Berkeley. One of the most interesting things about Dr. Babel is that his dissertation was one about inflation, and as the expert on the topic, he decided the most important place to put all of his money was in annuities. Economists disagree regularly on just about everything, but the one thing they all tend to agree on was the mathematical value of having guaranteed lifetime income in retirement. According to the father of the 401(k), the 401(k) is a disaster for the average investor. While it has done some good, there are plenty of risks involved. Nearly every top economist recommends that some portion of the plan should include some level of annuitization in the accumulation years of someone's life. If you lose 20%-30% before retirement, it's essentially impossible to make it up. Generally people tell you to stick to the plan of consistently accumulating dollars in your stock portfolio, and that works during the accumulation years, but that rule works against you once you start taking money out. If the stock market goes down when you have to take money out of your portfolio to fund your lifestyle in the first ten years of your retirement, you're in big trouble. In Tax-Free Income For Life, the essential message is that when you take your lifestyle needs and subtract your pension and social security, that gap is what should be covered by a guaranteed lifetime stream of income. The Baby Boomer Dilemma is built around a narrative largely inspired by The Social Dilemma. The options were either an immense number of charts and graphs, or build the information around a compelling story, so they went with a story. The story may have been dramatized, but a lot of the reactions from the actors in the movie are genuine to the situation being explored. Doug wanted people to feel the emotions of the story in particular, because he wanted to make something that moved the needle for society. Nothing has seemed to really make an impact in terms of the trajectory of the national debt or the direction society is going. That's the impetus for the message of the Baby Boomer Dilemma. Doug never planned to own an annuity before David's book came out. Prior to that he didn't realize the value of annuity and how it can be done. It's impossible to be an annuity skeptic after seeing the most intelligent people laying out the mathematical case for their benefits. 78% of all businesses with three or more employees are owned by Baby Boomers, and most of those businesses will be sold in the next decade. The $10 trillion that will change hands or fail to sell will pose serious issues in the next ten years. People who sounded crazy in 2006, are now at the forefront of the taxation conversation. Even if we taxed everyone in America at 100% for the next ten years, we would still have a tough time dealing with the existing debt. Mentioned in this Episode: boomermovie.com

Inflation is here, the question is "Is it here to stay?" Consumer prices soared in October 2021 and are up 6.2% from a year earlier, the fastest increase in over three decades. We've grown accustomed to inflation of 2% a year, so the current level of inflation is considerably higher than economists have expected and is having some serious impacts on people's daily lives. High inflation will likely be with us well into 2022 and beyond. The reasons prices are rising are complex. One of the variables is supply and demand and for goods ordered online, demand has far outgrown the ability of the market to produce. We have grown accustomed to ordering online and that trend is likely here to stay. Shipping container costs from China have increased, in some cases up to 15 fold, and those prices have to be passed on to consumers in order for the supply chain to still function. The same is true with labor, and those increased costs are the unintended costs of the increase in demand. Increased demand and reduced supply is the perfect formula for increased inflation over time. Supply chain conditions continue to be stressed which is only exacerbating the problem of disruption and increased prices. There are over 500,000 shipping containers in Southern California alone waiting to be offloaded and processed. From shoes to hot tubs, there is no industry that is unaffected by the supply chain disruption. These challenges are going to continue for the next year at least. We should be getting used to higher prices as the new normal. Paul Tudor Jones says inflation is here to stay, and it poses a major threat to the US economy. Maya MacGuineas feels the same way. Inflation is not just a supply and demand issue, it's also being driven by the money printing that has happened over the past decade and which has recently exploded during the pandemic. We have a tremendous amount of money that has been injected into the economy, and when you have more dollars chasing fewer goods, that drives prices up. In a rising-inflation environment, you don't want to invest in a fixed-income vehicle. Stocks and equities are better options. From the Power of Zero perspective, the number one threat to your retirement is longevity risk. If you have guaranteed lifetime income, it must be indexed to inflation. If your pension and/or Social Security are not enough to cover your living expenses in retirement, the shortfall should be covered by an annuity, but to protect against inflation, the annuity needs to be a particular type. If your annuity is not adjusted for inflation, a high-inflation environment can kill your retirement portfolio. A fixed indexed annuity that's linked to the growth of the stock market protects you from that risk. For the rest of your stock market portfolio, you need those dollars to compound in a fairly aggressive way to keep pace with inflation. With your basic needs covered, you have a permission slip to take more risk in your stock market portfolio. This also allows your portfolio to recover during down years instead of forcing you to take money out during those years which can put your portfolio into a death spiral. The LIRP is another excellent place to draw money for discretionary expenses during the years the market is down. The Volatility Shield covers this strategy in depth. Mentioned in this Episode: How the supply chain caused current inflation, and why it might be here to stay - pbs.org/newshour/amp/economy/how-the-supply-chain-caused-current-inflation-and-why-it-might-be-here-to-stay Paul Tudor Jones says inflation could be worse than feared, biggest threat to markets and society - cnbc.com/2021/10/20/paul-tudor-jones-says-inflation-could-be-worse-than-feared-biggest-threat-to-markets-and-society.html

As a financial advisor, David came up with the concept of the three buckets and a quick five-minute presentation to convey the idea to clients. This developed into an hour-long presentation which eventually became the seed of the Power of Zero book. It took David just three days to write the book because the core of the material was already in place. He just had to commit to putting it onto the page. The book was republished in 2018 with new content by Penguin Random House. David is currently writing a fictional story centered around a financial theme that has a lot of real-world applications right now. The plot basically revolves around the very real threat of Modern Monetary Theory. Modern Monetary Theory is the idea that the government isn't constrained by the same restrictions as the average American family and can essentially print as much money as they want without repercussions. All of the economists that David has interviewed for his podcast essentially agree on the fact that implementing MMT would lead to hyperinflation. However, this doesn't stop MMT proponents from espousing the theory though. If you start accumulating debt in the belief that it won't affect anything, reality will prove you wrong. The cost of servicing the level of debt the US government currently has is taking up a large portion of the federal budget. By 2040, it would consume the entirety of the federal budget if interest rates simply went back to where they were at in 2003. David believes the moment of reckoning for the US is going to be 2030. Brian Beaulieu has predicted the major economic trends with 90% accuracy over the past 40 years, and he believes that 2030 will be a confluence of events that will result in a global depression. As rough as the dollar is, it's still one of the most stable currencies in the world. It's relatively unlikely to be usurped. The real issue is that Social Security and Medicaid are tied to inflation, so if we print more money, the cost of the programs also rises and you will never really get ahead. The US is facing down a fiscal gap of $239 trillion just to be able to deliver on the promises already made. The Biden tax legislation has pros and cons for many Americans, but the bottom line is that he's not addressing the underlying problem. It doesn't arrest the slide into fiscal solvency. Politicians are generally reluctant to push anything through right before midterms. If the legislation doesn't get passed before the end of the year, it may never happen. If David were the president of the United States, he would take a page out of Larry Kotlikoff and basically guarantee that Biden wouldn't be elected for a second term. The big focus would be to reform the social programs that are driving the debt, in particular MediCare. Without this kind of action, the national debt will grow by definition. Maya MacGuineas did a study to find what the government would have to do to simply prevent the debt from growing by $1 trillion per year, and she found that they would have to tax every dollar earned above $50,000 at a rate of 40%. There is no way around the math. If we are going to fix this problem, no amount of taxing the rich or everyday Americans will do it. We have to fundamentally reform Social Security, MediCare, and Medicaid to get our country back on track. On Jan 1, 2026 tax rates are going to revert to what they were prior to the tax cuts. If you want to do Roth conversions, now is the time. You have five years to take advantage of the current historically low tax rates. Every year that goes by that you fail to take advantage of those tax rates, it increases the likelihood that you will rise into a tax bracket that gives you heartburn. When it comes to Roth conversions, time is your friend and when time is short they become less appealing. When doing a Roth conversion, you have to be convinced that the tax rate you will pay today will be lower than what you would be forced to pay somewhere down the road. If tax rates are even 1% higher, then it's probably the right move.

The situation with the Biden infrastructure plan continues to evolve. Senators Joe Manchin and Krysten Sinema have continued to be obstacles in the Democrats' way from getting the bill passed. The Democrat caucus has been in disarray and seems to be pulling in different directions. Biden was hoping the bill would pass by having everyone vote before the legislation was written prior to him landing in Rome. Right now, it looks like things are dead in the water including raising tax rates on the rich. The big question is whether the Trump tax code will remain in place until 2026. Joe Biden has expressed his desire to raise taxes on the rich, and the easiest way for him to do that is to simply let them expire. For most Americans, this means that if you want to shift your money from tax-deferred to tax-free, you have just five years left. The fewer years you have to shift your money, the more likely you are to rise into a tax bracket that is going to give you heartburn. Whatever happens in the next week is going to determine how people plan for retirement in a significant way and is going to determine the legacy of the Joe Biden presidency. Will Congress simply change the laws regarding Roth accounts? Not likely. To do so at this point would cause political and economic chaos. The Roth IRA is also one of the accounts that both the federal government and the average American likes. If anything, the government will try to make the Roth IRA even more attractive in order to raise more tax revenue now. David is currently writing a new novel based on the very real threat of the Modern Monetary Theory to America. There is a massive fiscal gap in the US of $239 trillion dollars which is going to have to be dealt with eventually, but the Modern Monetary Theory has been saying the debt is nothing to worry about. Modern Monetary Theory is becoming more in vogue recently with many politicians advocating it as a solution to our economic woes. Inflation is already here. We feel it at the grocery store and in our everyday expenses, but we are just at the tip of the iceberg. There is no question that inflation is coming, but whenever MMT proponents are asked about it, it's never their fault. We have been practicing MMT for decades at this point, and eventually we will get to the point where interest rates begin to rise toward historical averages. When that happens the interest on the debt will consume the federal budget. Social Security, Medicare, and MediCaid are tied by law to inflation, so when money is printed to pay for those programs their cost goes up commensurately. It's not possible to print enough money to solve the issue. Longevity risk is a major concern for all retirees, and one of the ways to mitigate it is with the 4% Rule, or what some economists now call the 3% Rule. The trouble is the rule is a very expensive way to mitigate the risk. The alternative is with a guaranteed income annuity. The financial industry has accepted the reality of longevity risk and the benefits of annuities in mitigating that risk, but since the standard is to implement that annuity in the tax-deferred bucket it comes with a number of drawbacks and other risks. Some companies allow for piecemeal Roth conversions which allow you to convert that annuity money to tax-free. For people who say annuities are not for them, they aren't going to like Social Security or their company pension plan since they operate exactly the same way. The Power of Zero paradigm basically says that tax rates are going to rise dramatically in the near future, and when you have the majority of your money in tax-deferred accounts like 401(k)s and IRAs, you are at risk. David advocates for five or more streams of tax-free income including the Roth IRA, Roth 401(k), Roth conversions, and LIRP. The LIRP stands out because of its additional features of mitigating long-term care and coming with a death benefit. Very few Americans will be exposed to the estate tax even if it's lowered by Joe Biden. There are strategies you can use to avoid going past that threshold. David's number one tip as a father of seven is that you have to remember to stop and smell the roses along the way. Have a long-term perspective and know there are precious moments that will pass you by. Starting a life insurance policy is like getting married, it only really works if it's until death do you part. You have to make sure you have a list of things in mind when picking a policy. They are long-term contracts so have a long-term perspective when choosing one. Required Minimum Distributions may be impacted by the Secure Retirement Act working its way through Congress right now, but RMDs only affect 20% of Americans since most people will be accessing in excess of their RMD. The death of the stretch IRA is a big deal and puts an emphasis on converting your IRA to tax-free today. Even if you think your tax rate is higher now, it may still be lower than your kid's tax rates in which case you should str

Joe Biden has talked about how his tax plan is cost neutral, where the increases in taxes on the wealthiest Americans will offset the costs. Maya MacGuineas recently took a look at the numbers to find out if that's true. The Build Back Better Act is set to cost $2.1 trillion as it's currently written. It relies on a number of sunsets and expirations to keep the costs down. If the plan's temporary policies were made permanent, the costs would increase by an additional $2.2 trillion. When the federal government is trying to make a bill seem cost neutral, they often build expiry dates into the legislation, knowing full well that Americans will get hooked on those programs and then demand they be renewed. This makes the cost of the program appear lower and much more palatable on the front end. The Build Back Better Act has several such gimmicks built into it including extending the child tax increase, the earned income tax credit, and setting universal Pre-K and childcare to expire after six years. These are things that are likely to be around for the long term. The most expensive provision would cost roughly $1 trillion to make permanent. Universal Pre-K and childcare subsidies would cost over $400 billion a year when combined if extended beyond their expiration dates. As written, the Build Back Better Act will increase the deficit by $800 billion over the first five years and then taper off from there for a net additional cost of $2.2 trillion. If the legislation were made permanent without additional taxation, it would add nearly $1.5 trillion to the deficit over five years and increase the total debt by $3 trillion by 2031. The Build Back Better Act relies on short-term policies and arbitrary expiration dates to lower the cost. This allows the government to present the bill as cost neutral, although any extensions will have to be funded by debt. History serves as a model, and it's fairly likely that those short-term programs will become permanent in time. The tax rules have recently been updated for 2022. Because of higher than usual inflation in 2021, the index for inflation has increased as well. The standard deduction has modestly increased from $25,100 to $25,900 for married couples. The personal exemption is not coming back until 2026. Under the current law, the standard deduction will be reduced when the personal exemption returns and will end up with a net neutral effect. Capital gains tax rates remain the same, but the tax brackets are changing. The federal state tax exemption for decedents dying in 2022 will increase to $12.06 million per person. The gift tax exclusion jumps from $15,000 in 2021 to $16,000 in 2022. The Roth IRA is not changing to adjust for inflation because that would require an act of congress. 401(k) contribution limits are being adjusted alongside Roth 401(k) and 403(b) plans. Roth income limits will go up slightly in 2022 from $204,000 to $214,000. This is something that should definitely be changed because the cost of living is not the same all over the country. There has been no change to the provisional income thresholds. If inflation continues to go up and Social Security is increased to keep up, there are going to be more people that bump into Social Security taxation.

There is a little-known part of the IRS tax code that allows you to access your 401(k) or 403(b) prior to 59 and a half without penalty. Traditionally, the penalty is 10%, but the Rule of 55 gives you access without paying a penalty, but it comes with certain requirements. If you leave your job in the calendar year you turn 55 or older for any reason and your employer has stipulated that you have the ability to tap into your plan, you can do so without penalty. Some plans may require you to withdraw your entire balance as one lump sum, which would most certainly be a bad deal. To maximize the Rule of 55, there are a number of roll-over strategies you can use. For example, if you have an old 401(k) or IRA, you can roll those balances into your employer's plans, and then when you separate you will have unfettered access to the total amount between age 55 and 59 and a half. If you have specific circumstances or know that you'll have heavy cash flow needs between those ages, this is a solid, penalty-free option. You have to get all the shifting done before you leave your employer. You won't be able to roll over a balance after you are no longer employed. There are some caveats. You can only withdraw funds from your most recent employer, and you can't make penalty-free withdrawals from your IRA. The Rule of 55 is very specific and only applies to narrow circumstances. People are retiring at younger and younger ages, and if that's the case for you in that period between age 55 and 59 and a half, the Rule of 55 is a great option. You will want to apply Power of Zero principles during those years because if you don't you may bump into a higher tax bracket than you expect or accidentally suffer a 10% penalty. Another reason you may want to take money out of your 401(k) using the Rule of 55 is to take advantage of historically low taxes. You can use the money to fund your lifestyle as well as your Roth IRAs and LIRPs. A 72T is another viable option for some people, but it comes with artificially low limits that may be an obstacle. The 72T works for a lot of people, it just doesn't work for everybody, particularly those that want to retire early.

The Joe Biden legislature is currently dead in the water. Congress people are looking for ways to pay for the package, but even if they could there may not be a package to pay for. Every Senator wields considerable power and a couple in particular have been vocal opponents of the proposed bill. Joe Manchin and Krysten Sinema have voiced concerns about the package and the price tag. Other members of the Democrat party have lambasted Joe Manchin on social media and on the floor, and he has not taken the criticism lightly. He's gone from proposing a $1.5 trillion dollar limit to $0, and Krysten Sinema has made it clear that she's not interested in any sort of tax increases at all. Congress has now turned its attention to a different sort of tax. They've proposed a wealth tax, also described as taxing the unrealized capital gains on the liquid assets of anybody who has $1 billion or more in assets or anyone reporting more than $100 million in income for three consecutive years. This would affect only the 700 richest people in the country, and will generate $200 billion in revenue over the next decade. The reasoning is that raising the tax rate isn't going to directly affect the highest earners because so much of their net worth is tied up in the value of their stock ownership. Democrats are not calling this a wealth tax because it's not being levied against the entire net wealth of a wealthy person. Elizabeth Warren proposed a wealth tax in her presidential run and it is considered to have sunk her campaign. Jeff Bezos doesn't liquidate his stock to fund his lifestyle. He borrows money and uses his stock holdings as collateral. This allows him to fund his lifestyle while still maintaining a controlling interest in Amazon. Democrats have asked Krysten Sinema to weigh in on the proposal, but she's not likely to vote for it since she's opposed to similar measures already being proposed. This would leave the Democrats below the threshold of a simple majority. Critics of the plan say that it will force billionaires out of the stock market and into more opaque markets like art and real estate. The real issue is that, even if passed, this tax only raises $200 billion in revenue. Even if the Democrats managed to pass the bill, there is still no clear plan to pay for it. The real question with this package hanging from a thread is what will happen to individual tax rates? Joe Biden's proposed tax increases are tied to the bill so right now we have a choice. We can either assume the tax rates will expire in 2026 and this bill will not pass. The trouble with this is compressing the amount of shifting you need to do over five years and possibly bumping into a higher tax bracket along the way, only to realize after the fact that you had nine years all along. The reverse is also troublesome. You don't want to plan for nine years when you only have five and end up in the scenario where you didn't shift as much as you need to. Joe Biden wants to increase tax rates on the rich, but the only way for him to really accomplish that is by allowing the Trump tax cuts to expire in 2026. The more time that passes that Joe Biden fails to push through this legislation, the less likely that anything is going to be adopted. Few Congress people want to have their name tied to a controversial piece of legislation leading up to midterms because that's the kind of thing that will get you voted out of office. Mentioned in this Episode: With corporate tax off table, U.S. Democrats turn to billionaires to fund spending bill - reuters.com/world/us/with-corporate-tax-off-table-us-democrats-turn-billionaires-fund-spending-bill-2021-10-25/ Secretary Yellen: How new billionaire tax would work [video] - edition.cnn.com/videos/politics/2021/10/24/yellen-on-billionaire-tax.cnn

David gets variations of one question pretty frequently whenever he gives one of his presentations, whether that's in front of financial advisors or members of the general public. At the end of the workshop, there are five takeaways. The first is that tax rates are likely to be dramatically higher in the future than they are today. Mathematically speaking, we are past the point of no return. The second is that the only way to truly insulate yourself from the impact of higher taxes is to get to the zero percent tax bracket. The third is that it is nearly impossible to get to the zero percent tax bracket with only one stream of income. This is where most people stumble. Invariably at the end of the presentation, someone will come up and ask what the other streams of tax-free income are despite having just gone over six different streams during the presentation. People tend to fixate on the LIRP and forget about the rest. The LIRP is great, but it has a narrow focus and doesn't do enough to generate a stream of tax-free income on its own. Typically, David recommends diversifying your tax-free streams of income because each one is unique and accomplishes different parts of the strategy. Getting to the zero percent tax bracket is like fitting pieces of a puzzle together. Only when you fit them all together does the zero percent tax bracket come into play for you. The first stream is the Roth IRA. If you're younger than 50, you can contribute $6000. If you're older than 50, you can contribute $7000. The thing that makes the Roth IRA unique besides being tax-free is that when you put money in, you can take money out right away. It's the only tax-free stream of income with that feature. The Roth 401(k) is unique because it's part of a company plan and they will often have inducements that go with it. The Secure Retirement Act 2.0 that is working its way through Congress will also allow you to direct that match to your tax-free bucket. This company match is free money and that's something you should always take advantage of. The Roth conversion is unique because it can be the workhorse for your retirement planning. It allows you to convert as much as you want to tax-free because there are no limits at the moment. If you have a lot of money in your IRA ($10 million+), it probably makes sense to convert all of that money before tax rates go up next year. Required Minimum Distributions are interesting in that they come from your tax-deferred bucket. The idea is that the balance in your IRA is low enough that your RMDs at age 72 are equal to your standard deduction and don't cause Social Security taxation. RMDs are the only strategy where you get a deduction on the front end, the money grows tax-deferred, and you can take it out tax-free, also known as the holy grail of financial planning. The LIRP has a lot of things going for it, but one thing that really stands out is the death benefit. Should you die prematurely, your heirs get a death benefit. With the right LIRP, you can also receive that death benefit in advance of your death for the purpose of paying for long-term care. This avoids the heartburn of paying for something you hope you never use. Social Security is the final stream of tax-free income. As long as your provisional income is below certain thresholds, it's tax-free and functions a lot like an annuity. It can help you mitigate longevity risk, inflation, and sequence of return risk. The longer you live, the better it gets. The Power of Zero approach is built around having multiple streams of tax-free income. This is also how you know whether an advisor is following the true Power of Zero plan. Each stream of tax-free income is unique in its own right and contributes something to your retirement plan that none of the others can do.

It looks like Joe Biden's landmark legislation is running into some challenges in Congress. Joe Manchin, one of the most powerful men in Congress right now, has pushed back on the $3.5 trillion bill and counter-offered with a more narrow $1.5 trillion plan. Progressive Democrats in the house are saying that it's too small to make their priorities a reality. Both sides of the aisle are pulling in opposite directions and don't seem to be able to come to a compromise. Joe Biden is making tax reform a major aspect of the Human Infrastructure plan. The increase of tax rates on those making more than $400,000 per year are the means for paying for part of the plan. If the bill fails to pass, the current tax law expires in 2026. If it does pass, the Trump tax cuts will still be in effect for another 8 years. The time difference could be the determining factor in shifting your money to tax-free without bumping into a higher tax bracket. Joe Biden is on the clock. If he can't get this bill passed relatively soon, he's going to convey the impression that his party is in disarray and they aren't going into the midterm elections in a unified way. Typically, the party in power needs to get their priorities done in the first two years. The stalemate in Congress runs the risk of pushing the legislation so far out into the future that nothing happens. The bill will end up somewhere between the two extremes. There are other Senators and Congress people saying that the $3.5 trillion is too small while others are saying $1.5 trillion is the maximum. Nancy Pelosi has recently abandoned the effort to tie the Infrastructure bill and Human Infrastructure bill together. The longer this bill takes to pass or fail, the more likely failure becomes as congresspeople won't want their name attached to it. This means that every day that goes by where this bill doesn't pass, the likelihood is that the current tax rates are going to expire in 2026. Mentioned in this Episode: A top House progressive says $1.5 trillion is not enough to pass social spending plan - npr.org/2021/10/03/1042862107/a-top-house-progressive-says-1-5-trillion-is-not-enough-to-pass-social-spending-?t=1633978400218&t=1634060208587

The increase on taxes on the rich with the Human Infrastructure plan is rumored to cost the average American nothing, but that's not quite the full story. The long-term implications of the cost of the plan say differently. Fiscal insanity has been a bi-partisan venture, and it has been for at least the last 20 years. Debt goes up under Republican administrations just as much as Democrats. Under Donald Trump's administration, the debt rose by an average of $2 trillion per year. Historically, the debt rose by $1 trillion driven primarily by Social Security, Medicare, and Medicaid as Baby Boomers begin to retire. Broken down, this means that there is an extra $23,500 in federal debt for every person in the country. Only two other presidents have come close to spending as much, George W. Bush and Abraham Lincoln, both of whom oversaw extraordinary circumstances during their presidencies. One of the things that drove up the debt was the Covid-19 crisis, but the debt had already soared to grave levels prior to the pandemic. Trump cut taxes but didn't do anything to cut spending, and this caused debt to soar to unprecedented levels. The national debt is now at the point where it's higher than it was at the conclusion of World War 2. The difference is that we could demobilize after WW2 but we can't avoid the primary expenses looming over the nation now. A common myth that many people believe is that we can grow our way out of the national debt. The debt is growing at an extraordinary rate and there is no way for revenue to grow in comparison. The tariffs Trump introduced were believed to help eliminate the budget deficit and pay down the national debt, but that was not the case. The Trump tax cuts were primary drivers of increasing the debt, when combined with a lack of cuts to spending. The tariffs also had a minimal impact on the debt once it had been allocated. The fiscal gap and the national debt are so large that the idea of taxing the rich pales in comparison. Taxing the rich, even at 100% levels, it's only enough to pay the interest on the debt and fund a couple of programs for a few weeks. There are huge fiscal unsustainabilities in the scope of the federal government's budget. By early 2019, Trump was telling the American public that the national debt was a grave threat to economic and societal prosperity. Other officials began sounding the alarm as well. Historically, we have racked up debt but with good excuses for doing so. This time we accumulated debt when the stock market was booming. When every other country was getting their house in order, we continue to pile debt onto the national credit card. We are currently at 130% debt-to-GDP and for most economists, alarm bells are going off. The reason why now is different from WW2 when we had similar levels of debt is we are now funding social programs that are slated to grow dramatically in the near future. The real issue is the cost of the interest on the debt. Most of the debt has been financed in the short term and will have to be refinanced. If interest rates go up in the interim, the cost of that interest is going to skyrocket and consume the federal budget. Low-interest rates are manageable now, but if and when that changes in time, the risk becomes greater. Blame can be laid on both sides of the aisle, but if you're a Republican you need to acknowledge that the Trump administration accumulated a record amount of debt in a short time period. If you're a Democrat, you need to insist your representatives show some leadership regarding the fiscal future of the country. Social programs like Social Security, Medicare, and Medicaid are driving the debt and unless something is changed the problem will only escalate. This will only increase the likelihood and magnitude of higher tax rates in the future. Mentioned in this Episode: Donald Trump Built a National Debt So Big (Even Before the Pandemic) That It'll Weigh Down the Economy for Years - https://www.propublica.org/article/national-debt-trump

Dr. Larry Kotlikoff is the foremost expert in the world on fiscal gap accounting and has done a great job transforming how we should be thinking about a nation's debt. Dr. Kotlikoff recently stated during an interview that most retirement planning is wrong. According to Dr. Kotlikoff, the basic problem with financial planning is that the goal of our life is not to accumulate wealth so that people can charge us fees on our assets. It's about having the best lifestyle we can, given our resources, so we don't end up on the street if the market crashes or we live to be 100 years old. You don't necessarily need to pay someone to manage your assets, but it can be worthwhile to have someone help you stick to your objectives. Most people without a financial advisor participate in emotionally driven investing, which is why the average investor's returns suffer. Saving for retirement is a requirement in consumption smoothing, but there is an optimal amount to save. Once you know what you have, you know what you can spend. Part of the job of a good financial planner is helping you reverse engineer what you need to create the lifestyle you want in retirement. This is where the Power of Zero paradigm deviates from mainstream financial planning. You have to get the tax part of the equation right. It's not enough to know what you should be saving, because if you execute that plan in your tax-deferred bucket and watch as tax rates rise over time, you'll find that your financial plan only delivers about half what your lifestyle needs. You need to contribute the right amount of money into the right kinds of accounts. Dr. Kotlikoff feels the stock market is overvalued and dependent on the Federal Reserve's support to maintain its levels. Market timing is tricky at the best of times. Statistically, it's nearly impossible to do. Over the course of a given year, that 80% of the rise in the market occurred on 6-8 days and you have to predict exactly which days those are going to be. If you can guarantee your lifestyle expenses with your Social Security, pension, and/or a guaranteed lifetime income annuity, you can take much more risk in the market. A good rule of thumb if you need to dip into your assets during a down year is to take money out of your LIRP instead of your stock market portfolio. Dr. Kotlikoff recommends that you push off taking Social Security for as long as you can to mitigate longevity risk. The key here is predicting how long you are going to live. The worst thing that can happen to you is push it off until age 70, and then die at age 71. The best way to predict how long you are going to live is to go through the LIRP underwriting process. When an underwriter accepts you, they are basically betting that you are going to live a long, healthy life, and you can use that to push Social Security off as long as possible. Is paying off your mortgage early smart? The question we should be asking is whether we "should take money that could be invested in the stock market or pay off a mortgage early?" When you look at the arbitrage between the market and your mortgage, the math doesn't add up. Converting money to an IRA has to be done over a period of time to avoid paying more taxes than necessary. We are in a rising tax rate environment, so it makes sense to take advantage of today's historically low tax rates, but it has to be done systematically. You shouldn't be drawing Social Security during your conversion period because it will cause Social Security taxation and lock you into a lower amount. There are secrets to all stages of the life cycle. When you're young, stay home to save on housing costs and don't borrow for college if there is a reasonable likelihood you might drop out. Invest more in stocks as you age in retirement, especially if you have your lifestyle needs guaranteed already. Mentioned in this Episode: Medicine's Golden Age Is Dawning. 10 Stocks to Play the Latest Innovations. - barrons.com/articles/medicine-healthcare-stocks-roundtable-51632527474

Most of the changes of the two infrastructure bills working their way through Congress right now will mainly affect high-income earners, but the details may change as time goes on. There are seven major takeaways from the recent house tax bill. The first is that personal income tax rates are going up, but only for roughly 2% of households that make more than $400,000 per year. Joe Biden campaigned on not raising taxes on the middle class, and the current form of the bill seems to reflect that. Takeaway #2 is that capital gains rates are going up, but not as much as Biden originally proposed, which is primarily going to affect high-income earners. This is a retroactive bill which if it comes into effect retroactively to the date of Sept 13. If you sold anything after that date you will be affected by the higher capital gains tax rate. Takeaway #3 is that the bill brings back the marriage penalty. This bill will become somewhat punitive for married people when compared to single people. Takeaway #4 is that the Roth conversion is going away for the wealthy. Whether the Roth conversion is applied to the limit is a question right now, but if that's the case it will be a major roadblock for any Power of Zero planning. The effective date of this provision is December 31, 2031. It's speculated that by delaying the start date it will create a buy-now mentality. The IRA and the Roth conversion are two of the only things in the world that Americans like and the government likes. The government gets revenue today, and Americans get to insulate themselves against the impact of higher tax rates down the road. Takeaway #5 is that the backdoor Roth conversion is going away. Takeaway #6 is that there will no longer be any IRA or Roth contributions for the rich, basically anyone making more than $400,000 or anyone with more than $10 million in retirement accounts. The intent is to prevent extremely wealthy people from taking advantage of the tax code, but the end result is generally pretty minimal. Takeaway #7 will have a particularly large impact on people with large amounts of money in their Roth IRA. This is largely inspired by Peter Thiel who recently revealed that he had over $5 billion in his Roth IRA. People in the higher income bracket and who have over $10 million in their Roth IRA would be required to distribute 50% of the excess of $10 million. If your balance exceeds $20 million, you would have to distribute 100% of the excess over the $20 million mark. As it's written right now, if you're a married couple that earns under the $450,000 per year income amount, the rule won't apply to you. Earn one dollar more though and you will have a massive RMD coming your way. Mentioned in this Episode: Jeff Levine, Twitter: @CPAPlanner

Whether you like to talk about politics or not, the things that are happening in Congress right now will affect your retirement. All the unmitigated spending during the Covid pandemic is catching up with the US. Treasury Secretary Janet Yellin revealed further measures to avoid breaching the federal government's borrowing limit and also announced they would be suspending reinvestments for a number of retirement funds. Debt negotiations have always been a game of chicken between the Democrats and the Republicans, but there's more at stake right now. The Treasury uses emergency maneuvers to conserve cash so the government can keep making payments on its obligations. Once those measures run out, the Treasury could begin to miss payments which could trigger a default on US debt. A default on the debt in the US has never happened before, and if it did happen it would likely precipitate a global depression. There are only two things the federal government is Constitutionally required to pay: Civil War pensions, and interest on the national debt. Similar instances have happened in the past, like in 2011 when Standard and Poor stripped the US of its AAA rating for the first time. If we default on our debt, it could trigger a sovereign debt crisis, which will likely result in the costs of servicing the national debt to go up dramatically. The debt ceiling has been raised 98 times in the past, but it's possible for this time around to go differently. It's possible that the tipping point will occur mid-September and we could be seeing the consequences of this as early as October. We refinance the national debt every two years, so when interest rates go up it gets even more expensive to service the debt, and that can result is taxes being raised even earlier than we thought. The national debt is projected to increase by $3 trillion by the end of 2021. All of this is a backdrop to the Democrats trying to pass a $1 trillion infrastructure bill and a $3 trillion human infrastructure bill through Congress. The Democrats want the debt ceiling increase to be a bipartisan effort, but the Republicans are positioning themselves as opposing the increased spending and forcing the Democrats to own the bill. It seems like no one saw this spending initiative coming face-to-face with the fiscal constraints of the repercussions of unmitigated spending by both parties over time. Mitt Romney said that the Democrats would be wise to raise the debt limit in reconciliation and own the decision. Joe Biden's tax increase initiative is part of the drama. If this debt crisis implodes, he may not get anything that he wants and the Trump tax cuts may simply expire in 2026. Mentioned in this Episode: Janet Yellen to Enact Steps to Avoid Breaching Debt Ceiling - wsj.com/articles/janet-yellen-announces-measures-to-avoid-breaching-debt-ceiling-11627936540 McConnell vows no GOP help with debt limit hike - politico.com/news/2021/08/05/mcconnell-gop-debt-limit-502593

If Joe Biden can't get his tax legislation through before midterm elections, it's unlikely he will be able to pass it at all. The situation in Afghanistan has lost Biden approval points in polls across the nation and since the midterm elections usually involve the sitting administration losing either the Senate, the House, or both, there may be no opportunity for him to push it through later. The Senate, which is currently controlled by the Democrats, has proposed a $1 trillion infrastructure, which has bi-partisan support, and a $3.5 trillion human infrastructure bill, which has been opposed completely by the Republicans and doesn't have universal support from the Democrats. The Democrats have imposed a September 30 deadline to vote on both bills at the same time. Joe Manchin wrote an op-ed for The Wall Street Journal showing substantial misgivings for the human infrastructure bill. This gambit of Joe Manchin not only threatens the human infrastructure bill, but also Joe Biden's presidency. Joe hints at the implications of both borrowing more money and printing more money in the article. Joe Manchin has been echoing many of the sentiments from David Walker, Larry Kotlikoff, and Maia McGuinness. Joe Manchin warns about spending too much money when things are going well and what happens then when we have a real crisis on our hands and the coffers are empty. Manchin recommends that Congress should pause on the budget reconciliation legislation to give everyone more clarity on the situation with the pandemic and inflation. You should not push through legislation unless you have a full understanding of the implications of that legislation. If you can't get your constituency to agree to raising the taxes needed, you shouldn't be layering on additional unprecedented debt. According to David Walker, the death of Social Security and Medicare accelerated by three years due to the impact of COVID-19 spending. Joe Manchin has a pattern of putting up a lot of fight during the legislative process, but then almost always falls into line when it's time to vote. Given how well the economy is humming along, there is no clear and present danger to the country and this spending bill sets a very bad precedent. The biggest issue our country is facing is our own fiscal irresponsibility. The decision to vote for the two bills in tandem means that if there is any pause, then that is going to contribute to the perception of dysfunction and chaos, which is something voters do not like to see. The danger of the pause is it could set off a cycle of failure. Delay creates the impression of chaos, making Biden and Congress less popular, in turn reducing the popularity of any bills they pass, and making Congress less likely to support them. Joe Biden's tax proposal is part and parcel of the $3.5 trillion human infrastructure bill. If he can't pass the bill, he doesn't get the tax increases needed to pay for it. The next two weeks will be instrumental in determining what happens to tax law in America over the next eight years. Mentioned in this Episode: Why I Won't Support Spending Another $3.5 Trillion - wsj.com/articles/manchin-pelosi-biden-3-5-trillion-reconciliation-government-spending-debt-deficit-inflation-11630605657 Joe Manchin Has Put Biden's Presidency in Mortal Danger - nymag.com/intelligencer/amp/2021/09/joe-manchin-pause-biden-presidency-failed-danger-congress-democrats.html

In August 2016, the University of Michigan began a trend by offering their football coach a split-dollar life insurance arrangement as an alternative to deferred compensation. Other football coaches in different schools have similar arrangements. The overarching principles of these kinds of plans can apply to you as well without having to be rich or famous to take advantage of the benefits. This is a program where the employer agrees to loan dollars to an employee, generally over a period of 7 years, that are invested in a cash accumulation life insurance policy. Unlike traditional life insurance policies where you want the highest death benefit at the lowest premium, these plans are the opposite. The plan is attempting to mimic the best aspects of the Roth IRA without any of the limitations, and there are a number of limitations of a Roth IRA that would make them unattractive to people like Jim Harbaugh. At some point, the loan will be repaid, but in the meantime policy cash flow in excess of the balance can be accessed tax-free to supplement cash flow in retirement. It's a win/win arrangement for both parties. For the employer, they incentivize the coach to stick around and for the employee, they get to take advantage of a tax-free accumulation tool that otherwise wouldn't be available to them. As good as the arrangement is, it can be improved upon. Interest-free is not cost-free. Every year Jim Harbaugh has to pay tax on imputed income. Since the money is broken out over 7 years, the interest rate ebbs and flows, and the cost to him is variable. Jim Harbaugh won't know the full extent of his imputed income until the final seventh installment has been made. If they were to do this deal again, it would make more sense to make the loan all upfront and lock in the interest rate. The key to this approach is having an accumulation tool that's going to grow the money to the point where it far exceeds what the repayment of the loan has to be. Without that tool, you won't have the ability to grow. Rumour has it that the arrangement with Jim Harbaugh involved a whole life policy, but when they compared that to an indexed universal life policy it could have been even better. This kind of arrangement has two key components: the money has to grow safely and productively (net of fees 5% to 7%), and you need to look at how you get the money out. With whole life policies, we know they can have a net cost of borrowing. The problem comes when there is an arbitrage between the rate on your collateral account and the loan rate. One of the most important provisions in the life insurance retirement plan contract is the loan provision because if you give them 30 years to make up their mind, it's not always going to be in your favor. At its core, the purpose of the program is to promote the long-term retention of the employee in a tax-efficient manner. It works best when the employee is able to receive the maximum benefit possible from the dollars provided in exchange for expressing a long-term commitment. All of this reinforces the virtues of the life insurance retirement plan. Wealthy coaches have used this type of arrangement because they have attributes you can't find in any other type of retirement plan. There is no income limitation or contribution limits, and you can take the money out tax-free and potentially cost-free, and it comes with a death benefit. Mentioned in this Episode: Why College Coaches Are Being Paid With Split-Dollar Life Insurance - fa-mag.com/news/why-college-coaches-are-being-paid-with-split-dollar-life-insurance-56010.html?section=

Is it possible for the tax proposals moving their way through Congress to be retroactive for 2021? Biden has proposed raising the business tax from 21% to 28%, and when you add in the State corporate income tax of 7% that will put the US near the top highest corporate tax rates in the world. For individuals, Biden has proposed increasing the top income tax bracket from 37% to 39.6% for married couples making over $400,000 He has also proposed a large change to the FICA taxes. For people making $400,000 or more the FICA tax makes a comeback and when added up to all the other tax increases the baseline is 55.8%. In high tax states like California that total approaches 70%. Biden also wants to turn death into a taxable event and make the tax benefit for itemized deductions be limited for people making more than $400,000. If you're making less than $400,000 per year you don't have too much to worry about regarding taxes. If you make more than $400,000 you will find that the IRS's crosshairs are aimed squarely upon you and your retirement account. Many times throughout history Congress has either raised taxes, reduced exemptions, or some combination of the two. The latter seems to be the case right now. Long term capital gains will be taxed at the ordinary income tax rate of 39.6% on anyone making more than a million dollars. In a state like California your effective capital gains tax rate will be over 50%. Estate tax exemptions will also be affected by the tax proposals, as well as the lifetime gift tax exemption, and more. Joe Biden is proposing these tax changes to finance his spending initiatives. All this money is being earmarked for future spending, not for paying down debt. According to the Wall Street Journal, the Biden administration tax increases would be retroactive to April 28th, 2021 in order to avoid giving people the ability to plan for it. There is historical precedent for this kind of increase with it happening under the Clinton administration. The question is which taxes will be retroactive and which ones will come into effect in 2022? Right now, it's only the capital gains tax but there is precedent for it being applied to income taxes relatively late in the year as well. We don't know if any of the tax rates will go up this year or next year. The situation in Afghanistan may have lost him some political capital and slowed him down, but maybe not. Mentioned in this Episode: Bracing For Biden - fa-mag.com/news/bracing-biden-63031.html?section=47 Biden Budget Said to Assume Capital-Gains Tax Rate Increase Started in Late April - wsj.com/articles/biden-budget-said-to-assume-capital-gains-tax-rate-increase-started-in-late-april-11622127432

Legislative hijinks are happening in Congress right now and they are going to have an impact on the timing of a potential tax increase coming down the road. The Senate has struggled for a while now to come to an agreement on a $1 trillion infrastructure package, but with some bipartisan cooperation they've pushed it through. Democrats in Congress have turned their attention to a $3.5 trillion budget that is going to be a much bigger challenge. Any tax increase that gets pushed through will be part of this budget because it is going through budget reconciliation, which has several implications. Everything included in this bill will expire in 8 years because of the nature of budget reconciliation. The Speaker of the House, Nancy Pelosi, has declared that they won't vote on the $1 trillion infrastructure bill until she feels they have enough votes for the larger $3.5 trillion budget. The GOP has made it clear that they will oppose the larger bill at every turn which is why the Democrats are resorting to budget reconciliation to get the bill done. The proposal contains plans to expand healthcare coverage, universal Pre-K and free community college, ambitious federal programs to combat climate change, and a path to citizenship for qualified immigrants. There is a lot riding on this package for President Biden and the Democrats going into the 2022 midterms. There are a group of moderate Democrats that are uncomfortable with the size of the bill. Joe Manchin has spoken out against the high level of spending among other prominent Democrats. Progressives are pushing five things with the bill by recasting different political issues as economic. This is the argument for pushing the bill through the budget reconciliation process. Because of the lack of Democrat cohesion on the bill, it is unlikely to pass anytime soon. Biden needs a win going into the midterms and stalling now is not going to look good. Tied into that is the future of tax rates. Even with the increased taxes built into the bill, spending will still go up. The government will not have enough revenue to cover the cost of the bill, which means the debt will continue to rise. The tax cuts on middle America will likely be extended for another 8 years, and this means the debt is going to continue to compound and the fix in 2030 will be even more aggressive. These developments not only directly impact people making systematic shifts from tax-deferred to tax-free over the next eight years, but we need to consider the environment of fiscal instability coming down the road. Mentioned in this Episode: Here Are 5 Hurdles That Democrats Face Now For Their $3.5 Trillion Budget - npr.org/2021/08/12/1026184120/here-are-5-hurdles-that-democrats-face-now-for-their-3-5-trillion-budget

A new report says that retirees who convert their savings into guaranteed lifetime annuities effectively double the amount they are willing to spend each year on themselves and their families. This indicates that retirees holding more of their wealth in guaranteed income are more willing to spend on luxury items and experiences because of a higher comfort level with additional spending. The report looked at retired households with more than $100,000 in savings and spending more than $25,000 each year. They were making an apples-to-apples comparison between people that had a guaranteed lifetime income and those with enough assets that they could. They were looking at the most simple form of an annuity, the Single Premium Immediate Annuity. When people get into retirement they tend to get into a protective mode where they spend defensively. Without a baseline of guaranteed income, you're basically in fear mode throughout retirement. If these guaranteed lifetime income annuities are so great, why do so many Americans not take advantage of them? The first major hang-up for most people is the lack of liquidity. When you purchase a Single Premium Immediate Annuity those funds are gone from your balance sheet and that gives some people a lot of heartburn. Another concern is inflation. The payment may be sufficient for your basic lifestyle needs now but that may not be the case in the future. Solutions to this problem include purchasing an annuity that scales with inflation, or to buy more guaranteed income than you need, the trouble with both of those is that they end up compounding the liquidity issue. The third issue is the idea that a person's heirs may be disinherited if they die prematurely. The Mac truck factor may play out for you and that's a real worry for many Americans. The annuity industry is listening and has created another type of annuity called the fixed index annuity, which goes a long way to solve those problems. It solves the liquidity problem by not requiring you to take your income right away. During the deferral period you have 10% liquidity, which is often more than enough. Once you elect to take your income, the income is linked to the growth of a particular stock market index. In the case where the index declines you are protected from the loss. The last issue fixes the inheritance, where if you die prematurely your heirs will receive whatever your initial investment was plus the growth minus any distributions. One thing missing from the article is that if you do decide to do an annuity, it's important to have the ability to do a piecemeal internal Roth conversion. A fixed index annuity in your tax-deferred bucket can result in Social Security taxation, which can force you to spend down your other assets five to seven years faster. The piecemeal internal Roth conversion also helps mitigate tax rate risk. In a rising tax rate environment like we are in now, this is a very important feature. Once the money is within the tax-free bucket, it is no longer exposed to tax rate risk. If you combine all the advantages of a fixed index annuity and a piecemeal Roth conversion feature, you too can have a happy and fun retirement. Mentioned in this Episode: Opinion: Retirees with annuities have more fun - marketwatch.com/story/retirees-with-annuities-have-more-fun-11628192718

A Democratic representative out of California has introduced a bill to change the way that Social Security cost of living adjustments are calculated. It proposes to link the Social Security increase each year to the Consumer Price Index for the Elderly, instead of the CPI for Workers. The difference between the two indexes over the course of a 30-year period is roughly 0.2% each year, which doesn't sound like much, but when you compound that over the 30 years, it adds up quickly. The cost of living adjustment has only passed 2% twice since 2010. If you add up all the growth in the CPIE, it would amount to an increase of 10.1%, versus the CPIW which only amounted to 8%. Switching may not necessarily be good for seniors, with gasoline prices being weighted disproportionately between the two. Inflation has been in the news a lot recently. Increasingly as time goes on, politicians are going to be tempted by the Modern Monetary Theory proponents to print more money to solve their fiscal problems, and the end result is going to be inflation. The Senior Citizen's League is estimating that the Social Security cost of living adjustment could be as high as 6.1% in 2022, which would be the highest cost of living adjustment in a very long time. The proposed bill has yet to receive a vote, but the bill has overwhelming support from those currently on Social Security. Prior to Covid, we knew that Social Security was slated to run out of money in 2035. Because of the additional spending during the pandemic, Social Security could run out of money in 2032 with Medicare running out in 2023 instead of 2026. This means that the likelihood of higher taxes is closer than we thought. This bill would likely bankrupt the program at an even greater acceleration. A better way to increase your own Social Security is to position your assets from tax-deferred to tax-free. Anything above and beyond the ideal balance in your taxable and tax-deferred buckets should be systematically repositioned to tax-free. With the right amount of money in the first two buckets in a rising tax rate environment, and everything else positioned as tax-free, you can be perfectly positioned to insulate yourself from the impact of higher taxes, but also get your Social Security tax-free. Simply positioning your assets properly between those three buckets will add an extra five to seven years to your retirement. You can choose to rely on the government, or you can be proactive in positioning your assets.

Joe Biden campaigned on the platform of raising taxes on the top 1% of earners in America, yet six months into his administration, there haven't been any increases thus far. The main pillars of his proposal are to increase the corporate tax rate from 21% to 28% and to increase taxes on married couples earning more than $400,000 per year ($200,000 for individuals) from 37% to 39.6%. For those making $1 million or more, your long term capital gains tax rates would increase from 20% to 39.6%, effectively doubling. There are few reasons for the proposal running out of steam. The first is GOP opposition, as well as a number of economists warning that raising taxes now could jeopardize the economic recovery. Former George W. Bush Treasury official, Tony Fratto, says that the chances of big tax reforms in the near term seems reduced. There is a fear that tax reforms could squelch the growth of the economy as corporations are still trying to battle their way out of the quagmire of the Covid-19 recession. When corporate tax rates go up, those tax increases are typically passed on to consumers. We can look at major Wall Street players and how they are reacting or preparing for the proposal to get an idea of what the future may bring. Blackrock is mildly bullish on the tax rates going through with a number of senior strategists believing it to be likely but still hedging their bets. JP Morgan believes that Joe Biden will not be able to deliver on his tax proposal increases, but the discussion of increasing taxes may put a damper on market returns. Mitt Romney believes tax increases are off the table. Being able to pay for infrastructure bills with increased taxes is going to be extremely difficult to pull off. Tony Fratto says that borrowing is probably going to be how Biden will pay for all the various bills being proposed. As long as Democrats and Republicans disagree on how to pay for expenditures, borrowing is the easy solution. The US government has to refinance its loans each year, and they are directly impacted by interest rates. Interest rates may be low now, but they won't stay that way forever. If Joe Biden is going to push through his tax proposal, he has to do it soon. As a president, when you can't get things done in the first 100 days to one year, they tend to become lame ducks leading up to the next election. Biden is hoping to get all his initiatives done in the first year because polling indicates that Republicans will likely take back the House and the Senate. If he doesn't push it through soon, he may not have a chance at all. In terms of the Power of Zero worldview, this means that the status quo is likely to be maintained and that the Trump tax cuts will expire Jan 1, 2026. You have 5 years to reposition your assets from tax-deferred to tax-free. This isn't set in stone yet, we have until the end of the year before it becomes clear on what's going to happen with Biden's tax proposal. Mentioned in this Episode: Biden's plans to raise taxes on corporations and the wealthy are losing momentum - https://www.cnbc.com/amp/2021/07/07/biden-tax-plan-corporate-capital-gains-and-income-hike-uncertain.html

The 3% Rule says that if you want to have $100,000 per year in retirement, you would need $3.3 million saved up, which is not very attainable for most Americans. If you can offload longevity risk to a company that can handle it better than you can, you have to save far less. If you take a portion of your liquid investment portfolio and purchase an annuity, you can potentially achieve the same income flow at roughly half the cost. An annuity from an insurance company also mitigates withdrawal rate risk. If you have an income guaranteed in retirement by an insurance company, you won't have to rely on your stock market portfolio to take care of your lifestyle needs. Long-term care risk is one of the most pernicious risks for most Americans. Almost, but not quite dying, is much worse than simply dying. In that case, the surviving spouse is often left with a subsistence living instead of the retirement lifestyle they planned for. People don't love paying for long-term care insurance for a variety of reasons, but there are alternatives to traditional long-term care insurance that accomplish most of the same things. If you give an insurance company a chunk of your liquid assets, they will give you a guaranteed stream of income that will live as long as you do. Your assets get pooled with thousands of other people's and statistical averages work everything out over time. Mathematically, the single premium immediate annuity is going to give you the most bang for your buck but there are three things that people tend not to like. The first is giving up some amount of liquidity, the second is the lack of inflation protection, and the third is the risk of dying early. The alternative is a fixed index annuity, which allows you to tie the growth of your income to a stock market index. This protects you from inflation, comes with a death benefit, and gives you a period of liquidity which addresses the three biggest concerns that people have with instruments that guarantee lifetime income. Your income in retirement can be guaranteed, but if you do that out of your tax-deferred bucket, the after-tax amount is not guaranteed. To plug that hole, most Americans dip into their stock market portfolio. This can also result in social security taxation, leading them to spend their stock market portfolio even faster. You should think very carefully before dropping a large amount of money into a single premium immediate annuity that doesn't have the ability to do a piecemeal Roth conversion. The Life Insurance Retirement Plan comes into play in retirement when you need to pay for discretionary expenses, typically after the 10 year mark. The years where the stock market is down are the perfect time to take money out of your LIRP. The LIRP is the perfect vehicle to fund discretionary needs like plugging the hole in your roof or taking the grandkids to Disney World without withdrawing anything from your stock market portfolio. Most LIRP companies also allow you to receive your death benefit in advance of your death to pay for long term care. If you die peacefully in your sleep, your kids can inherit the death benefit which negates the feeling of paying for something you never receive. The ideal amount of money to have in your taxable bucket is about six months worth of expenses. Any more than that is a great candidate for funding your LIRP. It's crucial for life insurance that the money be growing safely and productively. With some products, your cash value ebbs and flows with the stock market. There are scenarios where people can run out of money and death benefit, as well as long-term care. A whole life policy or an indexed universal life policy are your best choices. David favours the indexed universal life policy for most people. The IRS has strict limits on how much money can be put into a life insurance policy. Those limits were premised on what the interest rates were over time, but since interest rates have changed, they adjusted the rule and consumers can put almost twice as much money into those programs for the same amount of death benefit. People up to the age of 62 can still make use of the LIRP since they still have time to let it gain steam. Once you get to the age of 65, it's not the best option if your objective is to accumulate wealth. Insurance companies are in the business of predicting how long you will live so the viability of the LIRP is directly related to your health and life expectancy. If you can figure out which spouse is going to live the longest, it informs many different decisions regarding the overall retirement plan. Joe Biden will likely honor his campaign promise to not raise taxes on anyone making less than $400,000, which means there's a lot of opportunity to take advantage of the tax sale of a lifetime before taxes go up for good.