The Power Of Zero Show

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**The Power Of Zero Show**

Tax rates 10 years from now are likely to be much higher than they are today. Is your retirement plan ready? Learn how to avoid the coming tax freight train and maximize your retirement dollars.

Latest Episodes:

The Top 2 Reasons to Have Indexed Universal Life Mar 01, 2023

Show notes

David starts the conversation by describing why it makes sense to have indexed universal life insurance.

Did you know that any taxes you pay in your taxable brackets are, ironically enough, optional?

David reveals that the ideal amount of money you should have in your taxable bracket is six months of living expenses.

Once you've maxed out your IRA, David believes an IUL becomes a great avenue to reposition surplus money into a tax-free investment bucket.

David explains that IULs are great because they have no income limitations and no contribution limits.

According to David, IULs don't require you to take market risks, so they can serve as a suitable bond alternative with lower risks and higher returns over time.

If you're married and over age 60, an IUL makes it possible to get your death benefit in advance of your death for the purpose of long-term care.

David highlights the 3 main reasons people hate traditional long-term care insurance:

It's getting more and more expensive with time.
It's hard to qualify. Something like a bad back can mean you never get accepted.
If you pay and die peacefully in your bed, the benefits pay for somebody else's care.

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

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Indexed Universal Life--How to Find the Right Carrier, Product and Advisor Feb 22, 2023

Show notes

David starts the conversation by describing the three most important things you should look for in an IUL.

All good IULs are sponsored by financially stable insurance companies - but not all financially stable insurance companies offer good IULs.

David talks about the four main companies that rank life insurance companies.

David explains what a Comdex ranking is and why you should consider it when choosing a life insurance carrier.

According to David, the 5 essential attributes of a good IUL are:

A guaranteed zero percent loan provision.

Interest in areas.

Conducts a daily sweep.

Has an Overloan Protection rider.

Availability of a chronic illness rider.

David goes through the three things to look out for when looking for an IUL advisor.

If an IUL advisor claims that your IUL can beat the stock market or cannot lose money, run for your life.

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

Get David's Tax-free Tool Kit at taxfreetoolkit.com

The Difference Between a Social Security Tax and a Penalty (And How to Avoid Them Both) Feb 15, 2023

Show notes

David starts the conversation by describing the difference between a Social Security tax and a Social Security penalty - and whether it's possible to avoid them both.

David explains that although some people use them interchangeably, a Social Security tax is different than a penalty.

The first step to protecting your Social Security is understanding the main drivers behind taxes and penalties.

The Social Security penalty arises when you begin drawing from your account before your full retirement age while also earning above the minimum allowed threshold.

David shares how the Social Security penalty works and how the damages can affect your retirement.

David breaks down the minimum allowed income threshold and what the IRS counts as earnings.

According to David, understanding the IRS's views on provisional income is the best way to learn how Social Security taxation works.

David highlights the unexpected income streams the IRS counts as provisional income - some of which might shock you.

David highlights situations where up to 85% of your Social Security can become taxable at your highest marginal tax bracket.

Even if you reach full retirement, you can continue to pay taxes on your Social Security in perpetuity if you don't keep your provisional income in check.

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

Three Claims Pro-IUL TikTokkers Make About IUL (And Why They're Wrong) Feb 08, 2023

Show notes

David debunks the top 3 unsubstantiated claims that pro-life insurance agents on social media make about IULs.

David starts the conversation by explaining why we need to be clear on what an IUL is and what it's not.

David is a big fan of IULs because he believes they form a crucial part of a balanced and comprehensive approach to tax-free retirement.

Claim #1 - An IUL can beat the stock market - a TikTokker even went as far as to claim that there's an IUL that averaged a 15.3% rate of return over a 20-30 year period.

David highlights that IULs were not designed to replace the stock portion of your portfolio - plus, there is no way an IUL can average a 15.3% rate of return.

A good IUL with a dependable carrier should average somewhere between 6 to 8% over a 20 to 30-year time frame.

Claim #2 - You cannot lose money in an IUL.

David explains that although you will never be credited less than a zero in an IUL, there is always the risk that your policy could take a hit during a flat year.

Claim #3 - The IUL is a silver bullet.

No investment path is a true silver bullet. All an IUL does is give you the upsides of the stock market up to a cap with protection on the downside.

David reveals that IULs cannot match stock market returns or a 100% guarantee against loss - but they are a fantastic alternative to bonds.

According to David, an ideal tax-free retirement approach should have between four and six streams of tax-free income.

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

How to Transform a $1 Million Inheritance into a Tax-Free Juggernaut Feb 01, 2023

Show notes

David goes through five unique strategies to transform a $1 million inheritance into a tax-free asset.

Although a non-qualified inheritance is tax-free, the step-up in the basis rule will lead to a huge tax problem as your asset grows over time.

Strategy #1 - Pay the taxes on your Roth conversions. Remember, the worst way to pay taxes on a Roth conversion is on the IRA itself.

Strategy #2 - Max out your Roth 401K for you and your spouse. Use your earnings to max out the $60,000 limit for both you and your spouse, and use the inheritance to fund your lifestyle.

Strategy #3 - Fully fund your Roth IRA. Not a year should go by when you and your spouse are not fully funding your Roth IRAs.

Strategy #4 - Use the inheritance to fund your retirement. If you're already retired, it may make sense to use the inheritance to support your lifestyle instead of going after your IRA.

Strategy #5 - Contribute money to a life insurance retirement plan. If you still have some money left after implementing the above four strategies, consider taking advantage of the flexible contribution limits of a LIRP.

David explains how you can productively grow your money in a LIRP tax-free.

According to David, if you inherit $1 million and leave the money in a taxable bucket, you will be paying taxes over the balance of your lifetime.

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

Indexed Universal Life is Too Expensive! (Dave Ramsey Debunked) Jan 25, 2023

Show notes

Dave Ramsey and other financial gurus claim that indexed universal life insurance(IUL) is expensive and a ripoff. Are they right?

Suzie Orman even says you should never work with an advisor that recommends IULs as a possible investment option.

According to David, when someone tells you that IULs are expensive, the first question you should ask them is, compared to what?

David compares the fees you would likely pay in a traditional tax-free investment versus a lifetime IUL.

David explains that judging IUL fees only makes sense if you calculate the expenses over the product's lifetime and not the first 5 years when the fees are the highest.

In today's example, David uses a 40-year-old man investing $20,000 a year into an IUL and compares the fees if the same man followed Dave Ramsey's investment advice.

In the first year, the man will pay $3502 for the IUL compared to $300 on Dave Ramsey's SmartVestor Pro program - maybe Dave Ramsey was right, after all.

However, by the 10th year, IUL expenses will have gone down to $2702, while the SmartVestor Pro will have risen dramatically to $3962.

David reveals that it gets worse for the SmartVestor Pro by the 40th year - while IUL fees remain low at $2964, SmartVestor Pro fees will have gone to an astronomical amount of $31,263.

This just proves that the expenses of an IUL are higher as a percentage of the balance in the earlier years but are much lower as a dollar amount in the later years.

In contrast, David explains that the SmartVestor Pro fees are much lower as a percentage in the earlier years but become much higher as a dollar amount in the later years of the plan.

David points out that IULs are meant to replace bonds and not the stock portion of your portfolio, as Dave Ramsey claims.

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

Dave McKnight versus Chris Kirkpatrick (Debunking Anti-IUL Claims) Jan 18, 2023

Show notes

What are some of the most outrageous anti-IUL claims on the internet today? David debunks some shockingly misleading claims presented by social media influencer Chris Kirkpatrick.

Claim #1: Indexed universal life insurance (IULs) were born from insurance companies wanting to scale down on whole life insurance policies because they could no longer pay guaranteed dividends and needed a new profit center just to break even.

This is just false because IULs were a result of the stock market crash of the early 2000's.

Insurance agencies created a product that allowed investors to link the growth of their cash value to the upward movement of the stock market index.

Claim #2: Insurance companies lure you in with artificially high cap rates, only to reduce them once they've sucked you in.

According to David, cap rates change from company to company. However, the one he uses averaged a 7.09% rate of return since 2006 - this is quite impressive considering all the chaos witnessed in the markets during that period.

Claim #3: IULs are 100% guaranteed to perform worse than initially promised.

This claim is just laughable considering David saw an averaged 7.09 rate of return in the IULs he currently uses.

Claim #4: Insurance companies drop cap rates early in the surrender period when the sting of cashing out is the greatest.

Yes, surrender charges are harsh in the first 5 years of the policy. However, what Kirkpatrick fails to mention is that this is also the period when it least makes sense to cash out because average rates of return are usually higher - over 7.5%.

David admits that IULs are not perfect, but neither are whole life insurances. Kirkpatrick is just a creative agent whose main agenda is to sell you whole life insurance at the expense of an IUL.

According to David, when you choose an IUL, you sacrifice guarantees for higher rates of return. In contrast, when you choose whole life insurance, you sacrifice higher rates of returns for guarantees.

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

Dave Ramsey vs Indexed Universal Life--5 Claims Debunked Jan 11, 2023

Show notes

What are Dave Ramsey's thoughts on Indexed Universal Life Insurance (IUL)? David debunks the 5 myths presented in Dave Ramsey's article on why you should run away from IULs.

Myth #1: IULs never perform to their full capacity because the cash portion of the portfolio gets eaten up by the super-high fees.

Yes, the fees will be higher at the start of the program but will reduce dramatically the longer you keep the policy. In fact, when you average the fees over the entire program, the costs translate to less than 1% of your balance per year.

Myth #2: IULs contain numerous fees ranging from surrender charges, administrative charges, premium expenses, etc.

David explains that IULs only work if you keep them for life - so fees should only be calculated after the contract expires, which often translates to 1% per year.

Myth #3: When you cancel your insurance policy, you give up your death benefit and almost all the cash value you've managed to build.

For David, this is by far the most ridiculous of all Dave Ramsey's claims on IULs. Not only is it misleading, but it is actually opposite to how cash-value life insurances work.

Myth #4: Excessive fees keep returns relatively low, so your IUL will never beat inflation.

This claim is just ridiculous, considering IULs were never designed to be a substitute for the stock market portion of your portfolio.

Myth #5: Market performance will affect your premiums - the higher the rates, the more likely you are to lose your policy.

According to David, this is a careless and poorly researched claim. Here, Dave Ramsey's primary goal is to lead you to strategically positioned links inviting you to buy term life insurance from him.

David believes the only reason Dave Ramsey is against IULs is that he wants you to drop your IULs in favor of his term life insurance policy, with no regard to the losses you might incur or where you are in the surrender period.

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

Is Artificial Intelligence the Future of Retirement Planning? (I put ChatGPT to the Test) Jan 04, 2023

Show notes

What is ChatGPT? David starts the conversation by explaining what ChatGPT is and the things that make it so revolutionary.

ChatGPT is so advanced it has Google worried about its search engine's future.

Will the advanced AI chatbot ever replace retirement advisors? David tests the chatbot by asking it a series of questions designed to stretch its basic retirement planning capabilities.

When David asks ChatGPT whether tax rates will go up in future, the chatbot replies that it's tough to predict what future tax rates will be - a response David feels is rather "diplomatic."

David tries to push the chatbot further by asking it what a life insurance retirement plan is. He is impressed with its answer, which is much more specific and descriptive than what you'd normally find online.

After playing around with ChatGPT for over an hour, David believes the AI is not auditioning to replace financial advisors.

The even more impressive thing about the chatbot is that its answers are much more balanced and devoid of emotions.

Although the technology is not a replacement for financial advisors in the near future, David feels you can still use it to learn more about 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

The 12 Rules of Tax-Free Investing (Updated and Revised) Dec 28, 2022

Show notes

Rule #1: Tax rates will go up by 2030. The Fed needs huge sums of money to pay for unfunded obligations, so taxes will have to go up; otherwise, the country will go bankrupt.

Rule #2: In a rising tax environment, there is a mathematically perfect amount of money to have in your taxable and tax-deferred brackets. David explains how you can calculate it.

Rule #3: Anything above and beyond the ideal balance mentioned above should be systematically positioned to tax-free. Preferably you don't do it all at once, but quick enough to get all the heavy lifting done by 2026.

Rule #4: The type of retirement account you contribute to should be determined by comparing your current tax bracket to your future tax bracket.

Rule #5: Roth retirement accounts are your best friend. These vehicles allow you to shift nearly unlimited money from tax-deferred to tax-free.

Rule #6: It would be best if you did most, if not all, of your heavy lifting before 2026. You have four years before the tax cuts end, and every year you wait to take advantage of these low tax rates is another year you will have to pay more than you need to.

Rule #7: The 32% tax bracket is your enemy. Remember, the 32% tax bracket is 33% more than the 22% tax bracket. So try as hard as possible to avoid it when shifting your money to tax-free.

Rule #8: Leave some money in your tax-deferred accounts. David explains that if you shift everything to tax-free, you won't have any taxable income left - which means you will needlessly pay taxes on money that you have received tax-free.

Rule #9: Make sure your tax-free retirement plan keeps you below the provisional income threshold that can cause social security taxation. In many cases, your money will run out five to seven years faster if your social security is taxed.

Rule #10: Never annuitize your retirement in the tax-deferred bucket. Annuities in your tax-deferred bucket will count as provisional income and cause you all sorts of problems.

Rule #11: Not all Life Insurance Plans (LIRP) are created equal. And it only makes sense to get an LIRP if you plan to keep it till death.

Rule #12: You will need more than one stream of tax-free income in retirement. There is always the risk that the IRS will legislate one of your tax-free streams of income out of existence.

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