Avoid the Retirement Tax Surprise with David McKnight - Ep 53

Interested in the AIM Retirement System? See if it's a good fit for you → https://aimassessment.com 

In this special podcast edition, I sit down with David McKnight, bestselling author of The Power of Zero, to discuss why many retirees may face a bigger tax burden than they expect. They cover the retirement tax traps that can come from 401(k)s, IRAs, RMDs, Social Security taxation, and the possibility of higher future tax rates — and why proactive planning may help retirees keep more of their money.

0:00 Intro: Avoiding the Retirement Tax Surprise
4:30 Meet David McKnight, Author of The Power of Zero
7:00 Why Future Tax Rates Matter for Retirees
14:30 How RMDs Can Create a Tax Trap
22:00 Why Roth Conversions Are Often Misunderstood
27:30 The Power of a Tax-Free Retirement Strategy
32:45 Common Mistakes Retirees Make with IRAs and 401(k)s

・The AIM Retirement SystemTM has four primary goals… 
・Enhance Probability of Retirement Success 
・Maximize Your Retirement Income Stream 
・Leverage Advanced Tax Reduction Strategies 
・Foster Multi-Generational Wealth and Estate Planning 

In the AIM Retirement SystemTM you always work with our a team, not just a single advisor.  Our credentials include CFP®, CPA, CFA and CRPC.   

My Name is Christian Cyr.  I am the president of Cyr Financial Wealth Advisors. Since 1999 we’ve specialized in comprehensive retirement planning.  We are registered with the SEC and are fiduciaries. To learn more about us, visit our website at https://CyrWealth.com 

My enthusiasm for retirement planning extends beyond client interactions. I very much enjoy sharing my passion for retirement planning with audiences nationwide, including educational videos like this one and my podcast, Retirement For Life https://rflshow.com.  I have been featured on platforms such as Strategic Investor Radio, MSN, Yahoo News, CBS News, and U.S. News and World Report. 

 #RetirementPlanning #financialplanning #retirementtips #taxplanning #wealthmanagement #Retirement #Investments #Social Security #Estate Planning #Guaranteed Income, #MailboxMoney #Annuities #Annuity #IRA #401k #Rollover #Retirement For Life #Cyr Financial #Taxes #Roth Conversion #Roth IRA 

DISCLAIMER =============  

Since we don’t know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice, or other advice and may be outdated or inaccurate.  Individuals should consult with their dedicated financial planner, tax preparer, estate attorney, etc., before making any financial decisions. 

 This video contains content I created. This Channel DOES NOT Promote or encourage any illegal activities; all contents provided by This Channel are meant for EDUCATIONAL AND ENTERTAINMENT purposes only. Cyr Financial Incorporated or its members cannot be held liable for any use or misuse of this content. 

Investment advisory services provided by Cyr Financial, Inc. an SEC registered investment adviser.    

All content on this YouTube Channel is for information purposes only and should not be considered investment, legal or tax advice.  Material presented is believed to be from reliable sources and no representations are made by our firm as to another party’s informational accuracy or completeness.      

Neither Cyr Financial, Inc., nor its representatives provide tax or legal advice, and nothing herein should be construed as such.  Always consult with your tax advisor or attorney regarding your specific circumstances.

We love hearing from you!! Record your retirement questions anytime at www.RetirementForLife.com 

• Subscribe to our channel for our latest content visit: Our YouTube Channel
• Elevate Your Retirement with the AIM Secure Retirement Assessment... our most popular tool!  Powerful customized insights for retiree's or those nearing retirement. Answer 8 simple questions and receive your personalized assessment including the top three action items most likely to supercharge your chances of Retirement Success. 
• If you're interested in learning more about our trademarked AIM Retirement System, visit:   AIMRetire.com
• Want to connect with Chris?  Schedule a 15 Minute Retirement Readiness call to discuss whatever's on you mind about retirement Retire15.com or just shoot him an email at mailto:admin@cyrfincial.net 
• Try out the industry's leading financial planning software on your own.  We give RFL listeners unlimited free access to the Free Online Planning Tool

Investment advisory s...

Transcript

The IRS In Your IRA

SPEAKER_00 0:00

Look, when you have a million dollars in your IRA, it looks like you have a million dollars, but you have a silent partner in that IRA, and that's the IRS. There really are two piles of money. One is yours to call it 70%, the other is the IRS's. So $700,000 of that million dollar IRA is yours. $300,000 belongs to the IRS. If that IRA grows to $2 million, then guess what? The IRS's portion grew right along with it. So you now have $1.4 million. The IRS has $600,000. So there's no catching. Retirement for life.

SPEAKER_01 0:32

Your passport to a comfortable and confident retirement. The confidence that's equal parts education and entertainment. Where we break down the retirement into the natural fund and a heap of wisdom from your host, Christian Speer TPA, the passionate retirement specialist. And president of Steer Financial Wealth Advisor. The independent, registered investment advisor specializing in a retirement system.

SPEAKER_03 1:01

I am at a one of the industry's best, maybe the industry's best retirement planning conference. The very first workshop I go to is helping financial advisors be better at delivering advanced tax planning. And there are four panelists. I didn't really pay attention to the panelists. I was sitting in the front row because I'm very proud of what we do. We were CPAs first. And of course, we kind of morphed into this what is now a national retirement planning firm. But I am thinking that this workshop is going to be kind of ho-hum. I've done this, I've been there, everything. And guess what? One of the expert panelists starts speaking up. And I start looking at him and I realize that this is David McKnight, author of The Power of Zero. He is saying things that resonate with me so well. I'm just thinking about what I can do to ask him to be on this podcast. So David McKnight, um, welcome. Did you know, did you know that your book, Power of Zero, Forbes has said is one of the, what is it, one of the top 10 must-have financial books. Are you aware of that?

SPEAKER_00 2:20

Yes. Yes, uh, top 10 financial resource in the nation. A couple different years it said that. So was honored to to read that and uh hopefully it's been helping some people.

SPEAKER_03 2:31

You are a pioneer of the tax-free retirement. You speak nationally. Uh, to be on this show is just really an honor to have me. So I'm really looking forward to digging right in.

National Debt And Tax Reality

SPEAKER_03 2:41

Can we just start talking about the U.S. debt, your favorite topic? Sure. Yeah, where do you want to begin? Um, first of all, the word fix, I don't think should be used when we're talking about the United States debt. I think we should use the word sustain. In other words, we're not going to fix the problem, but perhaps we can stop the bleeding. Is that uh true?

SPEAKER_00 3:01

Yeah, there's nothing wrong with having debt. Uh countries go into debt when they want to finance, you know, infrastructures, you know, any any other uh, you know, projects, what have you. It's not not it's not inherently bad to have debt. It's the debt uh uh GDP ratio is really what people should be looking at. And you get to the point where you know you get 175% debt at GDP, it starts to uh affect your your gross national product. Um, it starts to weigh heavily on the just the you know the growth of the nation from a physical perspective. So um we're you know, it depends on whether you count the the debt that we borrowed from Social Security or not, but you know, we're at 125%, we'll be at 150% by 2035, 175 by 2040, and then 200% by 2043. This is a big deal because Penn Warden has said that if we don't fix the debt by 2043, so in other words, in other words, if we don't ride our fiscal ship of state by 2043, that that's the point of no return. No combination of raising taxes or reducing spending by that point will prevent the financial collapse of the running. So if you think of the debt as a snowball, it's going down the mountain, it'll get so big and so fast by that point that there's just no stopping it, it'll basically collapse the economy. So um I think that, you know, I think that the the government's gonna have to start doing something well in advance. By the by the way, they said that if uh at in 2040, when it's 175%, that could also be the point of no return. They just they're taking a wait and see approach. But somewhere between 2040 and 2043 is sort of the the fiscal day of reckoning for our country. And so my thesis has been that they have to start phasing in tax increases in 2035 to give them enough ramp up period so that they're not doing this sort of a cliff, you know, double taxes all in one year starting in 2039 or 2042, whenever that date happens to be. So it's it's um it's not sustainable. Uh every year that goes by where Congress fails to act, I mean, it's a problem on the back end, it gets even more, even bigger and more unsolvable. So it's an issue, and politicians frequently sweep it under the rug. It's not popular to talk about because to fix it, you're either gonna have to raise taxes or or reduce benefits or some combination of the two, and nobody wants to get voted out of office any sooner than they absolutely have to. So this is a big, sticky sort of uh subject that nobody wants to touch. And um, every year that goes by where nobody touches it becomes even more uh problematic and uh increases the likelihood that taxes are gonna go up.

SPEAKER_03 5:39

Printing more money, I think nearly 100% of economists agree that you can't just print more money or continue to borrow more, essentially do nothing, or continue down the road we've been going. I think Elon Musk can speak to the fact that it's not going to be very easy, perhaps impossible to cut spending enough to get this sustained. Um you and I actually, I don't know if you remember, I had thrown this out there to you. I love the idea of just doubling down and growing the gross domestic product, the growth of our economy. Um I don't know if you see that as a viable option. And if not, then that leaves the one thing that you mentioned already: taxes. Um do you think it's gonna happen that our GDP grows, or do you think, as you indicated earlier, 2035, 175% debt to GDP? That's when it's gonna happen. I mean, what other course of action do you see happening besides higher taxes, if any?

SPEAKER_00 6:44

I don't think we can grow our way out of the problem. Um Committee for a Responsible Federal Budget just came out with a report that says they they have two variables. One's called G, that's the growth of the economy, one's called R, and that's the rate of interest on our on our debt. The problem with the debt is that uh it has to get refinanced every couple of years. And they send that debt out to auctions and other companies bid on how much they're willing to uh the rate at which they're willing to loan us money. And as our debt goes up, those rates are likewise gonna go up. And so they're predicting that by 20, uh, I think it's like 2032 or so, the the the uh amount of interest that they're gonna be charging us is gonna be greater than uh what the projected uh growth rate is on the economy, and that those two those two lines sort of go in opposite directions from that point forward. And so again, it's not so much how much debt you have. I mean, if you're if you're if you're um the growth of your economy is staying ahead of the interest that you're paying on the debt, then that's a sustainable scenario over long periods of time. But when the rate that you're paying is growing faster than the rate of your economy, you got a real problem on your hands. And and that's why I think it's reasonable to be pessimistic about the outlook.

SPEAKER_03 9:05

Yeah. We are a young country comparatively to the rest of the world, 250th birthday this year. When I look at other nations and their tax rates, I see 40, I see 45, I see 50, in some cases, I see 55. I feel like we're just growing up as a nation. We're the new kid on the block, just figuring out that social medicine, social retirement, social health, armed forces, public aid, safe national transportation, et cetera. So it costs money, right? And and let's just face it, taxes are going to go up. So the next thing is how much are they going to go up? Wharton put out an article in October of 2024 that really alarmed me when I first saw it. Taxes need to go up, all taxes across the board, federal taxes need to go up 33% immediately and permanently. But when you look at that, David, at first that number is a shock. Wow, 33% higher. But when you actually look back over the course of the last 40, 50, 60 years, we've kind of already been there. Do people that you talk to, do advisors that you work with and the people that they work with, does the average person realize what a low tax regime we have? And that 33% to 50% increase in taxes in the future is not something unfathomable?

SPEAKER_00 10:38

Not generally. Um people hate paying taxes. When I I do my presentations all across the country, routinely asked rooms full of people, hey, how bad are taxes today? You know what they say? They say terrible, horrible, as bad as they've ever been. The truth is tax rates today are as low as we've seen in our lifetime. The problem is most people alive today that are worried about things like taxes, um, taxes have not been that high in our lifetime, or at least when we were sort of taxpaying members of society, they've always been relatively low. And so we don't, unless we do uh some purposeful research into the archives and check out what tax rates were even as recently as the 1970s, we just don't realize how good we have it today, which is why when I talk about tax-free strategies like Roth Conversions, I say, hey, look, you probably have another 10 years during which to take advantage of historically low tax rates. And every year that goes by where you fail to take advantage of historically low tax rates is potentially a year beyond, say, 2035, when you could be more forced to pay some of the highest tax rates you've seen in your lifetime. So uh, no, people don't get it because they haven't studied history. Uh, I have studied history, I know how bad things have been in the past, I know that uh these tax rates today are really good deals of historic proportions.

SPEAKER_03 11:58

Yeah. And who am I to disagree or have a different opinion than yours? I've often told people I think it's sooner than 10 years. Nobody knows the future. Uh, neither of us do, and certainly uh nobody really knows. But uh the times are certainly changing. Looking at midterm elections coming up, uh certainly things aren't going to change overnight. But the point is taxes are going to go up. You mentioned Roth conversions. That's what I say is the biggest financial opportunity for a generation of savers. Uh I think it is, and I'm curious to hear your opinion on this. I think it's the biggest, the biggest tool in the toolbox we as advanced tax planners have. I think that the Roth conversion is the focal point, and then all the other strategies are kind of surrounding or go around that focal point, which is the Roth conversion. You have a lot of great information on Roth conversions and a lot of great ideas about Roth conversions. What is, what are the tax rates that you favor? Uh, tax brackets that you favor staying under, and what are the tax brackets that you despise when thinking about Roth conversion?

SPEAKER_00 13:14

I say generally if you're in a 10 or 12, stay in the 12. If you're in a 22 or 24, stay in the 22, stay never go higher than the 24. Um, I think the 24% is the sweet spot and the current tax rates. You can go uh, gosh, all the way up to, you know, around uh $400,000.

Roth Conversions As The Main Tool

SPEAKER_00 13:32

Um, you can get a lot of heavy lifting done within the 24% tax bracket. But what some people do unfortunately is they say, oh no, tax rates are going up. They're gonna go up fast. And they reflexively convert all their IRAs or 401ks all in one year or over the course of several years, and they bump up into the 32, 35, or 37. I think we've got a runway here. I think we've got between eight and 10 years of historically low tax rates. I think that Congress will continue to kick the can down the road. After all, no politician wants to be voted out of office any sooner than they have to. Uh so I think that they're gonna sort of try to sort of artificially suppress these tax rates. Uh, and when I say suppress artificially, we're that they're just increasing the national debt to avoid having to raise tax rates. So I think they're gonna continue to do that until probably 2035, which means we have this 10-year window during which to take advantage of historically low tax rates. So I have my least favorite tax bracket is the 32. Uh, if you're in the 22, it absolutely makes sense to go up to 24 because for an extra, you know, 2% on the margin, you can shift an extra $200,000 per year from your IRA to your to your Roth IRA. That's only a you know a measly little amount on the margin. But if you're saying, hey, I'm gonna go from 24 to a 32 or 35 or 37, and you still have 10 years of historically low low tax rates left, um, I think that's um not prudent. I think you're gonna remember the name of the game, Chris, is we want to do whatever combination of strategies are gonna increase the likelihood that our our our money lasts through life expectancy. If you're paying a 32 when you could very easily stay in a 24 the whole time, you are unnecessarily giving money to the IRS that will cause you to run out of money sooner than you really needed to. And so I think that we need to be wise about the tax brackets we're using when executing these Roth conversions.

SPEAKER_03 15:19

Yeah. Your your comment, and you alluded to it, but your line of thinking and my line of thinking is very aligned. Uh and one of the the favorite things of mine that you say, I've heard you say, is that the number one goal of retirement is not to make as much money as possible, but to make your money last as long as possible. When I am talking to a first-time prospect, people are watching us, listening to us, they want to know what it's like to work with us. You can always tell what's going to be potentially, and I hate to use the term bad client, but when a person asks me the very first question out of the box is, what were your returns last year? I number one, A, understand that this person doesn't get it. And B, I don't think this person is ever going to get it. It's going to be hard. This is a lot of education that is about to go on if this person is going to be a client. I couldn't agree with you more. Number one goal of what we do is first and foremost to make sure that you're not going to run out of money. Having said that, Roth conversions are a big part of what we're doing. I love this comment I get all the time on YouTube. I'll make a video about Roth conversions, and inevitably there'll be thousands of comments. And I'll just give you an example. Yeah, that's a great idea. Roth conversions. Thanks for the video. I just did a Roth conversion last year for $80,000. My thought is why $80,000? Why wasn't it $80,450? Why wasn't it $150,000? Are people just randomly grabbing at numbers? People are going both ways. Just let's get this all done just because we want to get it done. That's probably a mistake. Uh people are saying let's drag this on for 20 years. I think that's a mistake. Um, tell me about your theory when it comes to not only optimizing the Roth conversion, but putting the number one goal first of making sure your money lasts as long as possible. How do we balance all of these factors?

SPEAKER_00 17:28

Well, first of all, your your Roth conversion strategy has to be coherent. And this is, I always love to poke Dave Ramsey with in this regard. Dave, Dave Ramsey. Yeah, he he gives really willy-nilly advice when it comes to Roth conversions. For example, he says, don't do a Roth conversion when you're within five years of retirement or in retirement. Well, that can be Roth conversions and retirement, especially during the retirement income valley, that's one of the best times to do a Roth conversion. But really, you you have to have some sort of coherence behind your strategy. Uh, and I I say a good Roth conversion strategy has to answer three questions. Number one, how much of your IRA or 401k should you actually convert? And some people reflexively convert the entire thing, which doesn't necessarily make sense. And here's why. Remember, when you retire, you're always going to have some deductions left. Um, you know, by the time you do retire, uh all of your typical reductions have sort of vanished into thin air. Your house has paid off, kids have moved out, you're no longer contributing to your 401k. So those deductions are all gone. So the IRS gives you a deduction that's called a

A Coherent Conversion Game Plan

SPEAKER_00 18:33

standard deduction, which if you retire today as a married couple will be $32,200. What that means is that you can realize income from any number of sources, including your IRA or 401k, up to $32,200 without paying any tax at all. So if that's the case, uh, why would you convert all of your IRA or $401 to Roth when such that when you retire, you're gonna you're gonna have no income left. What that means is that you will have needlessly paid taxes along the way on a portion of that IRA. So I tell people the first thing you gotta do is how much money you're gonna leave in that IRA such that it produces an RMD that's equal to or less than your standard deduction. For most married couples, that's like $350,000 to $400,000. And you also want it low enough that it doesn't cost social security taxation. So that's the first one. Uh the second one is uh how much should you be converting per year? So now that you know you know what the ideal balance in your IRA is by the time you reach retirement, how much do you need to convert between now and then to be able to get to sort of whittle it down to the right amount? Might be, you know, you're looking at the 24% tax bracket if you're currently in the 22 or 24. You're looking at the 12% tax bracket if you're currently in the 10 or 12. So you're figuring out how much you're gonna actually convert per year. And then you also need to figure out uh the date by which you must get your Roth conversion completed. What is the date by which you should fully execute that Roth conversion? And that really is like asking yourself, how long do you think taxes are gonna stay this historically low? I think uh I I tell people shoot for 2035 or so. So I think that if you have those three questions in mind when you're executing or at least creating your Roth conversion strategy, that will increase the likelihood that uh at the end of the day uh your money is going to last as long as you do.

SPEAKER_03 20:20

I have a problem, David, with people who are using this term for Roth conversions, the break-even term. Oh, yeah. I don't like that. I think there's so much misinformation about this. I have trouble trying to explain to my retirees that a $100,000 IRA that has not yet been taxed is probably not nearly as good as $85,000 sitting in a Roth account for obvious reasons. People are thinking about what they see on their statement as what they have when in fact the government probably owns 25% or more of your IRA in 401k when you die. How do we explain this to retirees uh if they are having a hard time understanding that? And what are some of the things that you hear all the time that I don't want to say are wrong, but are perhaps misconception misconceptions about the break-even process or thought process?

SPEAKER_00 21:24

Yeah, so there's this idea that if you do a Roth conversion, you

The Break-Even Myth Explained

SPEAKER_00 21:28

you need a runway, a period of time during which to catch up for all of the taxes that you paid along the way. So so in other words, uh the theory is that if had you left your money in the IRA, uh you you'd have you would have more money, but if you do the Roth conversion, you'll only catch up to where you would have been in your Roth IRA if you have if you let that money grow and compound in that Roth IRA over time. And I've heard people say, I I need, you know, I uh I should do the Roth conversion if I'm not planning on touching this money for 20 years or something like that, which is utter nonsense. It's 100% nonsense. In fact, that slide at the uh was at the same conference and he he he addressed the same thing. So the idea here is this look, you when you have a million dollars in your IRA, it looks like you have a million dollars, but you have a silent partner in that IRA, and that's the IRS. So uh if tax rates stay where they are today, let's just assume a 30% tax rate. That means that there really are two piles of money. One is yours, call it 70%, and and and the other is the IRS's, let's call it 30%. So $700,000 of that million dollar IRA is yours. Uh $300,000 belongs to the IRS. If that IRA grows to $2 million, then guess what? The IRS's portion grew right along with it. So you now have $1.4 million, the IRS has $600,000. So there's no catching up. You just have to think about it in terms of two separate piles of money that can only really get bigger in favor of the IRS. Because think about it this way if tax rates are likely to go up down the road, and I think we've made a pretty good case that they are, then the best case scenario is that 70% of that money is yours. It can only get worse from there. If tax rates double, you know, 30% become 60, even if they became 50, now you got a million bucks. The IRS has a million bucks. So there's no that whole discussion of catching up or crossover point has nothing to do with this discussion. It's just, it's just people misunderstanding how it works. Uh the reality is there's two piles of money, but they're sort of collated onto one and one investment statement. So it looks like it's one pile of money, but it's really your pile of money, the IRS's pile of money. Both are growing simultaneously and they're put together on the same account statement. So it looks like if you, you know, if you pay tax to the IRS, you're gonna have to have this long period of time over which you can catch up, but that's just not not the case.

SPEAKER_03 23:49

Yeah, it looks like you're going to be behind the game, but the way I always try and pose it to people is look, it is not your money. And most most retirees that we're working with will say, My kids are going to be okay. This is my retirement, I come first. Um, there are people who are dearly concerned about leaving a legacy to their children, but the average retiree is saying, My kids are going to be fine, they can take care of themselves, which is great. But when you pose it like this and you change the mindset, the framework to look, this is not your money, this is not your 30%. Would you rather the IRS gets more of it, or would you rather your children get more of it? Right. And so that you frame it that way, it it helps the conversation. Um, your most recent video on what you would do with $2 million right now on YouTube is a must-watch. I believe pretty much every concept you lay out. I sent it to my team of CFPs, and I said, Look, I am not the only crazy person in this world. This is David McKnight, and now he's saying it, so now they all think I'm right. Uh, everyone should watch that video. I I can't I can't share it enough with others. Um, I really agree with what you're doing. I just want to talk quickly. One of the concepts in that video is something I believe in very strongly is a baseline of guaranteed income. There are multiple ways to get there. We're typically using some sort of insurance product. Um, just briefly about the concept of a base of guarantees in light of the fact that the stock market right now has been up 16 in the last 18 years. The last four years, I think the average return is almost 20%. Um we have forgotten, you know, the last bad time, 2008. I think my 65-year-old retirees were, you know, trying to run a household and put dinner on the table and working and having a career, and their 401ks went down 50%, but they didn't really think much of it. And now they've forgotten about it. How important is that baseline of income, especially in today's environment?

SPEAKER_00 26:18

Well, there's a lot of things, a lot of benefits that come from that that people don't always think about. Um, when you when we talk

Building A Guaranteed Income Floor

SPEAKER_00 26:23

about a baseline of income, we're basically saying, let's find a way to guarantee your living expenses. And that can happen through a couple of different ways. You have Social Security, that that's guaranteed, right? That's going to be an inflation adjusted. Uh, you've got a company pension, those are becoming fewer and farther between, but people still have company pensions. And then you have uh basically guaranteed lifetime income annuities, uh, which some people call private pensions, which basically operate uh according to the same rules. I, you know, people say, people say, Dave, I don't like annuities, a four-letter word. I say if you don't like annuities, then you're definitely gonna not gonna like social security or the company pension because those things operate by the same risk-sharing principles. So the idea with with creating a floor of income is hey, let's say you need $100,000 per year to pay for your living expenses in retirement, and Social Security and pension covers $60,000 of it. Where how how can we generate uh $40,000 of additional guaranteed income? And basically what you do is you take a chunk of your IRA and you hand it over to an insurance company in exchange for $40,000 of income that's guaranteed to last as long as you do. And so once you have that floor of, say, $100,000 that's guaranteed, it can be inflation adjusted to cover all of your uh living expenses. Now you can do some really interesting things. Number one, uh you have a permission to spend. Um, not now that you and there's all sorts of studies on this. When you when you are are paying for your retirement, your living expenses in retirement purely off of a stock market portfolio, all of the studies are unanimous on this. People tend to spend less money because they're afraid of spending too much, eating into their principal, running out of money before they die. Academia has been studying this for years and years and years, and they've agreed on that point. People do not spend as much when they're paying for their living expenses out of a stock market portfolio. However, if you have guaranteed lifetime income that's adjusted for inflation, it's going to be their rain or shine, so long as you're on this side of the grass, that's a different story. People spend in some cases twice as much money because you know those paychecks keep hitting your bank account and you have to keep trying to find ways to try to spend it. And so that's a big top, big, big deal. So you have a permission to spend, people tend to be happier uh because they're not worried about their stock market portfolio. Um, they tend to have, they tend to live longer. I mean, Jane Austen herself said it, and I think it was Pride and Prejudice, the people always seem to live forever when they have an annuity coming to them or something like that, because you keep wanting to get more paychecks, so you keep living longer. So that those are there's all sorts of uh and then the big one, I think, that a lot of people don't think about enough is that when your living expenses are guaranteed, you've got that floor, you now have a permission slip to take more risk in the stock market. Why? Because if the stock market is down, you don't have to take money out of the stock market because your uh income is guaranteed through all those other sources. You now have a permission slip, you have the luxury of watching it recover before you take further distribution. So I always tell people you should ratchet up the risk in the stock portion of your portfolio once you have guaranteed your your income floor through all those other streams of income. You have recently released, is it your sixth book? Uh it's technically my eighth book. I've written a couple eighths, I've written a couple of novels along the way. It's probably my seventh financial book, I would say.

SPEAKER_03 29:45

Okay, The Secret Order of Millionaires. This is kind of geared to a different group of Americans. Tell me about this book and who is it written for?

SPEAKER_00 29:54

Yeah, it's written for Gen Z and millennials, pretty much anyone between age 15 and 45. My kids have read it. It's a it's a financial novella. So it's only about 150 pages long, so it's not a full-length novel. But what I've done is I basically couched seven principles for building tax-free wealth within uh the pages of a sort of a suspenseful, fast-paced plot. It's got a really cool twist ending. Once you pick it up, hard to put it down. By the time you've made it through the story, you've unwittingly absorbed all these financial principles along the way. And it's basically designed to hand to your kid who maybe is a teenager or someone who just graduated from high school or college and say, hey, look, all of those principles that made your parents and grandparents wealthy,

Money Lessons For Younger Adults

SPEAKER_00 30:40

they still apply in today's world. Even if TikTok tells you otherwise, even if TikTok says put your money into crypto or NFTs or all of these other exotic newfangled things that don't have real proven track records, the thing that has the proven track record is the stock market. And the stock market, I as I say in the book, is the single greatest engine for wealth creation the world has ever seen. This is really an attempt to help these younger generations um, you know, create a solid financial, you know, foundation upon which to build their financial lives and uh to couch it all within a compelling story that has a cool twist in it.

SPEAKER_03 31:19

I love that you you reached out to this particular group. Secret Order of Millionaires, already a bestseller, believe it or not, on USA Today. Um good for you for going there. I think that's uh well needed in the space. I want to end the discussion today talking about financial advisors. Um at the most recent conference that we were at that I mentioned at the beginning of the interview, I went around interviewing anybody I could talk to, anyone who wanted to be on camera. Surprisingly, David, or I guess not surprisingly, uh what we learned is that financial advisors just love to be on camera and talk about themselves. So I had a I had over two hours of footage of uh interviewing financial advisors. Here's let's just be let's just be honest. The majority of them are not tax experts. Kudos to them for going to a retirement planning conference where they want to improve themselves, offer a more holistic offering to their retirees, learning about the topics that you spoke of, how to incorporate real true tax planning into a uh financial advisory practice. The fact of the matter is that less than 2% of registered investment advisors in this country are actually completing tax returns, actually uh tax

Training Advisors For Tax Planning

SPEAKER_03 32:41

experts. Um, the CFP, I think there's over 100,000 CFPs now. Um, you know, that code says that you, as a CFP, cannot call yourself a tax expert unless you have uh the recognized CPA credential or uh enrolled agent credential. Less than 10% of the CFPs in our world are even able to say they're tax expert. And yet the number one thing at that conference, the the workshop you were at, David, was the number one attendant. They had to take a partition down just to fit everyone in there, um, was talking about taxes. And not only do retirees, not only are they looking for tax help and tax planning, so too are financial advisors looking for help. Um, there's a bottleneck between the needs of seven-figure savers and the abilities, I believe, of the average financial advisor in America. So tell me a little bit about how you are helping advisors with your workshops and your programs, helping financial advisors, kind of putting them in a better, a better environment. Um, when they plug into your platform, do you give them proprietary tools? Uh, how are you helping them better serve today's retiree?

SPEAKER_00 33:59

Yeah, we're doing a couple of things. I think the the biggest way is we're we're there there are people out there that are anxious to embrace uh the Power Zero worldview. They're anxious, they they see the handwriting on the wall. They know the tax rates in the future are likely to be dramatically higher than they are today, but they don't know how to protect themselves against it. They they want to get to the zero percent tax bracket in retirement, but they know that there's it's a pretty complex road that you have to travel to get there. You violate a threshold on the one hand and then and then that trips another threshold on the other hand. There's it's you know, the path to the 0% tax bracket is strewn with landmines and pitfalls. And so you need an expert to hold your hand uh along the way and shepherd you through that entire process. So people recognize that they need to get there, but they know that they can't do it on their own. And so part of what we do is we we put them in front of a um audiences that are anxious to embrace uh the paradigm. And of course, obviously, we have to train them on how to do it. And so we have uh obviously training programs and weekly webinars and portals and things like that that give them all of the information. I I tell people I want to turn you into David McKnight uh within six months, only without the seven kids. Though if they want the seven kids, I can I can show them how to do that too.

SPEAKER_03 35:16

You're certainly helping a lot of advisors out there, and there is a big lack of of information, and you're you're sharing that, and that's a great thing that you're doing so that more people can have access to some of the ideas that we have spoken about today. You know, all the things that we can help people with. Uh they are smart people, they have worked hard, they've had the fortitude to do a great job saving. We are introducing them to a world that they're not familiar with. They know their business, they know their colleagues, they know everything. And this world that we are in is a new world for them. So I hope we took a step today in helping people uh get closer to a tax-free or zero tax retirement. David McKnight, as always, such a pleasure. Go check out the new book, The Secret Order of Millionaires. David, thanks for being on the show. Very much appreciated it. Thanks for having me, Chris. All right, take care. That was my conversation with David McKnight, author of Power Zero. Here are the takeaways. Retirement tax planning, probably the most important conversation retirees, seven-figure savers, should be having right now. The national debt is a problem. Tax rates will be going higher. Doing nothing before RDs, Social Security, and these tax increases collide is, I think, one of the biggest mistakes retirees are making right now. The Roth conversion is the centerpiece around the tax planning. It is possible, and I believe, that there is more bad advice about this advanced tax topic than there is good advice. Okay. So choosing the right financial partner may be the most important decision you have in your retirement. If you have not already, here are the steps that you need to follow. Number one, you need to understand how much of your IRA or your 401k, that money that has not yet been taxed, how much of it actually belongs to you. What are your taxes in retirement going to be? How much are you eventually, you and your family, going to pay to the IRS? Most people that I talk to for the first time have no idea what

Key Takeaways And Next Steps

SPEAKER_03 37:21

that number is and are shocked when they find out what it actually will be. Number two, what is something that you can plan that potentially reduces that amount of taxes that you're paying to the IRS? Newsflash, you are a seven-figure saver, you have children and are married. There is probably, as we discussed today, the break-even on these Roth conversions truly is yes true. Number three, if a Roth conversion does make sense, how quickly should you convert? What are the tax brackets you should be using? What are the other things that we are sprinkling around the Roth conversion? It's not just the Roth conversion, it's all the other 12 things you do outside of that and around the Roth conversion. What does that look like? Okay. We know that taxes are not going to be this way forever. Okay. Our system is the AIM retirement system. It's built to do exactly that. Take the Roth conversion and all the important elements of retirement planning and bring them retirees so they can stress test their plan, create income stability, and look for this tax reduction opportunity. What a great conversation we have with David McKnight. So if this conversation made you wonder about your situation, I encourage you to take the retirement assessment. You can check out the link in the notes of the show or to the QR code here on your screen. It is a simple way to assess your situation, identify the risks, and explore opportunities, or just have a second look at your retirement strategy. As always, I thank you so much for listening to our podcast, Retirement for Life. My name is Christian Sear, CPA CFP, and I'll see you in the next episode.

SPEAKER_02 38:59

Investment advisory services provided by Senior Financial Inc., SDC Registered Investment Advisor. All content on this podcast is for information purposes only and should not be considered investment, legal, or tax advice. Material presented is believed to be from reliable sources, and no representations are made by our firm as to another party's informational accuracy or completeness.