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How to Calculate Your Retirement Needs in Future Dollars – Your Money, Your Wealth® podcast 431

How much will money will you need in retirement,
adjusted for inflation? Today on Your Money, Your Wealth® podcast
431 Joe and Big Al spitball on your future dollars, how to calculate the tax on Roth
conversions, and the benefits of converting in down markets. Plus, should retirement savings contributions
be half pre-tax and half post tax? And finally, saving to a 529 plan for your
kids, or sending them to Hollywood stunt training camp – which would you do!? If you’ve got money questions, comments,
suggestions or stories, visit and click Ask Joe & Al On Air to send ‘em

I’m producer Andi Last, and here are the
hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA. Joe: I got Jared from Clifton Park, New York. “Hey gang, love the podcast. Been listening for 6 months.” All right, new listener. “I estimate I need $40,000 per year to maintain
my current lifestyle. Would like to bag work in about 15 years.” What’s that- you'd like to bag work? I haven’t heard that- Al: Yeah, that's a good one. i.e., that means quit. Joe: I can't wait to bag work. “What would your portfolio value need to
be in future inflated dollars? Okay. Currently- so $40,000 a year- he wants to
bag work in 15 years. So how much money does he need? Is that what he is asking? Al: Yep.

I already did the math. So, so Joe, the- if you take a 3% inflation,
$40,000 is in 15 years, is $62,000. At 3.5%, $67,000. So let's just say $65,000 is your spin. And we don't know how old he is, so that makes
it a little bit more difficult. But I'm gonna just say 3.5% distribution rate,
because I think- Joe: $2,500,000. Al: Well, I got $1,900,000. Because I think he's gonna be close to 60
based upon his wife's age.

So I'm kind of reading between the lines. You haven't got there yet, Joe, but that's
what I'm thinking. Joe: Got it. Al: So, yeah. Yeah. Okay. So let's just say between $2,000,000 and $2,500,000. But that doesn't consider any other kind of
fixed income, like pensions, Social Security. There's a lot more that we don't really know. Joe: All right, I'll continue on. “Currently have $357,000 in a 401(k), $175,000
in a Roth, $27,000 in a brokerage account.

I max out my Roth each year, defer 23% of
my wages that vary from year to year. Will make about $70,000 this year.” 23%. That's a pretty high number. A: That's very high. Joe: “I have $100,000 left on my mortgage,
rate is 3.25%. I contribute $2500 a year to my 13-year old's
529 plan.” So if this was my scenario, I would be like
75. Andi: Wow. You're really spending a lot of time thinking
about that age as a father thing, aren't you? Joe: Yeah. Man, it's a two-year-old. It's like, my God, I didn't know it- “Wife
has pension and maxes out her Roth. She'll be eligible to bag work at 55, but
I'll keep her working longer for health insurance, hopefully.” Andi: Oh, Jared. Joe: Okay.

“We drive a 2015 Ford F150. Have a 9-year-old terrier mixed mutt rescue. Drink of choices a German hefeweizen. Enjoy pronouncing that.” How about that? Right? Surprised you. “Would love to hear a number that you guys
come up with.” All right, well you need $2,500,000. Let's call it on the high side. Probably real high side because he probably
has Social Security and if he's only wanting to spend $40,000, he makes roughly $70,000
to whatever. Say, you know, his Social Security's gonna
at least cover half that.

Al: I would think so. But his wife is working. We don't know her salary. She has a pension. We don't know what that is. We don't know what the Social Security is. We don't know how old you are. So it makes it a little bit hard of a question
to ask. But I would agree with you, Joe $2,500,000
is probably on the high side. It's probably lower when you consider wife's
pension. When you consider Social Security. Joe: He's got $560,000. He saves $16,000 a year. That's 20% of his income. Al: What's that come out to be in 15 years? Joe: I got- there. Then we got $16,000 there. We got 15 years. What do you wanna do? 7%. 6%. Al: Do 7%. Joe: 7% growth rate. Future value. There's $1,975,000. Al: There you go. You're kind of on track based upon the assumptions
we're making. Joe: Yeah. Given the numbers that we got. And this is total hypothetical, but yeah,
if you get 7%, you keep saving 23% of your income or $16,000 a year with the amount of
money that you saved over the next 15 years, you should have close to $2,000,000.

And yeah, back of the envelope, it looks like
you're in pretty good shape, Jared. Yeah. Al: Yeah. I guess another factor, Joe, it looks like
maybe he and his wife have separate money cuz he's saying he needs $40,000 per year
to maintain his lifestyle. So we're assuming his wife is covered for
her lifestyle with her pension. And her savings. So I guess we make that assumption too. Joe: Well he is gonna make her work longer
and get that health insurance. Al: Yeah. Yeah. Yeah. Joe: Well you could bag it. Put it in the bag, Jared. Put that retirement right in that bag. Joe: “Hello, YMYW family. Marcus from Queens, New York City. Long time listener, first time emailer. First, I love the show. I listen to it daily, driving my Mini Cooper. Married couple 27, 28, asking for some spitball
on how to maximize our financial situation.

We have a 3 year old mini Poodle and wifey
drives a Tesla Model Y. I just got her on the YMYW podcast and she
loves it.” Killing it. Way to go, Big Al. Al: And Mr. Joe. Joe: “Here's our situation. W2 income, $300,000 evenly split. I have a 1099 job that brings in about $60,000. Currently, we are both maxing out our 403(b)
contributions plan to the max. We both don't have the you-know-what, and
I always felt like it would be too much of a hassle given the fact that we needed to
do the back door traditional to Roth. After listening to your podcast, now I feel
like such an idiot for never opening up a Roth IRA and doing the yearly backdoor.” Got to do the yearly backdoor, Big Al.

Al: If you qualify. Yes. And you're in your 20s, it's not too late. Joe: “We own our home in NYC with about
$800,000 in equity and $400,000 mortgage, 3.65% fixed, 25 years, no other debt. We plan to live here for the next 5 to 10
years. After all, mortgage, cars, living expenses,
we all are saving on an average of $10,000 and are basically funding it into our Vanguard
brokerage account. Current brokerage account is $300,000; 403(b)
has around $100,000 together. The 403(b) plan at doesn't have great options-
The 403(b) plans that they have do not have great options. So ours are in a simple tax deferred 2060.” So that's a- Andi: Target date fund. Joe: -target date. Thanks Andi. “We plan on continuing to max our 403(b)
and beginning to realize the account will have some serious taxes upon withdrawals,
RMD age.” He's worried about RMD age- Al: In his 20s.

Yeah, well, you got to think ahead. Joe: He's a planner. Al: Because by age 75 they're going to be
high. Joe: “For my 1099 job, I've been contributing
to the SEP IRA to around 25% of my net. Wife would like to retire at around age 45.” Wifey’s a little FIRE girl. “We expect our yearly expenses at retirement
to be about $150,000 to $200,000. Both jobs will have a pension that will likely
add at least $40,000 of fixed income at retirement each. I plan to work on to 55 and hopefully retire
on the sunny island of Maui.” Al: Wow, you were just there. Joe: I was just there. I was on the sunny island of Maui. “I understand we are in a very privileged
situation and would like to take the most of our finances. Is there anything we are missing? And do you have friendly conversations on
what else we should be doing? Thank you guys for amazing podcasts and Andi's
random comments. It's hilarious. I have learned so much and will continue to
listen for as long as you guys are hosting. Thanks again with love from NYC.” Andi: Awww. Al: Wow. That's very sweet.

Joe: It's just made my heart go pitter pat. Andi: Thanks, Marcus. Joe: He's got $300,000 of W2 income. So they're making $360,000 a year. They're maxing out the 403(b) plans. They got $100,000 in 403(b) plans together,
$300,000 in the brokerage account. So they got $400,000 all day. Does that make sense? Al: That makes sense, yes. Joe: Okay. And then they’re 27, 28, and she wants to
retire at 44, and he's going to retire at 55. So he's got about 30 years and she's got around- Al: Got about 20- Joe: – ish- Al: Something like that.

Joe: But they want to live off $150,000 to
$200,000 a year. They're going to have some pensions at $40,000
but I don't think a pension is going to pay out at45 years old. Al: I don't think so either. So I think what their plan- So she's going
to retire before him, so he's going to work that extra 10 years, which presumably would
cover their living expenses, but perhaps they wouldn't be saving as much. So basically, they have little less than 20
years to save a bunch.

Joe: So, Marcus, you're leaving out a couple
of things that we need here to have a little friendly conversation or a little spitball. We need to know how much you're spending,
bud. Because that kind of drives how you back in
the numbers. For instance, if you're spending $60,000 a
year and you want to retire at- she wants to retire at 44, but you're making $150,000
W2 and $60,000, the only thing that's really going to be adjusted is probably how much
money that you're saving in your brokerage account. So whatever dollar that you're saving or spending,
you just index that with inflation. So at age 44, okay, you're still good, but
your savings rate is going to go down. Or you go to age 55, that $60,000 in 20 years
from now is like more or less $100,000. But you want to spend $150,000 to $200,000
in retirement. So does that mean at your retirement or does
that mean her retirement? Because then that's going to dictate how much
that you can actually save. Because- Al: Right. And is that in current dollars or is that
in 20 years from now or 30 years from now? Joe: Because let's just say he wants to spend
$150,000 and they want that $150,000 at his retirement.

So that's what 30 years from now? Al: Yeah, almost. Joe: So if I'm looking at that, 30 years,
and let's just assume 3.5% inflation. So that's $421,000 and he's at 55 and you
don't want to take on any more than 3% out of the portfolio- Al: – at that age. Joe: – at that age. So you need $14,000,000. That's a big, big number. Al: Right. Because you're probably not going to- well,
maybe they will be getting some pensions by then, but still, it's minimal compared to
what the need is. Joe: Right. Because $200,000, given inflation in 30 years
is $400,000. And you take 3%, you divide that into $400,000. It's a huge number.

Al: Now that's if this is in current day dollars. If it's in future dollars, then it's not quite
as big. Joe: Yes. So if you want $150,000 in future dollars,
so now you need $5,000,000. You already have $400,000 saved. And then you have 30 years and let's say you
get 7% on your money and you save $50,000 a year. Now that's $8 million. You could run the numbers any way that you
want. You're very fortunate because you have huge
resources in regards to how much money that they make. So I don't even know what the hell the question
is. Andi: He just wants to know if he's on track,
if there's anything that they're missing, anything else they should be doing. Al: I think the answer is you're saving a
ton, which is going to allow you flexibility in the future. And in terms of- it's just a matter of really
kind of dialing this in. Because we don't know if the $150,000 or $200,000
is in today's dollars or future dollars, because that makes a huge difference.

Because as Joe just said, $200,000 in 30 years
from now is going to be like $425,000 or whatever number you came up with going to be double. Joe: It's a big number. So then the amount of money that you have
to save to get there is going to change significantly. Unless you're like, hey, I want $150,000 future
dollars is fine, too. Al: Now they are saving 403(b) as well as
about $120,000- they're saving about $10,000 a month. Or is that $10,000 a year, in their brokerage
account? Must be $10,000 a month because they already
have $300,000 in it. Joe: Yeah. So if they're saving $200,000 a year. Sounds right? Al: I’d say $150,000. Good number. Joe: All right. So they're saving $150,000 a year. They already have $400,000 saved. Let's say you got 20 years for wifey to retire. So that's $8 million in 20 years. You take 3% of that. It's $250,000 of income that can be produced
if he's still going to work for another 10 years. You don't take the income from that. Al: You let it grow. Joe: That's going to continue for another
10 years and you don't save anymore.

Maybe you don't even have to save anymore. Because you got $8,000,000 growing. That's going to turn into $16,000,000 in 10
years. Potentially it could double, right? So yeah. I think, Marcus, you're on track. Dial in exactly much you need in future inflated
dollars in retirement, and what your shortfall is, just by following the simple steps in
Big Al’s Quick Retirement Calculation Guide, which you can download from the podcast show
notes. It does require you to do a little math, so
we’ll understand if you’d prefer to just click Ask Joe and Big Al On Air in the show
notes and let them spitball it for you. Make sure to tell the fellas how much you
make and save and spend, and how much you’ll need to spend in retirement, for a more accurate
spitball. By the way, Marcus’ question originally
aired in episode 373 and if you’d like to go listen to the whole thing, including the
related Derails, it’s also linked in the podcast show notes.

Click the link in the description of today’s
episode in your favorite podcast app. Joe: Talking money, finance, wealth, booze. Al: Yeah. Dogs, cars. Yep. We get a little bit of everything. Andi: And Hawaii. Al: Yes. Hawaii. And you know what? We love your questions and the colors, cuz
it sort of puts us in the right frame of mind as to where you live, kinda what you're all
about, where you're listening to our show. That's why we ask you what you drink, because
some people like to listen to us while they're drinking, so that's why that originally came
up. Joe: Yeah. Myself- Andi: Joe likes to do the show while he is
drinking. Al: Although we do enjoy drinking as well,
I will throw that out.

Joe: We got Robin. She emailed Andi. Is this a personal friend? Andi: No, she's not. She actually had originally replied to one
of our newsletters and said, can you just answer a general Roth conversion question
for me? And I said, go ahead and send it to me, and
then I will get it in front of the guys. And then this is how she replied. Joe: Okay. “We all know that there is tax for Roth
conversions. I was looking for how to calculate it. I think I figured it out. I thought I could get away with no tax if
stocks were losers, but I think the dollar amount transferred is still counted as income
to be taxed. Is that correct?” That is correct, Robin. Ding, ding, ding. So if, if there's losers in stocks, Al, that's
a capital loss.

Al: Yeah and capital losses only offset capital
gains. Capital gain being, like if you sell a stock
or mutual fund at a gain. If you have capital losses, you can offset
those against them. You could also use it against real estate. If you sold real estate for a gain, that's
a capital gain. You can use your stock losses against that. But that's only one category. That's capital. Most items are ordinary income. Which this is. A Roth conversion is considered ordinary income,
same as salary, right? Same as dividends, interest, pension. All those are ordinary income and they are-
they stand on their own. In other words, you can't deduct your capital
losses against ordinary income. And I would say the way that you calculate-
the best way, maybe the most difficult, is get yourself a tax projection software and
put your tax return in best that you think it will be.

And then put the Roth in- conversion and take
it out and see what the difference is. But a quicker way is to take a look at your
marginal tax bracket which you have to go to your tax return, taxable income line. Look at what that is. Go to the tax table, look at your marginal
rate. And then that's the rate most likely that
you'll multiply that Roth conversion by to get what your tax will be. You have to do that for federal and state. Joe: Okay. So yeah, hopefully she can figure that out. A couple things though. You know, we talk about doing conversions
when stocks are losers or stocks are down because you want the recovery of the overall
stock market to happen in the Roth. So let's say you have an account and it's
down 20% hypothetically, and you might want to consider converting those dollars because
they're down in value. Maybe it's a mutual fund, maybe it's an ETF.

If it's a falling knife, if you have some
high flyer stock that could go to zero, maybe not the best choice. But if the market is overall down and you
do a conversion and the market recovers well, you've got 20% more, or you got a 20% discount,
if you will, on tax by converting when the market's down.

And so maybe she got it confused by saying,
well, if you said, if there's stocks that are down or losers, and I did a conversion
that might offset. You still wanna do conversions when the market's
down, it's the best time to do a conversion. Because all the recovered of the overall market
will grow into the Roth IRA, which will be 100% tax-free. Most people get paralyzed when the markets
are down. But there's a ton of tax strategy that they
should be looking at in regards to volatile markets, I guess. Al: Yeah that's well said, Joe, because that's
actually the best time is when the market's lower. Because when the market's lower, then it's
got a higher expected return in the future. In other words, you're buying stocks while
they're cheaper or buying mutual funds better yet, or ETFs, index funds while they're cheaper. You still have to pay the tax though, but
the tax won't seem as bad. If you buy, let's just say you do $80,000
of Roth conversion, and within a year or two it's up to $100,000.

It kind of takes a little bit of the sting
out of the tax in that you've got now $20,000 extra in a Roth IRA, which will be forever
tax-free. Joe: You got it. Joe: Alright, we got John Brown. He writes in from Nevada. “Hey, please use the name John Brown or
some other made up name. My question is in regards to Roth versus traditional

Wife and I in our late 30s. She makes $100,000 and my income fluctuates
between $250,000 and $350,000. Our current assets are $240,000 in a Roth,
$150,000 in a traditional, $500,000 in company stock and after-tax brokerage accounts, $230,000
in equity in a rental property and $50,000 in cash. My 401(k) offers a Roth option, which I was
contributing to, but changed last year in an effort to try to get to a 50/50 Roth and
traditional balance and reduce how much we are paying in taxes.

Is it a good idea to aim for a 50/50 split? We both max out our 401(k)s each year and
have the extra income to pay the taxes now. Everyone always leaves out some crucial information
that you need, but hopefully I've covered most of it.” Well, besides your name, John Brown. Okay. “I drive a Jeep Grand Cherokee and listen
to your show as I drive around making sales calls.” Hopefully he gets a good deal after listening
to this. Al: Yeah, right? Joe: He's sitting right in front of the house. I wonder if he's like door-to-door sales guy?
Or do you think he's going to companies? Probably B-to-B. Al: Oh, I think, yeah, I think he's B-to-B.
I think that's how most sales people are. Andi: Sells shower curtain rings. Joe: Yeah. Shower curtain rings. I dunno. Maybe a vacuum or something. Al: No, I don't think so. Joe: In his little Jeep Cherokee? Al: It's gotta be B-to-B. Joe: He's like, he's getting pumped up for
this big sales call coming up here. “Depending on the occasion, I could be sipping
on a little Maker's 46, neat.” All right, I kinda like that.

“Nice red wine or Gray Goose martini, straight
up with blue cheese olives. Martini snobs frown on this type of olive
in drink because it creates an oily sheen on the top. They can go pound sand. I'm drinking it, not you.” That's right. John Brown. I'll have one with you. “I've learned a lot and always look forward
to the next episode. Thanks in advance for your spitball.” All right.

50/50 split, Big Al. What do you think? Al: Yeah, I think that's fine. Here's a couple thoughts off the top of my
head. So, depending upon whether John Brown's salary
is $250,000 or $350,000 plus his wife's salary. He's- they're gonna either be in the 24% bracket
or 33% bracket. So, but at age late 30s, yeah, I would say
chances are income's only going up, I would be probably inclined that I would go all Roth
because I probably will be in the 24% bracket. And I think my- I'm guessing that my income's
only gonna go up and I'd wanna get the Roth in now, particularly because the compounding
effect on Roth IRA is tax-free.

That's probably what I would do. Joe: So, there’s no right percentage in
my opinion. I think there's percentages that- just back
of the envelope, rule of thumbs you can kind of throw out there- but tax diversification
is really depending on what John Brown's income is going to be in the future, right? Because he's in a fairly high tax bracket
today. But let's say in 20 years from now, he wants
to retire and we don't know how much John Brown is spending. We just know that he makes a lot of money
and he saves a lot of money. So again, yes, John you've left out some crucial
information here for us to kind of do a proper spit ball, but it depends on how much that
he's making, right? Because tax diversification gives you optionality
in a withdrawal strategy. So a lot of times people have most of their
income or most of their assets in a retirement account that is always gonna be subject to
ordinary income.

And so depending on if they have a fairly
modest lifestyle, well then that money compounds in the overall retirement account. And then once they hit the required minimum
distribution age, then they're forced to pull a lot of that money out, that might kick 'em
into higher tax brackets. On the other hand, if someone's spending a
ton of money, then it's like, well here, yeah, I want IRA money, but then I also want Roth
money to keep me out of those higher tax brackets. So there's a little bit more sophistication,
I think, to go along with how you wanna look at this. But I think if you want a real simple answer,
I don't think it's 50/50. You look at your tax bracket. If you're in the 24% tax bracket, go 100%
Roth. Because you're 30 and you make good money
and you're saving a ton of money. You already said you had the money to pay
the tax. So I wouldn't worry about 50/50. I'd go 100% contributions into my Roth. Al: Yeah, same here. And I think it- it's hard to know exactly
what tax bracket you're gonna be in because his- his salary's variable.

And I would answer this differently if John
Brand was 60. But John Brown's 39, so I would tend 100%
Roth too. Because chances are most, or all of that deduction
that you would've gotten is in the 24% bracket, which is- it's not nothing but it compared
to the 37% bracket and 33%, 35% bracket, it's a low bracket, so I'd wanna get the money
in right now. 2026, the rates go up. You'll probably be in the 28% bracket or even
subject to alternative minimum tax. Which could be as high as 35%. I just think at least for the next two, 3
years, I would go all Roth and then reevaluate. That's what I would do. Joe: Yeah, because he's 24%, 32% bracket wise,
the top of the 24% tax bracket is $364,000 of taxable income. So it depends on if he's on the $350,000 or
$250,000 range. If he's on the $250,000 range, plus his wife's
income, plus you know, the standard deduction and so on, he'd be in the 24%.

I'd go Roth. Al: Right. That's right. Joe: If he's got a higher earning year, then
you kind of play with it. Maybe you do a little bit of pre-tax and then
maybe the rest Roth. Al: The other factor too is he's already got
a lot of money in Roth, so he is already got a great start, right? So it's not like he has to go extreme, like
he's got nothing in it.

Now, for example, if the income's gonna be
$350,000 for the next 3 years, you might think about that a little bit differently. Maybe you want the tax deduction or maybe
you wanna do some Roth, just a smaller amount. And it's- I agree with you, Joe, there's no
particular percentage, per se. It's kind of your ability and willingness
to pay the tax. Some people can do it. The people that can look longer term have
an easier time of paying it. The people that cringe over the dollars going
out at that exact moment have a lot harder time with that. Joe: You know, I got a buddy. Let's call him Jay Brown. Al: Okay. Jacob. Joe: He's in a fairly high tax bracket. A little bit older than John Brown. But would go 100% Roth IRA. Let's say they're in 37%.

Tax bracket goes 100% Roth IRA. Because the tax deduction today that you're
getting, the amount of compounding of tax-free growth- you're gonna forget about the tax
deduction anyway. And you're not gonna save the money that you've
saved in tax. So, I mean, for me, people in their 20s and
30s and even 40s, I think it makes a lot more sense to have 100% tax-free growth. It takes the uncertainty of where tax rates
are gonna go totally off the table. So I know scientifically you wanna look at
things, but I think emotionally and at the end of the day, they're gonna be a lot happier
when they look at their account balance and they got millions in a Roth versus millions
in a retirement account.

Al: Particularly if you're the type of person
that by the time you get your net pay, you spend it. So if you get that tax deduction, you're just
gonna spend it. You might as well go Roth for savings. You'll be in a much better spot later on. You can download 10 Steps to Improve Investing
Success for free from the podcast show notes right now, for guidance on how to invest those
Roth contributions wisely. Following the key investing principles in
this guide will broaden your investment universe and help control your emotions and your risk
– which can lead to higher returns in your portfolio, and retiring with more wealth. Take your investing skills to the next level. Click the link in the description of today’s
episode in your favorite podcast app, go to the show notes, and download 10 Steps to Improve
Investing Success for free – you’ll find it right before the episode transcript. Joe: Got Mike from Utica, New York. Lot of New Yorkers this week. Al: Yeah. Joe: That's where we're getting all the one

“Hey there everyone. My family and I are on our way to America's
Credit Union Museum in New Hampshire. It was the first credit union in the US.” That sounds like a great trip. Al: You know, if I were Mike's kids, I would
just be jumping up and down. Joe: I think I gotta go. “My kids are 13 and 10 and both of them
came with us on this exciting family vacation. Currently playing a couple of your older episodes
in the car for everyone to listen on our way there.” Al: So between our episodes and the destination,
‘kids, we got a great trip planned’. Joe: God, feel sorry for those kids.

Oh man, that's funny. “Now to my question. I currently make about $150,000 a year. My wife is a stay-at-home homeschool teacher
for our children. I'm trying to figure out if sending them to
this Hollywood stunt training camp for kids is the best thing to do. I currently have-“ Andi: Yes, that's just the answer. Joe: “-I currently have about $10,000 in
a 529 plan for both children. But they have both told me they wanna be actors
or entertainers when they grow up and they don't see themselves wanting to go to college. The camp costs $7000 per child for the entire
Summer. I'm just not sure if I should send them to
this camp or just continue to saving for their future education in the 529.

I should add that I do have the money to do
it if you think it would be beneficial in some way. Thank you guys for your thoughts and I look
forward to hearing them. I also wanna say I drive a 2012 Honda Odyssey
as the family car. No pets, highly allergic. Drink of choice is Red Bull mixed with some
ice cold bourbon. Love me some extra energy.” All right, Kung Fu camp. Al: Yeah. What do you think? You're a new dad, is that- what would you
do that? Joe: I'm definitely sending my kids to Kung
Fu camp. Andi: Can you use 529 plan for going to stunt
training? Joe: I don't think you can use a 529 plan
for the camp of being a stunt double of some sort. Al: No. Yeah. You cannot. Joe: I don't know. I think that sounds like fun. Al: So me personally I would not do it. I would get them enrolled in youth theater
locally and put the money in a 529 plan. They're only 10 and 13. Things change by the time they get to college
age. That's what I would do.

Trying to be the sensible dad. You would be the cool dad though. You would send them and you would say, you
know what? You can go every Summer. Joe: I would try to enroll myself. Looking at- what, community theater. Oh, that just sounds so boring. Al: No youth. It's a youth- it's for kids- youth theater. They have 'em in San Diego. They have 'em in every town. Joe: Really? Did you send yours there? Al: No, because they weren't interested. However, my two nieces, Todd's kids, they
both were in youth theater for a decade. Joe: Really? Did they make it- ? Al: No.

However, the oldest daughter is gonna try
out for a adult play, now that she's just finished college. Joe: Okay. An adult play. I thought that was- Al: No. Oh, I see what you- yeah, I said that- I didn't
say that well. Joe: It was like, oh boy. The wheels really came off there. Al: Yeah, that's a little slippery. Joe: That's what happens when you go to community
theater. Al: Yeah, for sure. Then you have no filter. Joe: Alright. Anything else? Andi: Nope, that's it. Joe: Alright we'll see you next week. The show is called Your Money, Your Wealth®. Andi: Speculating on John Brown, Hefeweizen,
America’s Credit Union Museum, and Wall Drug in the Derails, so stick around. Help new listeners find YMYW by leaving your
honest reviews and ratings for Your Money, Your Wealth in Apple Podcasts, and any other
podcast app that accepts them – for example, Amazon, Audible, Castbox, Goodpods, Pandora
PlayerFM, Podcast Addict, Podchaser, Podknife, Spotify, and Stitcher. If I missed any, email me and let me know.

Your Money, Your Wealth® is presented by
Pure Financial Advisors. Click the “Get An Assessment” button in
the podcast show notes at or call 888-994-6257 and schedule your free
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Retire in the 0% Tax Bracket with David McKnight


Casey Weade: I'm very excited to offer you
today's guest, David McKnight. I've been following David for quite a few
years as he has been a champion for the American people when it comes to ringing the warning
bell of higher taxes in the future, and what to do today so you can be in the 0% tax bracket
in retirement. That's what I said, 0% tax bracket. It may sound impossible, but David's going
to walk you through exactly how to accomplish it in our discussion today. This is a guy that has made frequent appearances
on television. You’ve probably seen him before actually. He's been in Forbes, USA Today, the New York
Times, CNBC, and numerous other national publications. His bestselling book, The Power of Zero, has
sold over 140,000 copies. And his revised version launched in September
of 2018, becoming the number two most sold business book in the world, which has now
been turned into a full-length documentary film also entitled The Power of Zero, which
we're going to spend some time on today.


David will cover why tax rates are destined
to not only increase, but potentially double during your retirement years and what you
should be doing about it. One of my favorite topics covered is something
David likes to call legislative diversification, how to protect your retirement assets from
potential legislative changes in the future and one of the most heavily discussed topics
in the tax world today, Roth conversions, why, when and how to do it. Without further ado, I give you, David McKnight. [INTERVIEW] Casey Weade: Dave, welcome to the podcast. David McKnight: Thanks for having me. Casey Weade: Hey, I'm really excited to have
you here. Our whole office was really jazzed up to have
you here because we've all watched your movie. Many of us have read your book.


I've followed you for many years and have
found your research, the information you provide to the public and to advisors out there incredibly
valuable. And I know you've been doing this for a really
long time. Now you've made this transition from being
an author to somewhat of a movie producer. And now you have this new movie about the
tax train coming. Why this passion for just, I mean, you do
a lot of traveling in order to get the word out about the future of tax rates. Why this passion? David McKnight: Well, it's really interesting. Back in 1997, Bill Clinton stood before the
country during the State of the Union. He said, “Hey, I got great news. The national deficit is now zero and here
we are 20 years later.


Not only is the national deficit not zero,
it's about a trillion dollars per year and growing, but also our national debt is $22
trillion and it's growing by leaps and bounds. And during a period of relative prosperity,
while all the other nations in the world are getting their financial houses in order, we
just keep plowing things onto the National Credit card, and the debt just keeps getting
bigger and bigger and more and more unsustainable. So, it seems strange to me that as our fiscal
condition of our country sort of spins out of control, and the likelihood of higher taxes
down the road to be able to liquidate all this debt becomes more and more reality, it
seems strange to me that we have 75 million, 78 million baby boomers who continue to grow
the lion's share of their assets in tax-deferred vehicles, like 401(k)s and IRAs, meaning they
haven't paid taxes on those assets yet.


So, we're sort of marching into this future
where all of the financial experts basically agree that tax rates are going to have to
rise dramatically in the next 10 years, yet most Americans aren't really doing anything
about it. So, I've sort of over the last five years,
in particular, I really sort of taken upon myself to barnstorm across the country, try
to raise the warning cry to whoever will listen. I do that a lot of different ways through
the movie, through my books, through public appearances, but really just trying to get
the word out and educate people on the reality of what's going on in our country and how
they can best prepare themselves as they move into their retirement years. Casey Weade: What do you hope the end result
is of all this work that you're doing and trying to get this word out? What do you hope actually comes out of the
work that you're doing? David McKnight: Well, I think first and foremost,
I would love to raise awareness among the largest voting bloc in the country, which
is the baby boomers.


They have the ability to elect really every
single elected official every two or four years. And they have a lot of clout, and they leave
a really large footprint and if they can make it known to their elected officials, that
the type of fiscal irresponsibility is being shown in Washington, it's just not going to
cut it. It's not good for us. It's not good for our children, certainly
not good for our grandchildren. That's really the primary hope. But I'm not very optimistic on that account. And so, absence any real fiscal restraint
on the part of the federal government, the secondary goal really is to help people prepare
for the inevitability that the government is not going to get their act in order. They're probably not going to cut spending. They're probably going to have to raise taxes
dramatically over the course of the next 10 years. Therefore, what can the 75 million to 78 million
baby boomers do to protect their hard-earned savings from a dramatic increase in taxes
that’s bearing down on us like a freight train? Casey Weade: Now, let's dive into that a little
bit further, because I think most retirees have been told that their taxes are going
to be lower in retirement and I'm still hearing that today.


People come in, and they're saying, “Well,
why would I pay taxes today? Why would I do a Roth conversion today? I'm going to be at a lower tax rate environment
in retirement. My CPA told me I needed to get tax deductions
today because I'm going to be – I’m going to have less income in retirement,” but
you're saying even if we have less income in retirement, it doesn't mean we're going
to pay less taxes. David McKnight: Yeah. I’ll give you an example. I was listening to a radio show a couple of
years ago.


It was one of those financial radio shows. I can't remember if it was Dave Ramsey or
who it was, but it was a financial radio show. And the lady calls in and she says, “I don't
understand. I am making less money in retirement, but
I'm paying more in taxes. How is that even possible?” She was totally flabbergasted. And the radio show host says, “Well, tell
me about your deductions,” and she says, “Deductions? I ran out of those a long time ago.” He goes, “Oh, I think I understand your
problem.” So, even if tax rates were to stay level for
the rest of our lives, this much we know, all of the deductions that you experienced
during your working years literally vanished into thin air. What are we talking about? We're talking about your house. Your house is typically paid off, by the time
you reach your retirement. Your kids, that's a huge source of tax savings,
because kids are tax credits, right, though your kids have moved out by the time you reach


You're no longer contributing to your 401(k)
or IRA and instead of donating money during retirement, people typically donate time. So, all of these major sources of deductions
vanished into thin air right when you need them the very most, which is retirement. So, even if tax rates weren’t going to go
up, which I think is a mathematical impossibility at this point, all of the deductions that
we enjoyed during our working years are gone and the only thing we're left with is a standard
deduction, which if you retired today, as a married couple, is 24,400.


So, we've got the combination of disappearing
deductions plus the likelihood the tax rates are going to go up, which make it nearly impossible
for you to be in a lower tax bracket than you are right now in retirement. Having said that, everybody's situation is
different and the real catalyst that should help you understand what you should do in
terms of whether you should shift money out of tax-deferred to tax-free comes down to
what you believe in your heart of hearts about the future of tax rates, and that is the single
overriding variable when it comes to making these decisions. I happen to think having examined all of the
data and having interviewed most of the major experts on these types of things all across
the country, particularly for the movie, I happen to be very, very frightened about the
future of tax rates and that's why I'm so motivated to do the types of things that I'm


Casey Weade: In the movie, you cover all kinds
of different reasons why we're going to see higher taxes in the future and I think we're
just kind of overwhelmed as a society by trillion this, trillion that, social security taxes,
Medicare is going to have issues, disability, OSDI. I mean, we've just got all these things that
are going to jam down our throats that are kind of confusing and overwhelming. And I think you simplify it too in the movie. You kind of say, “Well, I think we all believe
that history tends to repeat itself.” Let's look back throughout history and see
what's happened in the past because what's happened in the past tends to happen again
in the future. I think that would be a good thing for us
to provide people.


It’s just kind of a little history around
the tax system and historical tax rates. David McKnight: Yeah. Our reality attempts to be driven by the things
that have happened in our lifetime. And most people don't realize that there is
a period in the history of our country where tax rates were dramatically higher than they
are today. Granted, there were different deductions back
in the day. You can deduct credit card interest. You can deduct interest on a car loan, those
types of things that have more deductions, but that does not offset the reality that
in the prime of Ronald Reagan's career, he talked about how he never made more than two
movies in a year. Reason being he made about $100,000 per movie,
and any dollar he made above and beyond $200,000, he only kept $0.06 on the dollar and truth
be told, he didn't even get to keep the $0.06.


That $0.06 went to the state of California. So, it didn't make sense for Ronald Reagan
to even work past the month of June, because he wouldn't keep any of the money. So, he writes in his biography that he never
made more than two movies in a year. He would go to his ranch, he'd ride horses. He pretty much just hang out until the next
year, so he can start making his two movies again. So, that was a long time ago and even as recently
as the decade of the 70s, the highest marginal tax bracket was 70%. You fast forward to today, the highest marginal
tax bracket is only 37%. These are historically low. You may make the case that under George W.
Bush, tax rates were a tiny bit lower at 35% but the income parameters that govern tax
brackets today are so much more favorable to the American taxpayer than they were even
under George W.


Bush. We are experiencing the tax sale of a lifetime. We don't recognize how good it is because
we don't often think about how high tax rates were during the 40s, 50s, 60s, 70s. It wasn't until Reagan actually got into office
that tax rates started to lower dramatically. But we're in an environment where politicians
are talking about raising the marginal tax rate at 70%. I heard Elizabeth Warren talking about raising
it to 90% on the wealthiest among us. And then you got to remember is when that
highest marginal tax rate goes up, historically, it's a bellwether for all of the other tax
rates. As that highest marginal tax rate goes up,
all of the lower ones tend to rise right along with it and that's why we keep our eye on
that highest marginal tax bracket. So, we have to, I think we've sort of been
lulled into this false sense of security that tax rates are low, and they'll always be low.


Well, history tells a different story. Casey Weade: Let’s get into some of the
finer details, reasons why you expect taxes will be higher in the future. Outside of just history tending to repeat
itself, what do you think the top reasons are that we're going to see higher taxes in
the future and somewhat dramatically higher taxes? David McKnight: Well, we interviewed Larry
Kotlikoff, who is a Ph.D. out of Boston University, and we interviewed him for the movie. He has about a seven-minute segment of the
movie, which to me is one of the most compelling sections of the movie, and he talks about
something called fiscal gap accounting. Now the national debt, according to the federal
government, that what we call the publicly stated national debt is $22 trillion. That's two, two followed by 12 zeros. Doesn't seem like a big deal, because our
debt-to-GDP ratio is 106%. What makes us fifth in the world doesn't seem
like a big deal, because we were actually worse in the wake of World War II. We had I think the debt-to-GDP ratio that
was around 110%, 115%. Now, we're only at 106%.


So, the casual observer says, “Hey, look,
it's not that bad. In fact, it's been worse, and we were able
to recover from it.” Well, according to Larry Kotlikoff, Dr. Kotlikoff
says, “There's something called fiscal gap accounting. Fiscal gap accounting is the difference when
you calculate the difference between what we actually owe, what we've actually promised
to pay to baby boomers in the form of Medicare, Medicaid, social security, interest on the
national debt versus what we can actually deliver on based on current tax rates.” And he says, last year he said that that fiscal
gap was $199 trillion. This year, he says, pardon me. It’s not 199. He says $222 trillion. This year, he says it’s $239 trillion, so
it's gone up just in one year. So, according to Dr. Kotlikoff, our debt-to-GDP
ratio is actually closer to 1,000%. We're not required by law to include in that
national debt number what we call off-the-books obligations, off-the-books obligations or
promises that we made for social security Medicare that we're not technically required
to include in the national debt. Well, guess what, every other country in the
world uses fiscal gap accounting.


So, according to all of the rankings, Japan
has the worst debt-to-GDP ratio at 250%. If we were to conduct our accounting and tabulate
are national debt like Japan does, our debt-to-GDP ratio would actually be 1,000%, which is breathtaking. It's really, really out of control. And so, the only reason it doesn't seem worse
is a simple accountability. It's a simple accounting trick that the federal
government uses to not have to disclose all of their debts. So, really, things are much worse than they
seem, and it's driven by primarily promises made for Medicare, Medicaid, Social Security. Casey Weade: Well, you use that word, trillion,
a few times. We're probably going to continue to use that
T-word. And I think we've almost become numb to that
word and it's a really big word.


And maybe you can share with us a way that
you help people really wrap their minds around what a trillion really is. David McKnight: You know, there's a lot of
different analogies that people use. I know Tom Hegna has got a great analogy,
where he says, “If you spend a million dollars per second, every second for 33,000 years,
you wouldn't be able to pay off the national debt.” It's a massive, massive number.


I don't have any of those awesome analogies
to explain how big the debt is. But it's to the point right now, that if we
don't dramatically raise taxes, I'll give you an example Larry Kotlikoff use. He says, “Basically if all we did was not
spend any money as a government for the next 10 years and just use every little bit of
money that we bring in from tax revenue to pay down the national debt, it wouldn't even
put a dent in it.” So, it's just amazing, breathtaking amounts
of money.


There's videos on YouTube that will show you
what it looks like if you stack $100 bills up. It's basically unfathomable. There's all sorts of analogies that you can
use to show how big, but the average American can't even fathom how much money that is. Casey Weade: And a lot of politicians see
here, this discussion about outgrowing the debt. And I'm not sure that we really have a good
understanding as a general public what it means to outgrow that debt and the reason
why that's ludicrous. David McKnight: Right. The debt is growing so fast. Ben Bernanke, he talks about this in the movie. He says, “Look, it was irresponsible to do
the tax cuts.” Now, keep in mind, I love low taxes just like
anybody else but there's got to be this commensurate reduction in spending, which we did not do.


In fact, to finance the debt cuts, we actually
borrowed $1.5 trillion over the next 10 years to be able to pull it off. Casey Weade: Can you talk about that as well? Just talk about the difference, because I
think a lot of people say, well, this is Reaganomics all over again. Yeah, well, we haven't done it the same way. This is different than it's been in the past
when we've dramatically lowered taxes.


We've also coupled that with something else. David McKnight: Yeah. Reagan always said that if you're going to
lower taxes, you got to lower spending commensurately to be able to pay for those tax cuts. So, David Walker, former Comptroller General
of the federal government, I paid a lot of attention to Dave Walker, because he was basically
the CPA of the USA for 10 years under Bush and Clinton. He's a centrist. He tells it like it is. He's in the CPA Hall of Fame. He really knows his stuff. He basically said, “Look, when we did these
tax cuts, we had the dessert before the spinach. We ate our dessert before the spinach.” What do we do? We dramatically lower taxes and we increase
expenses to be able to pull it off.


We did exactly the opposite of what most economists
are telling us we need to do, which is either raise more revenue, double revenue, reduce
spending by half or some combination of the two. We did just the opposite. We increased spending. We reduced revenue. And people will confront me, and they'll say,
“Dave, you've been preaching the tax rates got to go up for the last 10 years,” and
I’ll say, “Yeah, I have.” They say, “Well, what happened? Tax rates went down. You were predicting they were going to go
up. They actually went down.” And I said, “Guess what, all Congress really
did is kick the can further down the road,” which means that the fix on the back end is
going to be all the more severe, all the more draconian, all the more aggressive.


So, we just made problems much worse. All this really means is that 10 years from
now, tax rates will have to go even higher to fix the mess that we've gotten ourselves
in. Casey Weade: Which furthers that point, we
can't outgrow this, because we have to reduce spending, we have to increase taxes. If we do either one or both of those things,
we hurt the growth of the economy and we can't outgrow it. It just seems like we're in a bit of a pickle.


David McKnight: Yes. If you were to look at a graph, and if you
were to consider a 5% growth in the economy, which is incredibly robust, there's very few
periods in the history of our country where we've sustained 5% growth for more than just
a couple years. But if we were the guy from Vanguard, the
chief economist from Vanguard in the movie, he says, “If we were to have some massive
sort of economic boom, due to artificial intelligence, or what have you, and sustain 5% growth, 5%
growth looks like this. It's sort of this sort of flat curve. When you look at the growth of what we owe
for all these programs, it's going like this.” So, even a robust 5% growth is not going to
help us pay for all of the things that we promised. There's a massive delta between what, you
know, the tax revenue the way it would be coming in as a result of 5% growth, and the
actual curve, that is our spending.


And there's a really scary graph that we show
in the movie, which literally shows the geometrical curve of the of the debt, and it goes up like
that. And there's no way that we're ever going to
raise enough revenue to be able to liquidate all that debt unless we can dramatically reduce
spending. And by the way, every year that we fail to
cut Social Security, Medicare by one-third means the fix on the back end is going to
be all the more dramatic. I mean, we have to do massive, massive cuts
starting yesterday. And Donald Trump has made the promise that
he's not going to touch Social Security, Medicare during his administration. That's potentially eight years of letting
this thing snowball out of control. Casey Weade: And we can talk about all these
problems without growing the debt, but I think the biggest problem and I talked about this
all the time, when it comes to the economy, when it comes to social security or Medicare,
it's a demographic issue that we have.


Can you just speak to the change in demographics? Because when I have that discussion, many
times people say, “Yeah, but all these baby boomers are going to be traveling. They’re going to have all this free time. They’re going to be spending money. They're going to be taking money out of their
IRAs. They're going to be spending all this money
on health care.” But I don't think that quite cuts it. David McKnight: It doesn't cut it because
they are not putting money into social security Medicare anymore. They're starting to take the money out. People don't realize it when Social Security
first started out in 1935, you had 42 workers putting money into the program for every one
person that took money out. So, you have all of these people putting money
in, hardly anybody taking money out. When they took it out for two years starting
at 65 and they typically died a couple years later. So, this program was set up to last forever.


And by the way, when they started out, they
guaranteed that taxes would never be more than 1%. So, payroll tax, FICA tax, whatever you want
to call it, they guaranteed in writing. I've seen the actual code, the IRS tax code
back then. It said it will never be more than 1%. And as we move forward in time, these numbers
were working great and then all of a sudden, soldiers came home from World War II, and
they started to do something that array to which they’ve never done before. What they started doing they started to have
children. So, you may be thinking, “Great. More children equals more taxpayers equals
more money going into Social Security, and eventually into Medicare, which came around
as part of the Great Society in the mid-60s.” Well, that's not what happened because the
baby boomers, remember, they didn't have nearly as many children as their parents did.


They had 30 million fewer children. So, now we have this Generation X. I'm a Generation
X. We didn't have nearly as many children as
our, sorry, we had quite a few children, but we don't have very many peers. So, we're now in the situation where you have
30 million fewer Generation Xers. They're trying to support 75 million to 78
million baby boomers by way of Social Security, Medicare, Medicaid, and it's just not possible. We just can't pull it off. 60 Minutes calls it a demographic glitch. Generation X is a demographic glitch. There's not enough of us to be able to pay
for all of these baby boomers. And by the way, it's not just the US. It's happening in Japan. Japan sells more adult diapers than they do
baby diapers. Recently in Finland, they tried to reform
their universal health care, because they're collapsing under the weight of the programs
and they shut it down. Nobody wanted to reform it. So, they're now spiraling into bankruptcy. So, this is going to, this is all portending
what's going to happen to the United States 10 years from now.


Tom McClintock talked about in the movie how
eight years from now we're going to be Venezuela. Ten years from now I'm predicting a massive,
massive increase in tax rates, if not sooner. So, the long and the short of it is you people
ten years from now will look back on 2019 and say, “Why did we not take advantage of
historically low tax rates?” Those were good deals of historic proportions. Nobody likes paying tax. I give them permission to not enjoy it but
when compared to what it's likely to be even 10 years from now, we just don't even have
any clue what's about to hit us. Casey Weade: Well, I got to say I got done
watching the movie and I have followed this for so long and have felt very negative about
the future of tax rates for a long time.


However, I've still been guilty of throwing
money in that tax-deferred retirement account, taking that tax deduction and I always diversified. I would throw half of it in Roth and half
of it in 401(k) because I don't really know the future. I just have this idea of what it's going to
be. I get done watching that movie. I emailed their HR director and said, “Hey,
move everything to Roth. I'm going to pay all the taxes today because
they are guaranteed going to be significantly higher taxes in the future.” We could beat this drum all day, but I think
most people recognize and believe that to be the case. Taxes will be higher in the future than they
are today. But I've asked thousands of people.


I've had rooms of 100 people at a time where
I've said, “Who in here things taxes will be lower in the future?” I've never once had a single person raise
their hand to that question. So, I think we can pretty much admit that
everybody has this pretty good understanding. Taxes will be higher in the future. I think then we go, “Well, what do we do about
it? Just we know that taxes will be higher in
the future but what do we do about it?” I've seen statistics from Vanguard that 74%
of individuals are concerned about rising taxes. However, only about 20% are actually doing
anything about it. So, what can we do? David McKnight: Well, you make a good point.


If you look at the cumulative 401(k)s and
IRAs in our country, if you were to add all of them up, they add up to about $21 trillion,
$22 trillion which is interesting, because that's basically what the national debt is. All you'd have to do is raise taxes to 100%
on all those retirement programs and you can liquidate the debt tomorrow. But if you look at how much money is in the
cumulative Roth IRAs, Roth 401(k)s, Roth conversions in our country, it's only about 800 billion
so it's like a 22, 23:1 ratio. So, if you think of the train analogy, if
you have money in an IRA or 401(k), you have your money sitting on the train tracks, and
a huge freight train is bearing down and you know it’s come in in the form of higher
taxes. We know roughly when it's going to good here,
we know what it's going to feel like, but we also know what we need to do to get our
money shifted off the tracks and that's really, there's a couple of different ways to do it.


It's how we're funding our retirement accounts. Are we putting money into after-tax types
of accounts like Roth 401(k)s, Roth IRAs? Are we doing Roth conversions where we're
preemptively and proactively paying the tax on these accounts, really trying to stretch
that tax liability out over as many years as possible? I tell people to try to get it done before


Because it used to be that people say, “Dave,
when are tax rates going to go up?” I say, “Well, in some distant, unknowable
future, perhaps 10 years from now, tax rates are likely to go up.” Well, guess what, we now know the year and
the day when tax rates will go up, January 1, 2026. We're going to go automatically go back to
the pre-2018 tax rates. We know it's going to happen unless something,
you know, unless democrats, for example, gets control of the House, the Senate, and the
presidency before then, we know that we've got seven years to be able to systematically
shift that money to tax-free. So, stretch that tax liability out over seven
years. Don't rise into a tax bracket that gives you
heartburn as you make those shifts from tax-deferred to tax-free, but at the same time recognize
that you do have to get all the heavy lifting done before 2026.


So, in my mind, there is an ideal amount of
money to shift every year. It's the amount that keeps you in the tax
bracket that doesn't give you heartburn, but that allows you to get all the shifting done
before tax rates fall for good. Casey Weade: From my experience, and we know
from the statistics, I mean, most people aren't doing tax planning. They have this concern about rising taxes. They're just not even doing anything about
it. What are some of the top reasons you think
that individuals aren't doing their tax planning that needs to be done? David McKnight: The number one reason why
people are loath to do tax planning to preemptively and proactively do Roth converting is nobody
wants to pay a tax before the IRS requires it of them.


Nobody wants to pay a tax today and think
that the tax rate down the road could be lower than what they're paying today. Nobody wants to pay a higher tax rate today
and get out of potentially being able to pay a lower tax somewhere down the road. So, it all comes down to uncertainty, uncertainty
over the future of tax rates. People don't want to pay a higher tax today
and miss out on a lower tax rate down the road because that's the line that we've been
fed our whole lives.


What's the reality? The reality is that tax rates are probably
going to be higher than they are today. We've never had more certainty around that
subject than we do today. We've never had more certainty around the
tax code. The current tax code sunsets in 2026. So, like I say, in Chapter 6 of my book, The
Power of Zero, we have this window of opportunity during which to take advantage of historically
low tax rates. We finally have some certainty dispelling
the doubt around the future of tax rate, so why not take advantage of it? Casey Weade: Well, I totally agree, and I
still think that there's this feeling that people have that, well, my CPA didn't tell
me to do that.


My financial advisor hasn't had this discussion
with me yet. I mean, just the other day, I had a client
who said my CPA wants me to set up a simple IRA for the business and the 22% tax bracket
today, he's only going to make more money in the future than he has currently. He’s in his mid-40s.


And why would we put anything in tax-deferred
retirement accounts at this point? Why do I see that most CPAs are not recommending
Roth or not recommending tax-free strategies? And financial advisors alike aren’t having
those types of discussions really encouraging people to do things like Roth conversions? David McKnight: Yeah. CPAs are sort of a peculiar breed. There's a couple of very proactive ones, but
by and large ones, I have CPAs that are some of my best friends. I've got a brother-in-law that's a CPA. Some of them get it. A lot of them, however, recognize that the
key to keeping their job is to give their clients as many tax savings today. CPAs don't get brownie points for saving you
money 20 years from now, when they're dead, right? CPAs get brownie points for saving you money


If you get a big tax refund at the end of
the year, then their clients are absolutely doing backflips. If you end up owing more money than you did
last year, then all of a sudden, they're looking for a new CPA. This is sort of the harsh reality of it. You can pay tax now or you can pay tax later. CPAs love giving you tax savings today because
it makes them look like the hero. However, if the tax that they save you today
is lower than the tax that you could potentially pay later on, if you postpone the paying of
those taxes so some point much further down the road, they're not the hero. They’re the goat. So, like I said, there's a lot of proactive
CPAs that get it. They understand that there are strategies
that can be brought to bear in a client's portfolio today that can really maximize retirement
income and retirement by minimizing taxes. But the vast majority of them don't buy it. They have not adopted that strategy.


They're like the medic at the end of the battle
who walks across the battlefield and say, “This is how many are dead, and this is how
many are injured,” right? They're very reactive. They're very historical. What CPAs need to learn how to do is to be
more proactive and more futuristic by saying what is your tax bracket today? What is your tax bracket likely to be 10 to
20 years from now, when you take this money out? And let's opt for the bucket that will maximize
your retirement income. If tax rates are going to be lower in the
future, let's put as much money into tax-deferred as we can today. If tax rates are going to be higher in the
future, then let's put as much money into tax-free as we possibly can. Casey Weade: Well, and financial advisors
I think when I've sat down with families, I was discussing this with our team of advisors
the other day, we have these discussions about doing Roth conversions. So, you need to fill up that 22% tax bracket
or you need to fill up that 24% tax bracket.


Let's do these conversions. We get this sense that sometimes they feel
like we're doing it for our own benefit. And it's just the opposite but I think it's
because they haven't heard this from another financial advisor or their own advisor. David McKnight: Yeah. And let me just take two seconds, Casey, to
talk about the 24% tax bracket. My favorite and I asked rooms full of financial
advisors, what do they think is my second favorite tax bracket? They all know my favorite tax bracket is zero
because if tax rates double two times zero is still zero, but they hardly ever guessed
that my second favorite tax bracket is 24. And let me tell you why. Let's say that I'm talking to my client, and
they're in the 12% tax bracket.


Currently, if I were to persuade them to bump
up into the 22% tax bracket, in an attempt to get them to tax-free in retirement, they're
not going to be all that invested in that recommendation. Why? Because I essentially doubled their tax rate
in an attempt to get them to the 0% tax bracket. I sort of got them to pay a lot more in taxes
and then attempt to save them taxes. That doesn't make a lot of sense. However, if they're currently in a 22% tax
bracket, and they're probably always going to be in the 22% tax bracket, why not bump
up into the 24% tax bracket? That's only 2% more. It allows you to converge an extra $150,000
to tax-free for only 2% more. We're not talking doubling your tax rate. We're talking increasing it ever so slightly
on the margin from 22 to 24 and you can protect an extra $150,000. Why let a single year ago by where you're
not maxing out the 24% tax bracket? So, there's so much opportunity in this existing
tax code.


Most people don't realize that if you go to
the top of the 24% tax bracket today, it's in the area of 326,000. I think that's the top of the 24% tax bracket. If you wanted to convert up to $326,000 after
2026, that would put you in the 33% tax bracket. What an incredible savings. What an incredible tax sale that we're right
in the midst of and most people don't even realize it. Casey Weade: I love that. And that is why I talked about it all of our
events. This is a big deal going from 15% to 12% is
exciting but you go, “Well, it's only 3%.” It's 20% less taxes. I mean, that's the reality. It's a big deal. But taking away that 25%, not leaving the
24% until you get over to $315,000, $325,000 and you have a doubled standard deduction,
that is just huge because now we can make more sense at Roth conversions than ever before.


And I think this is an important point you
made in your book when it comes from financial advisors and I think this is important for
people to understand. Financial Advisors don't benefit when you
do a Roth conversion. It doesn't matter if they are commissionable
advisors or fee-only advisors if they're doing a Roth conversion as a commercial advisor,
but they're going to be potentially having 25% less earning a commission on. If they are doing Roth conversions and they're
a fee-only advisor, they're going to have 25% less in fees.


They're going to be able to collect over the
life of that account. So, it's important to have these conversations
with your advisor and recognize that they're doing this solely for your benefit. David McKnight: Yeah. And that's something I talk about in all of
my workshops as well. Why do most major financial institutions not
want to talk about this? It's because how do they get paid? They charge you a fee. If they're managing a million of your dollars,
and you're charging 1%? They're making $10,000 per year off it.


If you were to shift that million dollars
to tax-free because you think that tax rates are going to go up, you might pay 25% tax
along the way. So, now you've got 750,000 sitting into your
tax-free bucket. If they're still charging you 1%, now they're
only making $7,500 per year off you. They just experienced a pay cut for persuading
you. The tax rates in the future going to be higher
than they are today. And for that reason alone, the major money
management institutions, the Merrill Lynchs, the UBSs of the world, they don't even want
to touch this conversation with a 10-foot pole.


Casey, you and I, we don't care how much money
we're managing. What matters to us is how much people get
to spend after tax. That's the only number that matters. And if we can pay a tax today at a lower rate
than what it would otherwise be 10 years down the road, then that's good for everybody. Casey Weade: Well, it's funny.


I hired an advisor, hired a couple of advisors
from one of the largest national brokerage firms in the world, and when he came to work
for me, he said, “We weren't allowed to talk about taxes.” Why would a financial advisor not be able
to talk about tax planning? But I think you hit the nail on the head. It's because that wouldn't benefit their shareholders.


It wouldn't benefit the board of directors. It wouldn't benefit the company they were
working for, even though it would benefit their clients. There was something you said in the book. I just want to make sure we get it out. I think you said it in the movie as well and
it just hit me like a ton of bricks. You talked about the purpose of traditional
retirement accounts. Can you speak to what the purpose of those
retirement accounts really is? David McKnight: Yeah. So, we've been weaned on this notion that
one of the primary purposes of a retirement account is to save us taxes. We put money into a 401(k) so we can save
taxes. Our CPA says, “Hey, do a SEP IRA, so you
can save money in taxes.” Well, guess what? The true purpose of a retirement account is
not to save you money in taxes. It's to increase.


It's to maximize your retirement income at
a period in your life, when you can least afford to pay the taxes. That's the true purpose of retirement income. And to the extent that we start fixating on
that, as opposed to how can I save the most money today, that's when we're going to start
to solve this retirement crisis. [ANNOUNCEMENT] Casey Weade: Hey, I just wanted to take a
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are gone. Now, back to the podcast. [INTERVIEW] Casey Weade: Yeah, I love that. Maximize after-tax income at a point in your
life you can least afford to pay the taxes. I think that just drives all the sense in
the world and it really hit me strongly. I think one of the things as we get into what
we can do specifically, in order to get these tax-deferred dollars and to tax-free dollars,
let's just give the audience a quick overview of the tax buckets and the three tax buckets
that you talked about.


David McKnight: Yeah. We've been told that there's millions of different
types of investments out there. There are millions of different types of investments
but I'm here to tell you that all of those investments basically fit into only three
types of accounts. I refer to these accounts as buckets of money. The first bucket is what we call a taxable
bucket. These are going to be investments where you
pay a tax every year, rain or shine.


You're going to pay tax on the growth of that
money. These are CDs, money markets, brokerage accounts,
mutual funds, stocks, bonds, anything that produces a 1099 is going to cause a taxable
event every year. It doesn't seem like a big deal. But every year you're paying tax, that's eroding
the growth of your money over time. You amortize that. That inefficiency, that taxation, you amortize
it out over 30 years, it could cost you a million dollars. How can you tell where the government wants
you to put money? Well, what account Do they have no limit on
how much you can put in? Like a brokerage account. Yeah. If you won the Powerball lottery, you can
put every last dime of those savings, every last dime of those winnings into a mutual
fund and the government would just love it.


They would just take it to the bank because
they're making taxes each and every year. So, the taxable bucket, we want to be careful
because it's the least efficient of all the buckets. We pay taxes every year that erodes the growth
over time. So, really, most financial experts can agree
upon this, that you want to have no more than six months where the basic living expenses
in that bucket. You want to have not too much money so that
it's growing tax efficiently, but you want to have not so little that you're not prepared
for an emergency.


So, that's a taxable bucket. Pretty straightforward. A tax-deferred bucket is the one that most
people are familiar with because they've been saving it most of their lives, 401(k)s, IRAs,
403(b)s, 457s, annuities, pensions, those types of things. They have two things in common. First thing they have in common is, generally
speaking, when you put money in, you get a tax deduction. So, for example, if you're making 100,000
per year, you put 10,000 in your 401(k), your new taxable income is 90. But the second thing they have in common is
how they're taxed upon distribution. And the IRS has a special word that they use
to characterize that income when it comes out. They call it ordinary income. What does that mean? That means when you put money in, all you
really did was defer the receipt of that income until some point much further down the road
when you take the money out, what rate are your tax? Well, whatever tax rates happen to be in the
year you take that out and based on the fiscal landscape of our country that promises to
be probably substantially higher than it is today.


So, we have to be very, very thoughtful about
how much money we can have in our tax-deferred bucket. It's okay to have some money in our tax-deferred
bucket because some of those required minimum distributions at 70.5 are going to be offset
by our standard deduction. But we don't want to have so much money that
it overwhelms the standard deduction and any distributions coming out of the tax-deferred
bucket also count as what we call provisional income, which causes your social security
to be taxed, which causes you to spend down all your other assets to be able to compensate. So, really, we want to have only so much money
in that tax-deferred bucket enough to be able to be offset by the standard deduction, but
also keep our provisional income low enough that our Social Security is not taxed.


And then the third bucket is… Casey Weade: Before you get to the tax-free
bucket, there's an important point you made on the tax-deferred bucket, which is that's
like a loan, right? You basically loaned money, and the IRS is
eventually going to want that money back. You get a loan, a personal loan from a banking
institution or an individual. You have a set interest rate. You know what it's going to be, but with the
government, they can change that interest rate only at some point in the future. David McKnight: Yeah. The analogy that I use is almost as good as
the analogy that Don Blanton uses in the movie. I'll do both analogies and you'll see that
Don Blanton's is much better. The analogy I typically use is when you put
money into an IRA or 401(k) it’s like going into a business partnership with the IRS. Every year, the IRS gets a vote on what percentage
of your profits they get to keep.


It doesn't sound like a very good business
partnership. The way Don Blanton describes it, and I haven't
mastered his ability to tell the story but it's an amazing and compelling comparison. He basically says, “What if the federal
government came up to you and said, ‘Hey, look, I'm going to loan you some money. I'm not going to tell you what the interest
rate is. I'm going to let you spend that money. And then at some point much further down the
road, I'm going to come back and ask that you repay that money. I'm not going to tell you what the loan interest
is until the year in which I need you to repay it.


And by the way, currently, I have $22 trillion
of debt. By the time I want you to repay it, I may
have posted a $40 trillion of debt. Would you take that check from the federal
government?’ And the answer is not in a million years,
you wouldn't.” Don Blanton explains that incredibly well. It sends chills down my spine just thinking
about this but how apt an analogy is that? Casey Weade: Well, if we don't want that kind
of partnership, which we don't, let's get to the tax-free bucket.


David McKnight: That's right. So, the tax-free bucket basically says we
proactively and we preemptively pay taxes on these accounts, because we think that tax
rates there are going to be lower than they will in the future. Once that money gets into tax-free, no matter
how much it grows from that point forward, no matter how high tax rates go from that
point forward, it doesn't matter. We've insulated and protected ourselves from
the impact of higher taxes. I tell people, “Hey, let's try to get to the
0% tax bracket. Why? Because of tax rates double two times zero
is still zero.” So, the only way to truly insulate yourself
from the threat of rising tax rates is to get to a tax-free scenario in retirement. Casey Weade: Well, what falls into that bucket? One, I mean, we know Roths. We pay the taxes today, grows tax-free in
the future. We can pull the money on tax-free. There aren't required minimum distributions. But then there's another, I mean, there's
hardly anything in that bucket and municipal bonds don't even fall into that bucket.


Municipal bonds don’t fall into that bucket
because they affect your provisional income and affect the taxes you pay on Social Security. There's only two things. There's Roth and then there's this thing you
call LIRP. Well, what is LIRP? David McKnight: Yes. So, LIRP is what I call, and people can call
whatever they want. In Chapter 5 of my book, I call it a life
insurance retirement plan. Basically, it's a bucket of money that gets
treated differently for tax purposes than any of the other buckets that we're customarily
familiar with. What happens with this bucket is you put money
in, you make contributions.


As your money grows, your bucket begins to
fill. Only the IRS is going to treat the growth
on the money in that bucket under a different section of the IRS tax code than any of the
other plans that we're familiar with. What does that section of the IRS tax code
say? It says, you can touch the money pre-59.5
without penalty. You can’t do that in your IRAs or 401(k)s. As your money grows, you receive no 1099 so
no tax as it grows. When you take the money out, does not show
up as reportable income on your tax return. What does that mean? That means it's tax-free and does not count
as provisional income, which means it does not cause your Social Security to be taxed. They're also going to tell you that there
are no contribution limits. They got clients to do $50 a month.


I got clients that do 200,000 per year and
everywhere in between. They're going to tell you that there are no
contribution, sorry, no income limitations. And the question I like to ask people is can
Bill Gates to a Roth IRA? And the answer is no, Bill Gates cannot do
a Roth IRA. He makes too much money. You start making north of about $203,000 of
modified adjusted gross income, you can no longer do a Roth IRA. Those income limitations do not apply to this
bucket. You can make a million dollars a year and
still put money into this bucket. They're also going to tell you that if history
serves as a model, there is no legislative risk. What does that mean? That means that they've changed the rules
on this bucket three different times ‘82, ‘84, and ‘88.


And every single time they change the rule,
they simply said, “Whoever has the bucket before the rule changes gets to keep it and
continue to put money into it under the old rule for the rest of their lives.” We call that a grandfather clause. So, we have this bucket that has a lot of
very attractive attributes. And usually, at this point, people say, “Well,
Dave, that sounds like the perfect bucket. Let's put all my money into there.” Well, I tell people all the time, it's never
a good idea to put all your eggs in one basket. And not only that, but the IRS says that,
in order to do this bucket, there's a cost of admission. They're going to require that there'll be
a spigot attached to the side of that bucket through which flows on a monthly basis some


What do those expenses go towards? They go towards the cost of term life insurance. So, long and the short of it is you got to
be willing to pay for some term life insurance or some other administrative expenses in there,
but you got to have a need for life insurance. Now, a lot of people that are approaching
retirement, say, “Hey, look, my house is paid off. My kids have moved out. I'm rapidly approaching retirement. I don't really need life insurance,” and
a lot of the companies that sponsor these programs, they recognize that so they've done
something to sweeten the pot. They simply say that in the event that somewhere
down the road, you should need long term care or have what we call a chronic illness, they
will give you your death benefit while you're alive, for the purpose of paying for long
term care.


So, that can be a very, very attractive way
to pay for long term care insurance. People don't like traditional long-term care
insurance, because it’s a use it or lose it proposition. In this scenario, if you die peaceful in your
sleep 30 years from now, never having used the long-term care portion of it, someone's
still getting a death benefit. So, there is the sensation of having paid
for something you hope you never have to use.


So, some people say, “Well, this sounds
like a silver bullet.” It's a panacea. Let's put all our money into there. It's not a perfect investment. But it does something that none of the other
tax-free investments is able to do. So, what I say is let's take a complementary
approach where we couple the LIRP with our Roth IRAs and our Roth 401(k)s and our Roth
conversions, and taking money out of our IRAs up to standard deductions. And then if we do it all in the right way,
our Social Security is tax-free. Let's have multiple streams of income. But the LIRP can be a very attractive complement
to all of those other streams of tax-free income. Casey Weade: We're talking about an overfunded
life insurance policy meaning we put more in it than we needed in order to support that
death benefit.


So, we end up getting this side account that's
growing tax-free. And this is something that I've used for the
last 10 years. It's something that my dad uses, my mom uses,
the majority of my family's life savings or annual income savings goes to these vehicles. Dan Sullivan, who I'm a big fan of, he talks
about how this is one of the best things that he has in his investment portfolio and so
I'm a big fan. And I think one of the reasons is I am still
putting money in Roth. I'm still maxing out my Roth. I think there's this natural sequence of where
we go with those dollars, whether it goes from HSA, then we go to our Roth 401(k), then
we go to other options, we have to go to life insurance, because we run out of options,
especially as our income goes up. And there's a reason for this diversification
from these two different tax-free options. We don't just go straight to the life insurance
policy. We're going to have some Roth.


We're going to have some cash value life. We're going to have our HSA. Can you speak to the difference in legislative
risk between a Roth IRA and a LIRP? David McKnight: Sure. What we would likely see with a Roth IRA is
if they were to ever change the rules somewhere down the road, and say, “Okay. Roth IRAs are
off-limits. You can no longer contribute to a tax-free
account.” I don't know why they would ever do that,
because Roth IRA is almost certainly ensured that they're going to get more tax revenue
today than they do in the future, because we're using after-tax dollars, but if they
were to ever to make those accounts go away, they would likely say, you get to keep whatever's
in your Roth IRA.


You just don't get to contribute anything
more to it. The thing that makes these life insurance
policies unique is that to make them function properly, you have to have the ability, the
option to continue to put money into them over time. So, every single time they change the rules
on these things, they simply said, “Whoever has the bucket gets to keep it and continues
to support and continue to put money into it under the old rule for the rest of their
lives.” I talked to people occasionally who say I've
got a life insurance policy from 1978. And they start to describe these crazy rules,
like I can put $100,000 in it per year, no problem. And that was what the rule was back in 1978. Casey Weade: And they still do it.


David McKnight: Yeah. It doesn't exist anymore, but they can still
do it because they got grandfathered under the old rule. And so, that's typically how these things
are treated. So, that's a pretty major difference between
the traditional life insurance grandfathering and what would likely happen to a Roth IRA. Casey Weade: So, we start feeling like this
is a great idea. We need to set up this other legislative diversification
for our investments, not just investments between stocks and bonds, but we want to have
some tax diversification as well to protect us against legislative risk. We want to add this LIRP to our toolbox. And so, we hop online, we hop on Google, and
we start googling life insurance as tax-free income. We look at be-your-own banker concepts or
family banking concepts. And I think about half of those articles that
you read out there talk about the agent receives this big commission that comes directly out
of your pocket.


You're going to pay exorbitant expenses and
fees. It's a horrible investment vehicle. What do you say? And what do you say to those individuals? What do you say to those articles that are
out there talking about excessive fees and expenses? David McKnight: Well, I think that the Dave
Ramsey's of the world and some of those online financial gurus, they love to beat up on these
approaches, because the fees for these programs tend to be somewhat front-loaded. This is how I described the fees in life insurance
retirement plan. Say look, they're a little bit higher in the
early years, but they're much lower in the later years but when you average out the expenses
over the life of the program, it ends up being about 1% to 1.5% of your bucket per year,
which if you think about it is about what most Americans are paying in their 401(k). The thing with the 401(k) is that the fees
on 401(k)s are more backloaded.


What do I mean by that? Well, if you're paying 1.5% on a 401(k), you
put in $10,000, you're paying $150 that first year. But guess what, if your 401(k) grows to a
million dollars, you're still paying 1.5% 30 years later. Now, you're paying $15,000 per year. So, the fees really are sort of inverse what
they are with the life insurance. With life insurance, the longer you keep it,
the better it gets. The lower the internal expenses, the higher
the internal rate of return. So, it's not really fair to judge life insurance
policies or life insurance retirement plans based on what the fees are in the first year,
because there's a lot of expenses to get the program up and running.


You've got to pay for the medical exam. You've got to pay for the underwriting. You've got to pay for the advisor that's helping
you to get the plan implemented. There's a lot of expenses that happened in
the early years but as time wears on, those expenses dropped dramatically. And it's like a pie, you got to let it bake,
you got to let it marinate, you got to let it build up a head of steam. And if you do, what you'll find is that the
expenses, on average per year over the life of the program are incredibly low. I would even make the claim that they're lower
than most 401(k)s. You just have to have some patience, and let
the thing marinate over time. Casey Weade: Well, I also want to say I think
there's some truth to some of those articles out there because it has to do with how the
policy is structured.


We have to keep the death benefit as low as
possible, and how do advisors make more money? The bigger the death benefit, the higher the
cost, the more they make. And so, can you just speak to how to properly
structure a policy in order to keep those costs as low as possible and get to that 1%,
1.5% average cost? David McKnight: Most people when it comes
to life insurance, they get as much death benefit as they can for as little money as
possible. Here, we're trying to do just the opposite. We're getting as little death benefit as the
Irish requires of us.


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 thrown a death benefit that doubles as long-term care. And we've got a pretty compelling financial
tool that serves as a very, very attractive complement to our other tax-free streams of
income. Casey Weade: Well, I think that's an important
point. I mean, you say, “Well, I've got this $50,000
annual premium.


I'm only getting a $2 million death benefit.” And you say, “Well, that's a pretty bad deal
because traditionally I would be paying, say $10,000 or $5,000 for that $2 million death
benefit, and now I'm paying way more than that. But that's okay because we're not trying to
dump that $5,000 or $10,000 in there and never see it again. We want to get some return on this. We're going to overfund it and keep those
costs down over time. Then the next decision is what kind of policy
do we use? And historically, and I think still today,
one of the top tools out there, people are using whole life insurance as a strategy.


But then you've also got the strategy. It's been around for say, 20 to 25 years or
so indexed universal life, then there's variable universal life that's been around a little
bit longer than indexed. And that's where it starts to get a little
confusing. What's the difference between whole life,
indexed, and variable? Which one's the right tool for me? David McKnight: Yeah. And you talk to a different advisor, you'll
get a different answer. I personally have written a whole book on
why I believe that index universal life is the appropriate life insurance type to be
able to use in this type of scenario. And the reason is that when you put money
into an index universal life policy, the money in that growth account is the core, at least
the growth of the money in that growth account is linked to the upward movement of a stock
market index.


You get to keep whatever that stock market
index does, say the S&P 500, up to a certain cap. That cap might be 12%. If the stock market ever goes down in any
given year, they simply credit you as zero, so you're always going to be between 0 and
12, or whatever the cap happens to be. So, if you look at historical rates of return,
we're talking 7%, 7.5%. You subtract that 1% to 1.5% fee off of there,
and then we're talking a net rate of return of say 6% over time. Guess what? If you can get 6% in your LIRP without taking
any more risk than what you're accustomed to take into your savings account, that's
a pretty safe and productive way to grow at least a portion of your portfolio.


And that's why I'm a big fan of IUL. Some of these life insurance policies out
there, I think whole life, there's a place, there's a time and a place for whole life. It's not my favorite approach with this type
of worldview. It could still work. It's just tougher. The thing that you don't want to have happen
is have the rate of return in your life insurance retirement plan to be so low, that when you
take money out of an account that maybe was earning 6% or 7%, and you stick it in a life
insurance policy that's only grown at 3%, then that reduction in rate of return can
neutralize a lot of the tax benefits, which were the justification for doing the policy
to begin with. So, if we can keep the rate of return within
the life insurance retirement plan similar to the rate of return that you were growing
in that investment that you liquidated in order to fund the life insurance policy, that's
an ideal scenario.


Casey Weade: Well, I think that also has to
do with how you get the money out tax-free in the first place, which gets into wash loans
and participating loans. Can you just kind of talk through how we get
money out of these in a tax-free manner, and maybe even share with us the difference between
whole life and index universal life when it comes to those participating loans, or loan
caps and zero wash loans? David McKnight: So, there's a way that you
have to distribute the money from these policies.


I always tell people, if you take the money
out of it, take it out the right way, it's tax-free. It does not show up on your tax return. And the way you do that is you take a loan
from the life insurance company, and you use the cash value inside your policy as collateral
for that loan. So, I'll give you an example. Let's say I got a million dollars in my IUL. I wake up one day, I want to take a loan of
$100,000. I call it my life insurance company, I say,
“Hey, send me $100,000.” They say, “Okay.” They then cut me a check from their own coffers
for $100,000. That's the check I get in the mail three to
five business days later. They have to attach a real rate of interest
to that loan, let's call it 3%.


It's got to be an arm's length transaction. They're telling the IRS it's a loan. They've got to have an arm's length transaction,
a real rate of interest that they're attaching to that loan. It’s called 3%. Well, in the very same breath, the life insurance
company will take $100,000 out of your growth account inside your life insurance policy
and they'll put it in what we call a loan collateral account which is also if it's the
right company also growing at a guaranteed 3%. So, even though your loan interest is accumulating
on the one hand, your loan collateral account is mirroring it step-for-step. So, if your loan account grew to a billion
dollars, then you would be guaranteed to have a loan collateral account that matches it,
which will pay off that loan at death. All you know is that you asked for $100,000,
your growth account went down by $100,000, you didn't have to pay tax on it, and you
know, it's all good. And if you die with at least $1 in your bucket,
then it's all tax-free to you.


So, it's very, very interesting. It's very, very compelling. All you know is that you didn't have to pay
tax. It felt like a distribution from Roth IRA
over time. It's not a Roth IRA, but the tax-free nature
of it made it feel like a Roth IRA. Casey Weade: And I think one of the risks
is and I think you kind of alluded to this, interest rates go up, right? So, interest rates skyrocket. That may not improve the profitability of
a whole life carrier and actually pay you a higher dividend to match that higher loan
rate but when you look at IULs, they act differently and can be more beneficial in a rising interest
rate environment. David McKnight: Right. So, cap rates are typically associated with
rising interest rates. So, rising interest rates simply mean that
insurance companies, they have more money to be able to pay for these options that I
don't want to get too complicated here, these options that they're using to make the whole
IUL work. So, as interest rates go up, the cap rates
go up, which means you are allowed to capture more of the upward movement of the stock market


You talk about participating loans. Basically, what a participating loan says
is instead of charging you a 3% interest in your loan collateral account, maybe they'll
charge you a little bit of a higher rate of 5%. But then they'll say in your growth account,
they're not going to take the money out and put it in a loan collateral account. They're just going to leave it in, in the
index, and whatever the index does, then that offsets whatever the cost of the loan is in
your loan account with the life insurance.


To give a quick example, if they're charging
you 5% for the loan, but your index grows at 10%, guess what? They just paid you 5% for taking that loan. And granted, you're not going to get 5% every
year but if you could just net 1% on average per year over the life of your retirement,
that 1% what we call arbitrage and literally double the amount of money that you can take
out of these programs which, boy, I've seen the numbers, and when you look at the numbers,
and you compare them to every other investment out there, it looks very, very attractive. Casey Weade: Yeah. And I think one of the things that's unique
about IULs that is one of the big benefits as long as you get with the right carriers,
a lot of these carriers will guarantee they're going to credit you the same amount of interest
as your loan rate is ever going to be. So, you never have to worry about policy collapsing
due to that particular factor. But I think maybe we're getting too far down
the rabbit hole here. I think one of the things as people are listening
to this they go, “I've never heard of IUL.


I've never heard of LIRP. I've never heard some of these terms. Why isn't my financial advisor having this
conversation with me? I think that we're seeing more advisors have
these conversations. We're seeing more than mainstream brokerage
houses start to utilize these types of vehicles, these types of products, for the clients they’re
working with but why do you think it's taken so long for this to catch hold? And why are most financial advisors not talking
about these tools? David McKnight: I think that, historically,
these life insurance retirement plans have been loaded down with expenses. They've been very expensive. They've been not very efficient. They sort of just trundle along getting people
3% to 4% growth.


Well, guess what. Life insurance companies recognize that there's
a section of the tax code that allows for – Ed Slott, he's done six PBS specials. Ed Slott, USA Today calls him America’s
CPA. Ed Slott says the single greatest benefit
in the IRS tax code is life insurance. Why would a guy of Ed Slott’s repute say
on PBS, no less, over and over and over again that life insurance is the single greatest
benefit in the IRS tax code? Well, guess what? Companies have engineered these programs. They've evolved these programs over time such
that the expenses are so low that like I said, when we average that over life, the program
that they're less expensive than the average 401(k). So, they've been able to re-engineer these
policies so that they're very, very low expense, they're very efficient, they accumulate money
very, very quickly and safely and productively. And some of these evolutions and these reengineering
of these programs that happened only in the last 10 years, I have been studying these
types of programs for the last 20 years of my life. I've seen these things evolve over time.


I've seen all of the reduction and expenses
and the addition of variable participating loans versus just the standard wash loan. There's all these different things that have
made these programs so much better, the addition of the long-term care or chronic illness rider
that allows you to get the death benefit before you die from perhaps long-term care. These programs are so good and so compelling,
that I think that some advisors are just behind the curve whereas guys like you and me, Casey,
who have been studying this for so many years, we understand it. I've written books on how to understand these
things better.


They're not something that you can pick up
overnight. So, I think that more and more financial advisors
are going to start to embrace these as they start to recognize how an unlimited bucket
of tax-free dollars can really be a boon to the average American in a rising tax rate
environment. Casey Weade: Well, we've covered so many topics
from the future of tax rates, tax planning, talked about Roth conversion, and then we
got the LIRPs. I've just got a handful of miscellaneous questions
that I'd like to get out there that I think can be really beneficial to individuals, even
advisors for that matter. I think, typically, as a financial advisor,
we're coached to help people through our clients’ emotional roller coasters. They might go on, “Don't panic when the
market tanks.” But I think there's also an element of emotional
coaching that we can do, behavioral coaching we can do around taxes at the same time. What do you have to say about tax-based emotional
decisions? David McKnight: In terms of do we sort of
have a hair-trigger response to… Casey Weade: Well, let me say this.


I've got a couple that I worked with recently
where a couple of years out from retirement, and I've gone, “You know, let's just fill
up this 24% tax bracket. You'll be tax-free for the rest of your life.” I show them the analysis that proves that
it's going to be better to pay the taxes today. They can see it with their own eyes, but they
just won't pull the trigger. And you need to do this, but they just don't
want to pay the taxes. They don't want to pay the taxes, and it's
all emotional because they have the facts. What should I do in that situation? David McKnight: That's a good question.


We see that a lot. And I tell people all the time, “I give
you permission to not enjoy paying the taxes, but you have to consider the alternative.” You know, the number one question I get when
I do my workshops is am I too old to get to the zero percent tax bracket? And I simply tell people that we barnstorm
across the country filming The Tax Train Is Coming, interviewing George Shultz. We interviewed David Walker. We interviewed Ed Slott, Tom Hegna, Don Blanton. We interviewed the Governor of Utah. We interviewed every major professor in academia
from the most prestigious schools across the country, and they're all saying in ten years,
tax rates are going to be dramatically higher than they are today. Some of them even said tax rates are going
to have to double. Tom McClintock said, “We're going to be a
Venezuela in eight years.” So, if people don't want to pull the trigger,
it's because we haven't convinced them I guess, of the urgency of the situation.


If they knew what was coming around the bend,
they would get that money, shipped it out of there, and they'd say 24% is a good deal
of historic proportions. I'm going to not let a year go by where I'm
not maxed out on my 24% tax bracket. So, we're not saying don't pay taxes. We're saying, “Look, when given the choice
between paying taxes at today's historically low tax rates or postponing the payment of
those taxes to some point further down the road, you'll probably be better off paying
them today.” So, it's just, yeah, you don't have to enjoy
it but consider the alternative.


That's really what it comes down to. Casey Weade: Well, that brings us to that
24%. Again, I just love that 24% tax bracket. I say fill it up. Once you factor in social security taxes,
potential Medicare premium penalties, and the future of tax rates, you can pretty well
be assured you're probably going to pay higher than 24% in the future. In my mind, our advisors have attended Ed
Slott’s event.


They attended right after we saw TCJA go through,
the Tax Cuts and Jobs Act, also known as the Trump Tax Plan. That went through, we went and updated our
IRA knowledge. Ed Slott is like the premier IRA expert in
the country. And at that event, he said, “I would convert
all the way to the highest tax brackets that we currently have. There is no perfect tax bracket.” And I wonder, first of all, that seems pretty
darn aggressive. But I wonder what you think. How high should we be going? Should we go just to the 22, 24? How do we find the right balance for ourselves? David McKnight: Yet going from 24 to 33 is
a pretty big leap. So, I don't know if I'm quite as aggressive
as Ed, although I love Ed, and he's a friend of mine, I would probably say, “Hey, look,
if you're currently in the 22, that means you're the line 10 on your tax return, which
is your taxable income, that means that you probably have $100,000 of taxable income.


That means that you can I think the top of
the 30, top of the 24 is like 326,000 in change, something like that, that means that you have,
what is that, $226,000 per year that you could convert without bumping out of the 24% tax
bracket. That is a lot of money. And if you can do $224,000 per year over the
next seven years, that's $1.5 million that you could get shifted. Now, if you have more than $1.5 million that
you need to shift, then you could certainly entertain bumping up into the 30 to 35 or
the 37. But I would say at the very least make sure
that if you're okay with the 22, then you're almost certainly going to be okay with the


And why not max that thing out as well? Casey Weade: You seem pretty confident that
we're going to see these tax rates last until the end of 2025 resetting in 2020. I have interviewed other people that have
said they're definitely not going to last that long. Why this confidence that you've got this set
period? David McKnight: Well, because people got to
remember that in order for this to change that you need control of the House, you need
control of the Congress, and you need the presidency. You need all three of those things. Now. I happen to think that these things go and
go in cycles, the pendulum swings one way, then it swings the other. I think that in this period of relative economic
prosperity, Trump's going to be very, very hard to beat. Remember Clinton said, “It’s the economy,
stupid.” Most of the prognosticators say that if this
economy continues to do really well through the election, that Trump will be almost impossible
to unseat.


And then you say, “Okay. Can the Democrats win back? They've already won back the House, but can
they win back the Senate as well?” That might be a trick as well. So, those stars really have to align for the
democrats for us to see a change to this before 2026. Casey Weade: Okay. Yeah, that's good insight. And now I just have one more maybe tactical
question for you before we move on to those higher-level philosophical questions. And that is some people, I think we've all
been told put your money in your 401(k). If you’re getting the match, put as much
in there as you can get that match and then put that money somewhere else. Maybe get your match and then put it into
a Roth IRA or a LIRP, look for another tax-free alternative. If all we have is a tax-deferred 401(k) and
a tax-deferred match, are there reasons in your mind that we shouldn't even put money
in there for the match? David McKnight: I'm a big fan of the match.


I like the match. Not everybody agrees with me. But I think that if you can say get $1 for
$1 match up to 6% of your income, you're doubling the return on your investment that first year. And remember, you need to have some money
in your tax-deferred bucket. What better way to get money into your tax-deferred
bucket than by putting up to the match in your 401(k)? Because remember, when you retire, you're
going to have a standard deduction and that standard deductions got to offset something.


And if you have all your money in tax-free,
then your standard deduction is going to sit there languishing, and it's not offsetting
anything. So, you've got to have some money in your
tax-deferred bucket. Why not put money up to your match, to be
able to get money accumulating and growing in that account so that by the time you retire,
you have the standard deduction, which if you're married today is 24,400 that you can
use to offset distributions from that bucket.


So, I think it's okay to have money into a
match. I sort of draw the line that putting money
above and beyond the match. Casey Weade: Now, if you have a pension along
with that 401(k) that you expect to receive in the future, does that change your mind
on that fact? Because now maybe we don't want anything in
that tax-deferred bucket, because we already have a lot in that tax-deferred bucket in
the form of a pension. David McKnight: I still like the free money. I still think that once you get it in there,
you're still going to be able to shift the money out of there to tax-free and be able
to do it in historically low rates at 22 or 24. Remember, this type of planning is especially
compelling for people that have pensions. Why? Because your pension counts as provisional
income. It's going to cause your Social Security to
be taxed. In retirement, the social security and taxable
portion of your social security and your pension will fill up the 10% and 12% tax bracket or
the equivalent, the future equivalent of those tax brackets.


And any money you take out of your IRAs and
401(k)s is going to land right on top of that and be taxed at the 22% tax bracket or the
future equivalent of the 22% tax bracket. So, guess what? If you're currently in a 22% tax bracket,
and your retirement tax bracket is going to be at least 22%, why let a single year go
by where you're not maxing out the 22% tax bracket? And by the way, 24% is only 2% worse so let's
max that out as well. So, I happen to think that people that have
pensions, the Power of Zero worldview, the Power of Zero roadmap to retirement is even
more compelling. Casey Weade: Now, do you get a lot of and
you’ve talked to, I mean, you wrote the book Power of Zero, get this book, Power of
Zero, get the movie, Power of Zero. Do you have many people that are maybe a little
skeptical and say, “Zero? Come on? I'm always going to pay taxes. There's no way I ever get to 0%.” David McKnight: Yeah. I've had people, especially really conservative,
most libertarian people on Facebook, that will send me messages.


They'll just see. They don't know what my book is about, but
they'll see the title, the Power of Zero and they'll say, “Everybody should be paying taxes. You're getting stuff from the government. You should be paying taxes and you're a freeloader
if you think you're going to not pay tax.” Listen, we're not suggesting people not pay


We're just suggested that when given the choice
between paying taxes at historically low tax rates or postponing the payment of those taxes
until some point much further down the road, mathematically, you're better off paying them
today. So, that's really all we're saying. We have other people that say, “Dave, there's
no such thing as a 0% tax bracket.” And I say, “True. There technically is no such thing as a 0%
tax bracket. But if you're living on a lifestyle of say,
200,000 per year in retirement, and you're not paying a single dime to the IRS, what
better way to call it than 0% tax bracket?” Tax-free, 0% tax bracket. I mean, I just really love the way that falls
off my lips, 0% tax bracket. There's power in the zero because of tax rates
doubled two times a year is still zero. So, I call it the zero even though there's
no such thing. You know, if you look at the IRS tax table,
it's 10, 12, 22, 24, 32, 35, 37. There's no such thing as a zero.


But if you’re tax-free, you and I, Casey,
we can call it zero. Casey Weade: Yeah. We're not talking about violating the law
here. We're doing tax planning. We're still paying our taxes. We're just not paying more than then we're
legally required to pay. There's no benefit to your morality or ethics
by paying more than you're legally required to. And I think that's an important point. Now, I've got one last question as we wrap
up here today. And this has to do with your thoughts on retirement. What does retirement mean to you? David McKnight: Retirement and I think my
thoughts on retirement near a lot of the rising Generation X and even some of the back end
of the baby boomer generation. I don't know that I love what I do so much
that I don't know what I would do, frankly, Casey, if I did retire.


Retirement to me means doing what you really
love doing. And for me, that means being in the in a position
where I have the option of not working one day because I want to go on a vacation or
I want to spend time with my grandkids or what have you, but just be in a position where
I have the option of not working. If work is what brings people pleasure, and
it gives them purpose and it gives them aim in life, I think that that's what they should
be doing. And what we're seeing more and more, Casey,
is that people aren't retiring outright.


They're saying, “Let's put ourselves in a
position where we don't have to work if we don't want to, but we love the drive and the
purpose behind having something that really engages us day in and day out.” And people are going to live longer lives
when they have that purpose-driven retirement versus simply retiring and waking up, playing
golf for two weeks, and then trying to figure out what you're going to do after that, right? [CLOSING] Casey Weade: Well, that's why I named the
book Job Optional, because I see more and more people that I'm working with that love
their careers. They want to keep working. They just want to do it on their own terms,
on their own schedule. And it seemed like that's what you're doing. You're living in Puerto Rico and kind of working
when you went to work. You're doing the dream job of your own and
that's pretty neat.


And I think you're sounding the horn, you're
warning people about raising taxes about something they need to be aware of, and sometimes that
can be a little depressing. However, you're also following that up with
hope and putting together strategies and helping people put together plans to make sure that
the retirement doesn't get destroyed by higher taxes in the future.


And for that I thank you. You're doing the world a wonderful service. So, thanks for joining us here today. David McKnight: It's been my pleasure. Thanks for having me, Casey. [END].

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How Do You Create a Simple Retirement Income Plan?

A retirement income plan is needed because life changes in retirement. Your retirement plan should account for every year in retirement, even past your life expectancy. For each year, make a list for you and your spouse that include social security income, pensions and annuity income. Also list earnings from investments and working part-time. List any other fixed and regular income sources. For each year, list your desired gross retirement income need.

Be sure to include taxes, the effects of inflation and potential medical expenses. Then for each year, determine the gap or surplus by subtracting expenses from income. If you see that you have gaps in your retirement plan, give us a call today. We can make sure you have a strategy to help you reach your retirement goals. .

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“Will I Ever Be Able to Retire?” – Your Money, Your Wealth® podcast 418


If you have actually got some retired life cost savings but
can't contribute anymore, will you ever have the ability to retire? Joe and also Big Al have three simple approaches
to assist you obtain there, today on Your Cash, Your Riches podcast # 418. Plus, how much time does it take to leave of
Medicare's month-to-month income-related adjustment amount, or IRMAA, after your earnings lowers
at retired life, as well as just how do you take unidentified future IRMAA earnings limits into account when
establishing your economic strategy? Can you “re-do” Social Safety as well as protect quit
taking benefits after asserting Social Protection early? Do spousal advantages modification after one spouse
documents for Social Protection? The fellas attend to a couple of improvements
they've obtained lately concerning Medicare as well as risk-free harbor 401( k) plans.What precisely is”

top-heavy “anyway? See and click Ask
Joe & & Big Al On Air to send out in your cash concerns – or improvements! I'm manufacturer Andi Last, and also below are the
hosts of Your Money, Your Wealth ®, Joe Anderson, CFP ® and also Large Al Clopine, CERTIFIED PUBLIC ACCOUNTANT. Joe: Currently I obtained Patty from New York. “Hey, love the show. I'm 57, single mom as well as earn $120,000 a year. Have $180,000 in IRA, $60,000 in a 403( b),.
which my company contributes 9% of my income yearly. I have my house, which deserves $1,000,000. I have 2 children, ages 14 and 18. The 18-year-old is a freshman in university. I have $250,000 in a 529 plan, which should.
cover their college tuition. My costs are $8000 a month, which is what.
I take house. I” m unable to


conserve much money.All the cash in my IRAs is from past worker.
pension strategies. Through job, I additionally have the option to add.
What do I require to do to get there? Al: Okay, below we go. Joe: “I still owe $180,000 on my home mortgage,.
She ‘ s obtained a 403( b), so I don ‘ t understand if she ‘ s. obtained a pension plan. I ‘ m not sure if Patty ‘ s got a pension or. At $8000,$ 100,000, that ‘ s including a. mortgage payment of a few -So allow me go- She ‘ s gon na be close.
She ‘ s obtained ta tone down the living expenses. You ‘ re right, we put on ‘ t know Social Security.
or pension plan. As well as perhaps there” s both, maybe one, maybe there ‘ s. neither. I don ‘ t know. Typically there ‘ s at the very least one.
Joe: So right here ‘ s the math that everyone requires. She doesn ‘ t also know if it ‘ s even feasible.
So you obtained ta start with the date and allow ‘ s. simply push it out one decade.
If she invests $8000 a year today,$ 100,000,. Let ‘ s say she ‘ s obtained a pension of$ 20,000. Now you ‘ re back down, you ‘ re short $80,000,.
? Therefore you would take the$ 80,000, which would certainly. be needed from fluid investments, as well as we would certainly split that, let ‘ s say by 4%. So she would require roughly $2,000,000.
Al:$ 2,000,000 or multiplied by 25, if that ‘ s. less complicated to assume concerning it.'Joe: So at$ 2,000,000, she ‘ s obtained$ 200,000. now. A little moreover'. They ‘ re adding 9% of her revenue. So allow” s say over the following one decade, she ‘ s. gon na have about, I wear” t understand, $600,000,$ 700,000. She” s midway home at 67? There's 3 things she can do. She can work much longer, save more, invest much less. Al: Yes. Yeah. Joe: Or a combination of all 3. Al: Yeah. Or, and/or job part-time in retired life. Joe: Yeah, work, part-time. Yep. Al: However yep, that” s what it comes down to. As well as allow” s claim- let ‘ s state if you do the math. as well as it appears to you'can -you ‘ ll have the ability to make this work if you invest$ 6000 a month.
as opposed to $8000.


Which implies you can save extra, leading,.
As well as if that” s your -if'that ‘ s what you ‘ d like. And also it ‘ s difficult with two youngsters. As well as possibly for the next few years, you won ‘ t. be able to do that, but possibly after that you will.
69. There” s great deals of methods to skin this cat. The great point Patty, for you to recognize.
She” s obtained$ 1,000,000 house. That” s a significant asset. And also she” s already obtained some excellent savings going.
School ‘ s taken care of. You simply obtained ta obtain the other youngster out in 4. It ‘ s like, all right, do you wan na downsize?
bit even more money, you do a mix of 3 or 4 various points, pull some bars and.
you” re gon na be right there. Al: Yeah. And also another point, we didn ‘ t claim that you ‘ ve. got a bunch of equity in your home, probably more in ten years. Do you wan na live there forever? Great. Otherwise, if you wan na transfer to another location.
that's a little more affordable, currently you” ve obtained some additional equity that you can turn right into liquid.
investments to supplement that cash money circulation too.Joe: All right. Have a Cabernet and unwind. Joe: Allow” s go to Randy. Just -Andi: I assume that ‘ s HB, which is Huntington. Coastline. Joe: Okay. Huntington Beach, The Golden State. Andi: I believe so, yeah. Al: Yeah. Okay, that makes good sense.
Joe:” Just enrolled in Medicare, paying. leading level of IRMAAA. Simply retired, so earnings dropped.
What is the process and timing of getting. off IRMAA?” Al: That was straight and also to the point. Joe: Thanks Randy. Was that like, little robotic? Al: Yeah. That was an AI person concern. Joe: Specifically. Generally what happens with- what IRMAA.
Al: Yeah. And so probably if you were working 2.
years ago and afterwards you retired, your income is lower now. The premiums are based upon two years.
ago. So you can actually get in touch with Social Protection.
Management, not Medicare, Social Protection Management and also tell them your earnings has.
been lowered. As well as so that” s how you do it. There ‘ s lots of reasons maybe decreased.
like a marriage, divorce, like stopping job possibly, which is the situation here, loss of income-producing.
building, major adjustment or termination in your company” s pension, blah, blah, blah. There” s things like that, that will certainly enable. you to transform that income from a 2 year look back, yet you obtained ta most likely to your Social.
Security workplace to do that.Joe: All right

, really hope that aids. Randy. Joe: “Joe, Big Al. Return caller below.” “Okay, so “” my IRMAA brace is $306,000 in.
2023, up from $28,400. I should keep my revenue under the $306,000.
in intending for 2025 to be risk-free? What is the 2023 restrictions mosting likely to impact if.
I put on” t recognize the 2025 restriction? Assist me recognize this so I can maintain my earnings.
Still drinking red wine. Enjoy the show. IRMAA restrictions, so she” s looking at -because.
premiums are mosting likely to be. And also she” s asking, so do – where do I'keep my. revenue? I wear ‘ t understand what -where the revenue limits. are gon na be in 2025. I obtained ta do the preparation this year for that. ‘help her recognize what mess this is.' Al: Yeah, it ‘ s a fascinating concern.
2023, indeed, will affect 2025. We put on ‘ t know what those limitations are.You put on ‘ t know them and neither do we.
We simply recognize what the 2021 limits are, which. $306,000 would be the top of a brace,.
That” s $100 a month,$ 1200 for the year. Almost definitely they” ll be greater
because. Or if there ‘ s no
inflation, it ‘ s at least.
Joe: Yeah. I mean, we” re splitting hairs here.Al: I understand? Joe: All.
the unpredictability that comes with planning for retired life – we don't even recognize what things.
will appear like 2 years from now. To obtain a handle on what a mess this all can.
be and to flesh out the economic details of your retirement, click the web link in the.
description of today's episode in your favorite podcast app, go to the podcast program notes.
and download and install the Retirement Preparedness Overview totally free. Discover little-known tricks about regulating.
your taxes in retired life, producing income to last a life time, just how to make the most of.
Joe: We obtained” Aloha. It ‘ s really, you would certainly believe it ‘ s, it would. Al: Yeah, I ‘ ve been there.
I ‘ ll solution top.


If he asserts- or If Lauris insurance claims, yeah, you. can pay it back within 12 months. Al: And additionally', if you declare your retirement. benefits before full retired life age, you have to wait till complete old age and afterwards. you can suspend them and by suspending them, you ‘ ll stop receiving benefits.But you ‘ ll obtain those delayed retirement credits. and you can restart them up whenever. Either at age'70, if you not do anything, which.


is the last day to claim Social Safety and security. Or you can do it sooner. As well as if you desired, allow ‘ s state at age 67, you. realized, okay, I
require the advantages now, you just call your Social Safety and security workplace,. they ‘ ll turn the benefits on as well as it will be greater
than it would ‘ ve been due to the fact that you had. two years of postponed credit scores or one year, whatever the complete retirement age.Joe: We got Philip from LA.” Hey Joe. I love the funny content combined with some. impressive economic understanding.” Check out that. No mention of Big Al.



Al: The last one was for me. This is for you. Joe: Yeah.” I live in Los Angeles and I have a question. regarding Social Security for my moms and dads. My mommy is 67 and also hasn ‘ t made any income in. the past two years, but worked for about ten years prior.
My daddy is 68 as well as he ‘ s functioned his entire. adult life. They both obtained letters from Social Security. with the quantity that they will get in retirement. My mama is regarding$'1000 a month at 67.
My dad is close to$ 3000 a month at age 70. Will certainly the amount she results from get from. Social Security modification as soon as my dad gets his Social Security benefit? Or will stay the same for the rest of her. life? Do you suggest for both of them apply at. the same time? Thank you, Philip.” Below ‘ s what ‘ s gon na occur, Phil, is that. she ‘ s obtained $1000 a month coming with age 67.
His father ‘ s gon na wait till age 70 to declare.
The spousal advantage is gon na be half of his. Al: Yeah, it ‘ s much less than the$ 3000.
Joe: It ‘ s gon na be, yeah, a couple of bucks. And if it ‘ s higher, if there ‘ s gon na be an. She can assert it as early as 62, but she ‘ s. just gon na receive a reduced benefit and then the spousal is gon na be additionally lower.So if she waits up until her complete retirement.
However simply checking out the surface and also spitballing.
this, I would certainly claim- Al: I believe you ‘ re type of on the best track.
The actual answer is to go to financial coordinator,. have it run via their Social Safety and security analyzer to get'the full answer.But it appears like mommy ‘ s advantage will be about.
the exact same as half of your papa ‘ s advantage, so it may not matter that much.


Joe: Yep. Joe: Got Jim'from Dallas, Texas.
Joe: I recognize. Joe: I ‘ m attempting. Joe: Taking benefit of that firm match.
or be eligible to obtain the business suit. If the business match is currently taxable, is it
. taxable in the year that you got a business suit? Or is it taxable when the firm suit is. fully vested? One of my favored podcasts. Maintain up the good work.I drive a 2022 Honda Pilot as well as choose red. white wine as my medical professional said it helps maintain control of my cholesterol.
” I have no concept. Al: It ‘ s an excellent inquiry as well as it strikes me. that our federal government hasn ‘ t really thought this out effectively. Joe: Do they need to change the strategy? Al: I ‘ m thinking. I place ‘ t seen any kind of details on this however generally. below ‘ s what I would certainly guess, without knowing the intent of the law, cuz I sanctuary ‘ t read. the 1500 pages or whatever it was.
Is this, is that- as well as you ‘ re. I ‘ m thinking it ‘ s when they vest, not. Joe: As well as I review someplace that if, let ‘ s say.
have to develop some declarations on exactly how to handle this. I” m not even sure it” s been analyzed,.
to be straightforward. Joe: Yeah. I sanctuary” t seen a vesting routine on a suit. in a very long time either. Al: On a risk-free harbor, no. But on a routine 401 (k ), yes. Joe: Didn ‘ t we get exploded simply recently. too, since we discussed top heavy and also the individual's like, you” re a pinhead, it


not leading heavy.Andi: That was an e-mail that actually it simply.
was available in today, so it” s not even on your list. Joe: I just saw' you guys are boneheads'. Al: We get those regularly. Joe: I recognize. Therefore those are the only ones I review when.
they are available in. Al: Yeah, if it” s a risk-free harbor, I assume usually. there ‘ s no vesting.So you” re gon na pay it when it happens. If there is a vesting routine and also non-safe.
Harbor ones typically have a vesting schedule? I assume. Then I assume it” s gon na be when it vests. Joe: You believe? I wear” t. Non-safe Harbor plans have vesting timetables? Al: They don” t have vesting- Did I say
that. in reverse? Joe: Yeah. Al: Yeah. Safe harbor strategies do not have vesting,.
Joe: Usually? Al: The funny thing is, is we put on” t see a. great deal of routine 401( k) intends anymore. Joe: Yeah, we do.
Al: For large business. I presume well- but it has to be a quite.
We wear” t understand. We'put on ‘ t recognize- Anything. We ‘ re not actuaries, we” re not TPAs as well as we ‘ re.
so we'll cover that for a little while. In the meanwhile, season NINE of the Your Cash,.
Your Riches TV program began this past weekend break! Check out the podcast program keeps in mind at
to see episode one and also download the companion guide. Joe as well as Big Al stroll you through actions and also.
strategies to Turbocharge Your Retirement: rally with Roth, kept up threat, and placed the.
pedal to the metal on your Social Protection advantages. Click the web link in the description of today's.
episode in your podcast application to go to the program keeps in mind, Turbocharge Your Riches, as well as to Ask.
Joe and also Big Al On Air. Joe: Addressing your money- or we” re attempting.
to address your cash concerns. Al: We, we do our finest. Joe: Yeah.Sometimes we simply explode. Al: It ‘ s spitball or, or occasionally we state. what we understand and also we may not have complete details. Yet that ‘ s what the show is. Joe: Yeah. You understand exactly how much we prepare? I print out these inquiries 30 seconds prior to. we stroll to the studio.
We screwed up on some ACP examination for Safe. Harbor 401( k) strategies.
Debra St. Louis writes in,” Hey Big Al,.
Joe and also Andi, Adore your podcast. All 3 of you are so fun and also truly assist so.
many individuals out. I have a little bit of experience in the old 401( k).
globe, so I believed I would certainly supply some responses to the concern this week on after-tax payments.
in a Safe Harbor plan. You are appropriate- you appropriately informed the caller.
that the after-tax payments would certainly be included in the ACP examination, even if they were.
rolled out.” Winning.Way to go Huge Al. Good job. Al: Until now, so excellent. Joe: Okay, so far we obtained a little A+ going.
Okay. Oh, “You discussed the word top-heavy-“.
Al: Did you screw up on that? Joe: I put on” t know. I'assumed I ‘ d toss in a buzzword -when the.
401( k) plan's a little top-heavy- Al: I know.That ‘


s the- that” s the term we understand.

She ‘ s got a 403( b), so I don ‘ t know if she ‘ s. got a pension. At $8000,$ 100,000, that ‘ s consisting of a. home loan repayment of a few -So let me go- She ‘ s gon na be close.
You ‘ re right, we don ‘ t recognize Social Safety and security.
And also one more thing, we didn ‘ t say that you ‘ ve. Here ‘ s what ‘ s gon na occur, Phil, is that.Joe: You seem like you understand what the hell
you” re discussing,”- which was out of context.” Well, obviously it was. It” s a buzzword. I didn” t understand what the hell I ‘ m chatting about. I ensure you 95% of our listeners were
like oh, top-heavy- Al: Oh, that” s question if I got that? Joe: Marvel if I obtained a top-heavy strategy? I obtain Debra” s like, yeah, Joe ‘ s such a bonehead. Absolutely out of context. Alright, busted. Fail for me. “Yet, I wear” t think that any injury was done.” Okay. Al: So you didn” t screw people up. Andi: Justified. Joe: “No damage, no foul.” Okay. “It is just an entirely different test from
Joe: Yeah. “When you may require a pal like me is-.
you claimed that a Safe Harbor plan doesn” t need an ACP examination? While that is normally real, it is not real.
That ‘ s handy, Debra. And, you understand, there ‘
s- just taken out of. Al: That” s an entire different examination for a different.
I” m not also gon na presume. Let ‘ s not also presume. Cuz we ‘ re obtaining- Debra ‘ s gon na send- Joe: I dunno.
that make the most money- Al: Yeah, me as well. Joe: -they wan na make it also. And so you” ve obtained all the execs with-they ‘ re.
I assumed that was top-heavy as well. Joe: So, yet, and also then the ranking and documents,. All the leading officers are top-heavy- Al: Which is why I believed that the majority of firms.
that might switch over to a Safe Harbor so they wouldn” t have to stress over that. Now there” s a little wrinkle. If you have actually after-tax cash allowed, after that.
you got ta- Joe: So if she” s in the biz,
possibly she can. established our 401( k) strategy. Al: Yeah. Cuz we put on” t -our provider doesn” t believe you. can do'after-tax. And also we ‘ ve claimed, yes you can. Joe: I” m in the company. I recognize this extremely well. Well, clearly we're not top-heavy. Al: No, you can” t. We just consulted lawful. It” s impossible. Joe: Oh boy. All right. Well many thanks Debra. If you men wan na compose in, give us inquiries,.
offer us comments, offer us comments, anything you want.It's level playing field. We got thick skin. Al: Yeah, we do. I wear” t care. Joe: Yeah, we place” t obtained a one-star recently. Hopefully- I don” t know what ‘ s taking place there. Andi: Keep attempting, Joe. Al: It's bound to take place. Joe: Statistics, right? Joe: An additional correction, Large Al. Al: Got a great deal of corrections this week. Joe: Yep. This set comes from- really legal-ee- Al: From Steve, Steve O. from Las Vega. Joe: Steve from Las Vegas. “Andi Last, Joseph Anderson? Al: It” s got all our names.Then Pure Financial, after that Your Money, Your.
Riches ® radio program, as well as then [email protected], preceded by the day. And at the really top- we were believing, oh,.
Where” s the word, subpoenas? “I” m referring to the YMYW live podcast.
Al: You got that figured out? Joe: Yeah.
into YMYW. W of the couple is utilized. The couple takes pleasure in medical insurance offered.
by W” S company which insurance coverage covers both couple. H of the pair is over 65 as well as non-employed. The inquiry focused on whether H can.
delay registration in Medicare” Al: Okay. I arrange of bear in mind that. Andi: I assume this might have been Jim from.
Santa Cruz. Joe: Anytime there” s a Medicare question,. I just entirely like, do not understand. Beginning believing concerning previous listeners'.
drink of option. Al: Obtained it. What kind of car are they drive? Joe: Yes. Al: What they” re doing? Joe: “You discussed that the firm via.
Al: Yeah. It is appropriate as well, to postpone signing up at.
age 65. Joe: “Nonetheless, you fell short to discuss something,.
sir, that is really crucial.” Al: Okay. All right. What was it? Joe: “The health insurance should offer credible.
Andi: They do. Joe: “Many wellness plans do.
protection, which does not meet the Medicare examination. How do you locate out? Ask your personnels department, medicine.
Joe: Okay. We obtain it. Well, you can read this story about Medicare.
registration from Fight it out as well as in parenthesis John Wayne in Knoxville, Tennessee on the following.
That” s great actually, I didn” t understand that either. Al: I” ve been educated two times already. Joe: You kinda obtain that drug insurance coverage.
Al: All right, well, that” s really wonderful
wayMeans Andi: He ‘ s offering you the great things and also the. Al: Under something- Joe: -like underground?
your spitball of delaying Medicare enrollment from Jim from Santa Cruz at the end of program.
416.” Okay, allow” s hear it. “I turned 65 in 2022, enrolling in Medicare.
Component An invalidated contributions to my high deductible health savings account.After getting to


and seeing to the local SSA.
office, I accepted their statement to prevent costs charges. I have to enlist in Medicare with my enrollment.
duration 3 months before, 3 months after my 65th birthday celebration, I explained my social protection.
Medicare situation, consisting of delay SSA registration to age 70 to receive the greater benefit and also.
proceed my employer wellness insurance coverage for myself and my better half. To avoid the costs fine, I was advised.
That That we do understand. Joe: Yeah. “Our wellness insurance policy protection continues.
and also we can broker agent account the HSA payments. The only point truly I lost was a $3000 a.
year employer HSA contribution. The lesson is to ask every little thing you can think.
of when dealing with the Social Safety and security offices. They frequently have their own misconceptions.
Al: Got it. Joe: Yes, I concur.
the factor is since this is really, really complicated things and also not every person comprehends.
all of it. I would take what Social Safety tells you. I would do some my very own study just to.
ensure you believe it” s appropriate. Which” s not a dig on Social Safety individuals.
since it is extremely made complex. Joe: As well as they can” t give guidance. Al: No. Joe: So individuals are requesting for recommendations as well as they” re. like, well, I can just inform you what the rule is. Al: Yeah. . Joe: Well, what do you assume? How about this scenario? What would you do? You recognize, that” s why you go

to'us.We ‘ ll spitball it for you. Al: Yeah. As well as be ideal- Joe: – 50% of the moment. Al: – less than half the moment. Joe: It” s like that Sex Panther- Andi: What? Joe: Sex Panther Fragrance. Yeah. Al: Okay. Fifty percent the moment you- Joe: 50% of the time it functions 100% of the.
time. Al: Obtained it. Joe: It” s Ron Burgundy. I assume that” s – Al: Oh, that originated from him? Joe: Yeah. It” s a great film. Al: Yeah, well, Idyllwild Town Crier, their.
Joe: There you go.All. That” s it for us. Andi: Joe's breast cold and volunteering.
to avoid the workplace in the Derails at the end of the episode, so stay. Help new listeners find YMYW! Inform your close friends to adhere to the podcast and.
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I didn” t know what the heck I ‘ m chatting regarding. I obtain Debra” s like, yeah, Joe ‘ s such a pinhead. Cuz we ‘ re getting- Debra ‘ s gon na send- Joe: I dunno. As well as so you” ve got all the execs with-they ‘ re.
Hopefully- I wear” t know what ‘ s going on there.

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