David McKnight addresses the most efficient order in which to spend your assets in retirement.

Online programs and algorithms that forecast and run calculations related to your retirement assets suggest starting with your tax-deferred assets like 401(k)s or IRAs.

Such tools recommend spending down your tax-deferred assets now, when tax rates are low, and your tax-free assets later – when tax rates are likely to be higher than they are today.

Reminder: regardless of the distribution strategy you choose, it should aim to maximize the likelihood that your money lasts as long as you do.

David’s recommended strategy involves spending small slivers of each of your assets all in the same year.

In other words, instead of mowing through one asset class all at once and then moving on to the next, you spend a little from each asset over time.

There’s a scenario in which you could receive your Social Security 100% tax-free – this could extend the life of all your other resources by five to seven years.

David explains why you shouldn’t aim to spend down all your tax-deferred assets in the early years.

David touches upon using a Roth conversion as a strategy.

Roth IRAs, Roth 401(k)s, and tax-free Social Security (when you can keep your provisional income low enough) are other sources of tax-free income you may accumulate along the way.

David discusses why it may be better to take a more nuanced approach, rather than simply spending down your tax-deferred assets first and your tax-free assets later.

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter

@davidcmcknight on Instagram

David McKnight on YouTube

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

Today’s episode of The Power of Zero Show looks at a recent podcast episode in which Suze Orman recommended having three to five years of living expenses in cash during retirement.

Experts have long debated the rate at which retirees can draw down their assets while maintaining a high likelihood of not running out of money before they die.

Since the early ‘90s, the gold standard for sustainable distributions has been the 4% Rule.

According to the 4% Rule, whether the market goes up or down, you can reliably withdraw 4% each year with high confidence that you won’t outlive your money.

David McKnight points out that Orman’s advice – keeping money in a volatility buffer account – is at odds with her stance on sustainable withdrawal rates.

For Suze Orman, you shouldn’t be taking 4% withdrawals from your retirement portfolio. Instead, she recommends a 3% distribution rate.

Studies show that if you withdraw only 3%, regardless of market conditions, you have a near 100% chance of never running out of money.

David believes that by promoting the 3% rule AND encouraging people to keep 3-5 years of living expenses in a savings account, Suze Orman is doing a disservice to her listeners.

The first problem with Orman’s advice is that, while she got the volatility buffer concept right, she failed to adjust her sustainable withdrawal rate accordingly.

Following Orman’s approach could result in massive loss of purchasing power by keeping a significant portion of your net worth in a low-yielding savings account over an extended period.

David explores whether there’s a “safe and productive” way to grow your money during retirement.

Cash value life insurance, specifically in the form of Indexed Universal Life (IUL), is a financial vehicle that protects against market loss and grows at a rate of 5-7% (net of fees) over time – within a tax-free environment.

David wraps up with some final words of advice for Suze Orman.

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter

@davidcmcknight on Instagram

David McKnight on YouTube

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

Suze Orman’s Podcast

Today’s episode addresses five reasons why a Roth IRA is one of David KcKnight’s favorite tax-free investments.

Unlike other retirement accounts, Roth IRAs give you 100% liquidity on all contributions.

While David isn’t necessarily suggesting that you use your Roth IRA as an emergency fund, it’s nice to know that you won’t have to wait until age 59 ½ to be able to access those funds.

If you happen to take out your Roth IRA contributions, you can put that money back within 60 days as long as your Roth IRA was not involved in a rollover during the 12 months preceding the date of distribution.

Tax regrowth is a second reason why David is an advocate for Roth IRAs.

For David, going for a Roth IRA could be the right move if you believe that your tax bracket in retirement is likely to be higher than it is today.

The Penn Wharton School of Business recently said that if the U.S. doesn’t write its fiscal ship of state by 2040, no combination of raising taxes or reducing spending will prevent the financial collapse of the country.

Some experts are even predicting that tax rates could have to double in order to honor the nation’s massive financial obligations.

A third huge benefit of a Roth IRA is that whatever money you don’t spend during your lifetime passes to your heirs, 100% tax-free –though they’ll have to liquidate those dollars within 10 years.

Thinking about Roth IRAs? Just know that distributions from Roth IRAs don’t count as provisional income.

In other words, they don’t count against the thresholds that cause Social Security taxation.

David explains what can cause up to 85% of your Social Security to become taxable at your highest marginal tax bracket – leaving a huge hole in your Social Security.

David has done the math hundreds of times: when you pay tax on your Social Security, you run out of money five to seven years faster than people who don’t pay tax on their Social Security.

Finally, Roth IRAs are a tool worth leveraging for the fact that Roth IRA distributions don’t count as income-related monthly adjustment amount (also known as IRMAA).

That translates to distributions from your Roth IRAs not counting against the thresholds that cause your Medicare Part B and Part D premiums to go up.

David sees the Roth IRA as one of the crown jewels in the IRS tax code.

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter

@davidcmcknight on Instagram

David McKnight on YouTube

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

Penn Wharton