A tax freight train is bearing down on your retirement. To protect yourself, you'll have to harness The Power of Zero.
Hi there. David McKnight. Welcome to The Power of Zero show. We are with you for, I believe, our 51st consecutive week, so we're coming up on a full year, one-year anniversary of The Power of Zero show, grateful for our growing audience. We had over 11,000 downloads last month and that grows at about 10% every month so we appreciate you getting the message out, telling your colleagues, your neighbors about what we're talking about on The Power of Zero show. You may know me because I'm the best-selling author of three number-one Amazon best-selling books, The Power of Zero, Look Before You LIRP, and The Volatility Shield. Of course, The Power of Zero is the one that has really found some national spotlight, it sold over 200,000 copies. When it launched in September of 2018, it finished the week as the number two most-sold business book in the world, we're very proud of that. Mostly, thanks to all of you who are listening who bought copies, I think we sold 6,500 copies that first week alone so we really appreciate all the support we’re getting. You can find those books all in bulk at powerofzero.com/Books. You can watch our documentary, The Power of Zero: The Tax Train Is Coming on Amazon, YouTube, iTunes, reelhouse.org, you can rent it there or you can purchase the streaming of it, you can buy real CDs, Blu-ray CD option at powerofzero.com/movie.
If you are looking for help in navigating all of the pitfalls that stand between you and the 0% tax bracket, you can go to davidmcknight.com. Also, there’s an interesting calculator at davidmcknight.com if you haven't gone there yet, it's what I call the magic number calculator. It tells you what your ideal balance and your tax-deferred bucket is, it also tells you—based on whatever your shifting horizon is, let's say you want to get all your shifting done from tax-deferred to tax-free by the time tax rates go up for good in 2026—it tells you how much money you need to shift between now and then to be able to pull that off. If you're an advisor and you're looking for help on how to transform your practice into a Power of Zero practice so that you can help get people off the railroad tracks, you can go to powerofzero.com and opt in to our video series. Looking to build our Twitter following, I think that's probably the one weak part in my game so I would love it if you guys went and followed me @mcknightandco. Also, if you have yet to put a review on Amazon for any of our books, we would really appreciate it. It's hard to tell you how much that helps when you put reviews of our books on Amazon, it makes a really, really big deal.
I'm excited to talk to you today about two people out there that are making waves for what they're saying about the national debt. The first one is Ken Fisher. We all love Ken Fisher, he's the guy that hates annuities, and you should, too. Ken Fisher tells us that—this is a USA Today op-ed that he did—he says, “Really, we should not be worried about debt,” he says that our debt to GDP ratio right now is only about 103%, it's been worse after World War II so we really have nothing to worry about. He says, “Oh, by the way, some of that money we actually owe to ourselves,” in other words, we borrowed it from Social Security, so it’s just accounting, and then accounting transaction on a ledger. We take from one side and we add it to the other. Guess what, that's actually not true. We actually owe that money from Social Security. Social Security is experienced in underfunding, in part, because of the money that we borrowed from that to pay for other stuff and that money has to be paid back. Where are we going to get that money from? It's higher taxes where maybe we won't get it, maybe we'll just cut the spending. The point is the money has to come from somewhere. His article is literally just riddled with errors. You gotta remember where Ken Fisher's coming from. Ken Fisher is trying to persuade us that the stock market is going to go up in perpetuity which is basically what he said right prior to the massive crash in 2007, he had no reason to believe that the stock market was going to go down. I think he's trying to really make the case that it's going to be smooth sailing from here on out and we have nothing to worry about when it comes to the debt. He says, “It's only $23 trillion.”
The question is, “Are there any other competing voices out there that have the spotlight that seemed to contradict what he's saying?” I found it very interesting, it's actually a presidential candidate, and it's not on the left side of the aisle, it's actually on the right side of the aisle. There's a guy named Mark Sanford, he's a GOP presidential candidate, he's actually running against Trump. He's a former governor, I believe of South Carolina and he was also elected to, I think, several terms in Congress. He had to resign as governor of South Carolina when it came out that he was having this affair with a lady down in South America so he resigned, but then he decided he wanted to run for Congress and he actually won. Now, he's decided that he wants to primary President Trump.
Take a listen to what he says and tell me if this sounds familiar. He says, “I don't think we have 8 to 10 years, that's why I'm running. Obviously, my running is preposterous at a whole number of different levels, it's a daunting task, an impossible David and Goliath story, but I'm running because the buddies who kept encouraging me to do so kept saying, ‘You've invested a long number of years in your life to financial prudence and financial restraint and we don't have the luxury of waiting four years until the next presidential cycle to have this debate.’” That sounds familiar, that sounds a little bit like David McKnight up on the stump talking about the doom and gloom that awaits us 8 to 10 years out. But watch this, it gets even better, he sounds even more like a Power of Zero advisor than what I've told you so far. He says, “If we wait five years for the next presidential debate, the storm,” that sounds familiar, first chapter of The Power of Zero, the Gathering Storm, he says, “The storm will already have come,” so he's saying, “Hey, in five years, the storm is already going to be here.” He continues, “I believe that they're right, I believe we don't have eight years.”
One of the off-the-record conversations—I don't want to say it's off-the-record, it didn't make it into the movie, let's put it that way—interview we had with Tom McClintock, Republican congressman out of California, he says that in eight years, we are going to be Venezuela. In other words, if we don't change course in a dramatic way today, we will be Venezuela. What Mark Sanford is saying here is that we don't even have eight years, we may not even have five years, and then he says this, “I believe in the next four years, very much in our lives, very much impacting our retirement accounts, very much impacting our building and jobs will be a financial storm, the likes of which we've never seen because there is always a straw that breaks the camel's back.” Now, what could be one of those straws that breaks the camel's back? Tom McClintock also talked about this. He's, by the way, if you can't tell, one of my favorite personalities in The Power of Zero documentary, he says, “We may come to a point where we experience what's called a sovereign debt crisis.” What is a sovereign debt crisis? That's when other countries stop buying our debt because they don't think that we're ever going to pay it back, they don't think we're going to have the ability to pay that back. All the people that he's talked to, he says, “The minute our country starts to experience trillion-dollar deficits, we set the table for a sovereign debt crisis. That's very much aligning with what Mark Sanford is saying here. That's the straw that could potentially break the camel's back.
Then he sounds like David Walker when he says this, he says, “Our math doesn't add up in Washington,” that sounds a lot like David Walker. David Walker says, “Math is the dirty little secret that nobody in Washington wants to talk about.” Then he tells us this interesting analogy, he likens the current financial condition of the country to a family in the neighborhood with an incredible lifestyle that includes expensive vehicles and a large home, they were the envy of the neighbors with all their toys, gadgets, and a life of comfort. But then years later, there comes a financial storm and they get wiped out, turns out they were just jacking up the credit cards and creating the illusion of real wealth, that's what is happening in our country right now, we're running the largest deficits we've ever run in our country's history in peace. This is something that Maya MacGuineas said in our movie, she says, “While all the other countries in the world during this period of relative prosperity and peace, while they're all getting their financial houses in order, what is the US doing? They're just piling money onto the national credit card and our debt is going up and up and up and there seems to be no end in sight.
Let me continue with his analogy. He said, “We've had the largest debt relative to GDP that we've ever had in peacetime. And not all of that is the president's fault, I want to make it clear, it doesn't go all at his feet, it has been accumulating for a while but he's not doing anything about it. He hasn't even started the conversation. When he ran, he said, ‘If you elect me, I will eliminate the debt over the eight years I might be in office.’ Instead, his own budgets propose raise in the national debt by $9 billion. If you look at the assumptions behind them, they are rather hopeful, I'll leave it at that. The actual deficit increase will be more than $9 billion.”
Let me just go back to what Larry Kotlikoff says here, “I think that we are living in a dream world if we believe that the national debt is only $22 trillion in change, we gotta keep remembering what fiscal gap accounting says and we also have to remember that all of the Nobel laureates within the borders of our country that our economists recommend that we follow fiscal gap accounting, all of the other governments in the world of developed nations follow fiscal gap accounting.” What is fiscal gap accounting? Fiscal gap accounting basically says that if you've made a promise for Social Security, Medicare, Medicaid, what have you, that is a liability, it's an off-the-books transfer, it's something that should go on your balance sheet. We have had many opportunities as a nation to pass laws that will disclose those numbers and include them in the national debt, but every couple of years, that comes up and Congress votes to not have those numbers included in the national debt.
Larry Kotlikoff says, “The national debt is not growing by trillion every year, it's growing by $6 trillion every year. We would have to have $239 trillion sitting in a bank account today earning Treasury rates to be able to deliver on all these promises.” Who's right? Is Ken Fisher right who has every incentive and every motivation to try to convince the general public that there is not a storm looming on the horizon of our country, there is not a tax freight train bearing down on us, everything is peachy keen after all, it's been much worse in days passing our country? Or do we believe Mark Sanford? This is really the platform that he's running on because he said Trump promised to talk about the debt but he's not talking about it, so Mark Sanford is not nurturing any illusion of victory here, he knows he's going to lose but he wants to take this opportunity to bring up the fiscal path of our country, sounds a little bit like Ross Perot back in 1992. Which of these two figures sounds more realistic? I’ll tell you, Mark Sanford sure sounds a lot like David Walker, he sure sounds a lot like Larry Kotlikoff, he sure sounds a lot like the really smart economic minds in our country who have nothing to gain by not telling it like it is and giving you the unvarnished truth. I know Ken Fisher has everything in the world to gain by trying to convince you that the debt in our country is not a problem, but Mark Sanford, he knows he's not going to win so he has nothing to gain there, David Walker has nothing to gain, Larry Kotlikoff has nothing to gain, all they're trying to do is to raise the warning cry about the fiscal storm.
The thing that really, I guess, struck me about this article is that it's all of the numbers and the vocabulary that seemed to align with everything that we say and believe here at The Power of Zero that eight years from now, it's already going to be too late, that it's a fiscal storm, that the math doesn't add up. I would say, if there's a politician out there who most sounds like a Power of Zero advisor, it’s got to be Mark Sanford. I will be following his campaign closely to see if he can garner any more spotlight by shining a spotlight of his own on the national debt that the government seems largely to be ignoring. There are a few lone figures that are crying in the wilderness and trying to raise the warning cry as it were about the fiscal path of our country, and guess what, you can either believe Ken Fisher, you can believe the really smart guys in the universities all across the country who testified in our movie about the fiscal path of our country. If you find yourselves in a position where either you or your clients have large amounts of money sitting in tax-deferred investments like 401(k)s and IRAs, you have a very real freight train that's bearing down on you. Unless you take advantage of the next seven years of historically low tax rates to get those dollars systematically repositioned to tax-free, then those dollars could be sitting on the train tracks when that tax freight train arrives, and how much of your IRAs and 401(k)s will you be able to keep? Not quite as much as you thought.
By the way, I have it on good authority that the SECURE Act, which is a retirement legislation that's passed both in the House and the Senate will most likely be snuck into a spending bill, the spending bill that gets signed right at the end of the year, it'll most likely be snuck in there which means that if you die with money in your IRA or 401(k)s and it goes to a non-spouse beneficiary like your kids, they will be forced to spend that money down over ten years, they will pay taxes on it at a period in their life when they are at the apex of their earning years, when they can least afford to pay the taxes and when tax rates are likely to be much, much higher than they are today. Guess what, it is still the case, dying with money in your IRAs is the worst possible place to have it, they will no longer be able to do Stretch IRAs, they'll be forced to spend it down in ten years. I've done the math, that means if you have $1 million in your IRA grown at 6.5%, they'll have to spend $125,000 per year, it'll land right on top of all their other income and get taxed at their highest marginal tax bracket.
We've got all sorts of interesting things coming down the pike here, folks. Never a better time to adopt The Power of Zero worldview, never a better time to be a Power of Zero advisor, you have the ability to really help a lot of people. I think that during the next seven years, we're going to see Roth conversions, Roth IRAs, Roth 401(k)s, LIRP contributions that start to skyrocket because people see the handwriting on the wall, and with the help of Power of Zero advisors all across the country, I think people are going to start seeing that paying taxes at today's historically low tax rates mathematically is a really important thing to do.
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