Episode 121: Look Before You LIRP with David McKnight

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Welcome to another episode of the Club Capital Leadership Podcast. My name is Bradley Hamner, your host. On today's episode, we have David McKnight. David graduated from BYU in 1997 and since then has been featured in Forbes, USA Today, The New York Times, Fox Business— look, I could go on— basically everywhere. He's been a national-focused speaker at the worldwide annual meeting of MDRT in Toronto, and as a multiple top-of-the-table qualifier himself. His best-selling book, The Power of Zero, has sold over 350,000 books. It actually came out with a revised and updated version by Penguin Random House in 2018. And it was even recently made into a full-length documentary film entitled The Power of Zero: The Tax Train Is Coming. And his most recent book, which he launched in November of 2020, called Tax-Free Income for Life, and it even finished the week as the number 3 most sold business book in the world. He and his wife Felice have 7 children, and they actually live in Puerto Rico, which he actually mentions on the podcast. Tell you what, whether it's your money or whether it's you as an advisor to your clients, it's an absolutely can't-miss episode, especially with everything that's going on in in the economy. Without further ado, here's my conversation with Mr. David McKnight. Have you ever tried online marketing before and weren't sure if it was working?

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David McKnight, welcome to the Club Capital Leadership Podcast.

Well, thank you very much for having me. It's an honor to be here.

Excited to have you. So we always start with background and origin story. And so I know so many of us— we were talking before— many of our listeners are very familiar with your work and your books, but why don't you kind of go back a little bit and bring us up to present day and just a little bit about your background.

Sure, you bet. Yeah, I started off in the financial services industry back in 1997 and developed a presentation around the likelihood of higher taxes in the future. I started talking to my clients and prospects about the economic landscape, the national debt, what's driving the national debt, Social Security, Medicare, Medicaid. So I built a, I built a, you know, basically a 3-bucket presentation, identified the 3 basic types of money, taxable, Tax-free. It was just sort of a whiteboard presentation. Started off at 5 minutes. Mr. and Mrs. Jones, your money is in the taxable and tax-free bucket. You got to get it switched to tax-free. And by the way, if you're in the 0% tax bracket and tax rates double, 2 times 0 is still 0. So, it started off sort of really simple, and then it sort of slowly expanded. Something would fall out of my mouth, and I'd say something in just the right way, and it would impact the client or prospect or the group in a particular way. And so, I would include that in my next presentation. Before I knew it, that 5-minute presentation had expanded into about a 60-minute presentation. Presentation. In 2014, I wrote a book based on that presentation. And that book was The Power of Zero. And I sort of threw it out on Amazon, crossed my fingers, and hoped people would get it. And here we are about 8 years later. I'm very blessed to say it's sold about 350,000 copies and spawned some follow-up books and a movie by the same title. And so here I am today, and this is what I do. I talk about the power of the 0% tax bracket.

Who would have thought 25 years ago, whenever you gave that whiteboard presentation, that it would have turned— it just— your life would have expanded into what it has over the last 25 years. But kudos to you for just the impact that you've made on advisors, and then all of the impact that they've been able to have to clients, you know, throughout the world based on the work that you've been able to do. I think that's pretty amazing.

Thank you.

Uh, Big Doors Turn on Small Hinges, and, uh, that, that one book that I decided to write, um, You know, it sort of was, it was a bit of a game changer. And I'm grateful to have written it. I'm grateful that it's, it's made an impact.

So we're going to get into talking about some of the tax-free vehicles specifically, but I really felt like, just given we're recording this at the end of June 2022, and then the economy is just everyday things that are coming out about inflation, etc. And I just really feel like that you really are one of the country's best experts on just the fiscal situation that the economy and the country faces. And so can you just give us your thoughts about where things are, how we got to where we are, even though it's easy to say COVID and the money that was— the liquidity that was pumped into the market. But where are we today? Where do you kind of see things over the next 3 to 6 months, maybe through the end of the year? And then how does that then begin to affect advisors specifically on how they need to have conversations with their clients beginning now?

Well, one thing that we know is that one of the ways that the Fed can control inflation, and we can talk about what's causing inflation, whether it's the war in Ukraine or supply chain disruptions or the printing and infusion of all that cash into the economy in the lead-up to the pandemic. So there's a lot of different reasons why, we might be experiencing all this inflation. But one thing that we do know is that one of the ways that historically the Fed has tried to tamp down inflation is by raising interest rates. Now, they did this back in the '70s and it wasn't such a big deal. I mean, don't get me wrong, the stagflation of the '70s was not awesome. And the economy really sort of was in the doldrums for about 10 years, but it's a little bit different this time because We're raising interest rates at a point in time when we have $30 trillion of national debt. The real number is a lot bigger than that, but the on-the-books obligations say that we owe $30 trillion. The problem with this is that as interest rates go up, most people don't realize this, but the national debt is a short-term debt obligation, meaning it's not a 30-year bond. It's not a 30-year loan that we've made to China or what have you. It's a much shorter term. So every few years we have to sort of renew this debt, which means that as interest rates go up and as interest rates historically normal rates, the cost of servicing all that debt is going to start to go up. In fact, if all interest rates did was return to historically normal levels like we had in 2003, the cost of servicing all that debt would triple or even quadruple. And so the problem that we're running into is that we could soon come to a point in time, and I'm talking before 2030, where the cost of servicing the national debt could consume the entire federal budget. And so while servicing the national debt right now is relatively manageable, we're moving into a future where the cost of servicing the national debt could crowd every other line item out of the budget. And we're sort of painting ourselves into a corner where the federal government's going to have no choice but to raise taxes, not just on the 1%, but we're talking broad-based tax increases on all Americans to be able to simply pay the interest on all the national debt and pay for all of the other stuff like Social Security, Medicare, Medicaid, keeping the— you know, keeping the Smithsonian open, food stamps, the FBI, Park Services, all of this stuff falls under that same umbrella and we're just running out of money and we're running out of time. And so this inflation has sort of forced us to raise those interest rates maybe earlier than we had hoped to, which means that the tax freight train that's bearing down on America just picked up a little bit more speed.

You know, you— I mean, since 1997, you have been talking about this. And it seems like just in— since March of 2020, things have just accelerated so much faster. And your message has never been more important than it is right now. I think as an average American, we look at that and we say, well, I'm not the Federal Reserve Chair, so what can I do? And so we end up becoming almost a little panic-stricken of what's going up. Gas prices, I saw, I think I saw on social media, 7-Eleven, the gas was $7.11 recently. I think Elon Musk tweeted that out. But anyway, you see, so what are some of the things that we can begin to do? Okay, so two things. One is, it's just us with our own money. And then to speak to it from an advisor perspective and the conversations to be having with your clients?

Yeah, so that, that, that— the two sides of that conversation tend to meld into one, really, when we're talking about tax rates in the next 10 years being dramatically higher than they are today. Basically what that means is that we're on the clock. We know that tax rates went on sale January 1st, 2018, with the Tax Cut and Jobs Act. But we also know that that tax sale had an expiration date, and that's January 1st, 2026. So we know that You know, in order for tax rates to go up, all Congress has to do is nothing. Now, I'll be the first one to tell you that when tax rates revert back to what they were in 2017, starting in 2026, that's not the end of the world. Because, you know, Bradley, if you recall back in 2017, nobody was saying, hey, these tax rates are so high that the sky is going to start falling. It wasn't the end of the world. So we're going to just revert back to what they were in 2017. That doesn't give me as much pause, although I would say take advantage of the next 4 years of historically low tax rates because I did an interview with David Walker, former Comptroller General of the federal government, about a year ago. He says, look, tax rates will never, ever, ever be as low as they are today. So we know that you want to strike while the metal's hot here. But the thing that really gives me concern is when all of this really comes to a head. In other words, we can continue to kick the can down the road, not increase revenue or lower spending or some combination of the two. We can continue to kick the can down the road, but there comes a point in time beyond which we can no longer kick the can down the road. And that, according to a lot of experts that I pay attention to, is roughly 2030. You're going to have this perfect storm of demographics and debt and stock market, potential stock market crashes and high interest rates and unemployment. It all converges right in 2030. And so I would say, instead of saying, let's get all our ducks in a row by 2026, Let's give ourselves about 8 years to try to get our hard-earned retirement savings systematically shifted to tax-free. Let's do it slowly enough that we don't rise into a tax bracket that gives us heartburn, but let's do it quickly enough that we get all the heavy lifting done before tax rates go up for good. So we've been telling our clients and our prospects that we got about an 8-year runway. Let's shift our highly taxable tax-deferred assets like our 401(k)s and IRAs to tax-free accounts like Roth IRAs or Roth 401(k)s. You know, let's take advantage of Roth conversions. It's a real workhorse. Let's take advantage of permanent life insurance to get our clients and prospects' assets protected from the impact of those higher taxes that are invariably going to arrive probably in the 2030 range.

You know, just you saying that, I know from myself and other people having the peace of mind of perspective to say, okay, actually 8 years, that makes sense. But the downside to that is because it is 8 years, it's easy, just as it's easy for the federal government to kick the can down the road, it's easy for us to kick the can down the road and not begin to make changes or do things today to lead up to that. Because it's always a, well, I'll get to it next year. And before we know it, it's going to be 2030. and we would have done nothing. I'm sure you see that often.

Yeah, that, I mean, that, that's a, that's a great point. Um, we always blame the government for kicking the can down the road, but we often fail to recognize when we're doing it ourselves. Uh, so yeah, every year that goes by where you fail to take advantage of historically low tax rates is potentially a year beyond 2030 when you could be paying the highest tax rates you're likely to see in your lifetime. All right.

So logically people see, this makes sense. Let's start talking about unpacking some of the actual vehicles themselves in tax-free vehicles that you mentioned earlier. Obviously rattled some of those off. Whenever you are speaking to a client, how do you go about beginning to put together, we'll say, a roadmap or a blueprint of what's best and what's the first lever to pull? That's kind of what comes to mind is what— this is the first lever to pull. and then we'll pull this one in. What's the logical, uh, process that we go through there?

Well, I, I start a little bit more, more generally, and I really try to convey to the client that I don't have any one tax-free investment that is the panacea, or we've heard the term Swiss Army knife or whatever. I, I believe in multiple streams of tax-free income, none of which show up on the IRS's radar, but all of which contribute to you being in the 0% tax bracket. I think that there's, you know, every tax-free retirement plan should have between 4 and 6 different streams of tax-free income. I think we should take advantage of every nook and cranny in the IRS tax code. I don't think that— I tell people this all the time— the more you talk about Roth IRAs, the more LIRP you end up positioning for clients. The more you talk about Roth 401(k)s, the more you talk about Roth conversions, the more permanent life insurance you end up selling because clients and prospects are not interested in putting all of their eggs into one basket. In fact, a lot of our more savvy clients have been reading Kiplingers and Barrons and MarketWatch and Investor's Business Daily for their entire lives. And then we come along and we say, hey, for example, permanent life insurance is the panacea, it's a silver bullet. We should stop contributing to all of our other stock market investments and put everything into this permanent life insurance policy. So we have sort of this tendency because this is part of how we get paid. We have this tendency to want to poo-poo all of these other tax-free streams of income that have historically been highly touted by the likes of a lot of financial gurus, a lot of mainstream marketing media outlets. sorry, mainstream media outlets. And so when we denigrate traditional tax-free vehicles in a way of exalting permanent life insurance, there's a lot of warning bells that go off in our clients' minds, and they don't feel very comfortable because basically everything that Dave Ramsey and Suze Orman and Clark Howard have told them over the years, this sort of flies in the face of all of that. And so what do we do? We sort of— we have to denigrate the stock market and what all of these other people are saying, and we're putting these artificial barriers along the path to the sale. And I think that we do this needlessly. Most people are interested in a comprehensive and balanced approach to tax-free retirement. They want to have, you know, in a way to sort of protect themselves from the impact of higher taxes. Every single one of those streams of tax-free income that the IRS makes available to us is important and useful in its own way. So for example, the Roth IRA has something that nobody— none of the other streams of tax-free income have. When you put money into your Roth IRA, you can take it out immediately. You can't do that in any other tax-free stream of income. Your Roth 401(k), you put money in, you get a match. None of the other streams of tax-free income can do that. Roth conversion, you can contribute— you can convert unlimited amounts of money from your tax-deferred bucket to your tax-free bucket. By way of that Roth conversion and becomes the real workhorse in helping us get to the 0% tax bracket. The life insurance retirement plan or permanent life insurance, whether it's IUL or whole life or VUL, what have you, that allows us not only tax-free growth, but it gives us a death benefit that in many cases doubles as long-term care. And people are dying to figure out how to— that's not a good way to put it. People are wondering how to mitigate long-term care without the heartburn that goes along with traditional long-term care insurance, which is sort of a use it or lose it proposition. And when you show them that you can get a death benefit that doubles as long-term care, you get a death benefit that you can receive in advance of your death for the purpose of paying for long-term care. That's a winning strategy for a lot of people. So it's really a balanced approach. And I think we do our clients a disservice when we, when we approach everything in the spirit of permanent life insurance does it all and it's the best alternative out there. I think it's, it's a complement. It's, it's one of multiple streams of income that can get us to our tax-free goal.

[Speaker:CASEY_WEADE] And I think it's even in the last— I'm sure you've seen this, you just mentioned about clients doing research. There's just so— YouTube videos, etc. People are going on and they're going to research what it is that you're saying. And if you ask them to put all of their eggs in that whole life policy, that IUL policy, they can do some research around that and say, I'm not so sure I want to put everything in there. And you're saying that's not even the right thing.

It's interesting to me.

I've just seen over the last— I don't know, maybe I have more friends getting into multiple streams of income, buying multifamily apartment complexes, buying homes, because they see, hey, it's important for me to diversify my income now while I'm working. Why would we not apply the same kind of logic to our retirement plans, which is what you're saying?

Right. Yeah. And when we approach somebody who has been told their entire life that the Roth IRA is absolutely something that they should do, and then we kick the legs out from under the Roth IRA and we try to exalt something that historically they've been told has red flags and that they should avoid, um, it's just not a good way of approaching, uh, you know, the whole tax-free retirement planning, um, environment. I did a training last week in Minneapolis and I listed the 6 streams of tax-free income that I typically recommend during a client meeting. And I said, who would you rather do business with? Someone who's recommending a Roth IRA, a Roth 401(k), a Roth conversion, taking money out of your IRA up to your standard deduction so that offsets the tax, and LIRP. And then if you stay below your provisional income thresholds, Your Social Security is tax-free. Would you rather have someone that approaches you with that comprehensive strategy, or would you rather have someone approach you saying, you should put all of your money into a permanent life insurance policy? I know all of those financial experts have told you your entire life that you should be very leery of this type of approach, but they're wrong. They just don't get it. They don't have the math right. They're outside of our industry, so they don't quite understand it. I mean, which one feels— would you feel more at peace with? And I personally would feel more at peace having lots of different tax-free buckets on the table as opposed to putting all of my eggs into just one of those tax-free buckets. So that's really the approach that I espouse, and it's what I outline in all of my books, just because I think that We actually help more people when we don't come across as a life insurance salesman. I tell people this all the time: if all you ever talk about is life insurance, you look like a life insurance salesman, and people don't hand their life savings over to a life insurance salesman.

Yeah, so good. Let me ask you a question around the conversions. What do you typically see, or what's your— what's the recommendation when someone says, I've got a quarter of a million dollars sitting in a traditional IRA, as an example, and they have bought into this concept, completely agree with you philosophically. I've got 8 years. I need to begin to kind of move this over. Walk me through kind of a little bit of your guidelines as, as to how, in this total hypothetical situation, that you would advise someone to begin to kind of move that over.

Yeah, so, uh, most of the people that walk into my office, and I think this is most Americans that we end up talking to about these types of things, are either in the 22% tax bracket or the 24% tax bracket. Remember, the 22% tax bracket starts at about $83,000 and the top of the 24% tax bracket goes all the way up to $340,100. So most Americans are going to fall into that range. And so if somebody is talking about doing a Roth conversion, they're probably already in the 22% tax bracket. So I say, hey, since you're already in the 22% tax bracket— and by the way, 2030 is going to roll around and I think we'll look back at the 22% tax bracket is a good deal of historic proportions, but you're already in the 22% tax bracket. Why not convert up to the top of the 22% tax bracket? Let's say their taxable income is $100,000. Okay. So they convert up to the top of the 22% tax bracket. And that lets you, you know, that lets you, you know, convert $80,000 or so. And then I say, guess what? The 24% tax bracket is only 2% higher, but it gives you an extra $160,000 of shifting space. So guess what? If you're already in the 22% tax bracket, let's convert all the way up to the top of the 24%. Because by the way, the 24% starting in 2026 is still going to be better than the future version of the 22%, which is 25%. So why not convert to the top of the 24%? Good deal of historic proportions. And in that scenario, you could probably get you know, most of that $250,000 shifted in one year. It doesn't really do you any good to stretch that out over a lot of years. Now, if you had $1 million, that's a different story. We're talking about stretching that tax obligation out over a lot of years. But I'm perfectly comfortable if somebody is in the 22% to say, let's convert to the top of the 24%, because I think in the, in the arc of history, you're right, tax rates have never been lower. I think we got a message to match the moment. 2030 is going to roll around. Tax rates are going to have to go up. We'll look back at this period of historically low tax rates and say, man, things were good back in the day, right?

I don't think I was going to ask you this, and if you have no opinions of it, that's totally fine. But I just, for whatever reason, feel like I need to ask you, just because there's so much volatility in the market around crypto, what's your— what are your feelings around just not just a specific Bitcoin or whatever, but just the entire cryptocurrencies? And where do you see that become coming into play over the next 8 years as we get to 2030, as an example?

Yeah, so I live in Puerto Rico. I don't know if you knew that. And there's a lot of people that come down to Puerto Rico for the tax savings, because if you qualify, you get accepted, you don't have to pay taxes on your capital gains. And so there's a lot of what we call crypto guys, crypto bros that come down here and want to make their fortune with crypto. And I got to tell you, there's a lot of hanging heads these days here in Puerto Rico with people who stake their entire strategy on Bitcoin or Ethereum or Luna, just taking off to the moon. I have never personally gotten into crypto. I probably side more with Warren Buffett on this or Peter Schiff. Peter Schiff is also here in Puerto Rico. He's really you know, bearish on, on crypto and bullish on gold.

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Um, so I, crypto is not something that I've really ventured into, but I would say if you, somebody is into crypto, only put into it what you'd be comfortable losing.

Yeah, yeah, that makes sense.

Yeah. We had a guest on and he was against it. And he mentioned that he started putting— he said, you know, 1%, I can do 1% just to kind of play around with it and dollar cost average into it. So anyway, I just want to ask you around that. Alright, so you mentioned one of the questions I wanted to bring up. And so I know people are going to want to have me ask this to you. You actually ironically did a podcast about this, and it is the buy term, invest the difference Dave Ramsey mantra. So I'd just love for you to address that, especially given, you know, where we are in the conversation we just had about where things are going over the next 8 years.

Yeah, so, so buy term, invest the difference, that's not really usually something that comes under my radar. I'm usually dealing with people that are, you know, 55 to 65. They're either in retirement or approaching retirement. So it's not— it doesn't ever come down to should you put money into a Roth IRA and get term insurance, or should you buy term and invest the difference. This is really a discussion that is, um, a little bit more prevalent among, among people who are much younger, and they're trying to figure out, hey, I've got a finite amount of money, should I put it into a Roth IRA, buy term insurance, or should I just put it into some sort of permanent life insurance plan? So The goal of that video was simply to say, when Dave Ramsey addresses this topic, he doesn't do so in an even-handed way. He does so in sort of a disingenuous way. And so what he might say, for example, is, hey, you know, if you're investing $10,000 per year and you put it into a permanent life insurance policy, by the end of 20 years, you're only going to have, say, $600,000. If you were to instead put that money into a mutual fund inside a Roth IRA, growing at 12% per year, at the end of 20 years, you're going to have $1.2 million. In other words, by doing that permanent life insurance policy, you just made a $600,000 mistake. And he'll just leave it at that. And my only point in my video was that if you're going to do a true apples-to-apples comparison and not fruit salad, you have to show all of the expenses on both sides of the equation. What he typically doesn't do is he doesn't talk about the expense ratio inside the Roth IRA. That can be anywhere from, you know, 0.75% to 1.25%. It's called 1% on average, and it never includes the cost of the term insurance, typically a 30-year term, you know, for whatever the equivalent amount of term insurance was in the corresponding permanent life insurance plan. So what I showed in my video is that if you do a more apples-to-apples comparison, in some cases the permanent life insurance can come out ahead. Now, even if the permanent life insurance doesn't come out ahead, if you could get 5% to 6% tax-free growth without taking any more risk than what you're accustomed to taking in your savings account, that's a pretty safe and productive way to grow at least a portion of your portfolio. And so why not reach into your bond portfolio or reach into your stock market portfolio, pull out the bonds, replace it with a permanent life insurance policy, and you'll reduce the overall expenses, you'll reduce You'll increase the rate of return. You'll reduce the risk. You'll reduce the standard deviation. So these are just things I just wanted to feel— when Dave Ramsey says permanent life insurance is a rip-off, I'm like, well, the way some people use it, it might be a rip-off, but when it's utilized in the right way, it can be very, very effective. It can be a safe and productive way to grow at least a portion of your retirement. And when utilized in concert with all of the other tax-free streams of income we talked about, it can be Very, very powerful.

I do want to ask you around your thoughts around the specific types of permanent life insurance and your thoughts around the utilization of universal life policies, whole life policies, etc., and how it— you suggest an advisor goes through— they're having— and this is making an assumption here— that they're having a comprehensive discussion about all 6 streams of income for the client. Okay, so not just all the eggs in the same basket, but now we're to the point to where we are talking about a life insurance, permanent life insurance vehicle. What are your thoughts around the actual specific policy types?

I personally own a VUL. My wife owns a VUL. My children all own VULs. I like VUL for people that are young. I think that, you know, you have a long investment horizon and you can you have the stomach to watch the market go up and down, I think that could be a way to go. I think IUL is great for anybody who's 45 or 50 or older. I think there's some real dangers in owning VUL. The older you get, you have the combination of the market going down, you're increasing your net amount at risk, which means you're buying more insurance, which means expenses coming out of your bucket are bigger, which means that your cost and your net amount of risk is even more. And so you could get sent into a death spiral from which you never recover. So you just have to be careful when you get into your late 50s and early 60s if you have a stock market loss. So I think that IUL is typically better in that range. And then whole life, I think whole life has some context in which it really thrives. I'm not into it much, but I know there's a lot of bank on yourself folks out there that utilize that in that way. I did write a book called Look Before You Lerp, Basically, when you're trying to get to the 0% tax bracket in retirement, certain life insurance policies do a better job, I believe, than others. I think they all have some flaws and some Achilles heels, but you want to get the one that has the fewest Achilles heels of them all. So I tend to prefer IUL, but I know people get very, very passionate about this, and they— you tend to really love the alternative for which you are licensed. You tend to love the alternative for which the company that you work for pays you. And so if you talk to a guy at MassMutual, he's going to sing the praises of whole life. If you talk to somebody at a broker-dealer, they're going to sing the praises of VUL. So it's a fraught discussion. I don't want to wade too far into it because I don't want to get too many angry emails. Suffice it to say, I think there's a context in which all of them make sense.

Uh, you're so right. That's— you, you're very right. People will tend to, uh, love the one that not only that they have to offer, but also, don't you think oftentimes that we sell out of our own back pocket? And so we personally prefer an IUL, a VUL. So therefore we tend to offer that to all of our clients as opposed to maybe what's actually right for this client is something else. And so we end up kind of selling out of our back pocket in a way because that's what we prefer and it's what we have to offer.

Yeah. Which I mean, how wrong is that, right? I mean, if you think about it, you know, I got my first VUL when I was 25, you know, but if I had met a 60-year-old and sold them a VUL because I liked it personally for my own 25-year-old self, that's not, I think, ultimately acting in their best interest. And so, um, I personally would not sell an IUL to a 25-year-old. Um, I would say, you know, talk to my friend for, you know, that's licensed to sell a VUL. He'll sell you a VUL. I think it's a a better fit for you. So I think we need to do a better job in our industry of, of not just doing the one-size-fits-all. Um, I tend to focus on people between 55 and 65. I think IUL is the best bet for those people. But if I were in the 25 to 35-year-old market, I'd probably be in the VUL, you know, business. So I, I think that we need to do a better job of conforming our offerings to the market that we're, we're doing business with, and not so much a one-size-fits-all. All.

Yeah, I think that's really good. Um, business— retirement is not a bathrobe, right? It's not a one-size-fits-all.

That's right.

Um, let me ask you, uh, for people that have— whether it's an advisor or a consumer that has, uh, read your book, what is one of the biggest things that— I'm sure you get questions, inquiries from people— is the biggest mistake or myth that they— whenever they read the book and they kind of misinterpret the message that you're trying to get to them. Where do people kind of trip up and get it wrong that you've seen based on the feedback?

Uh, one, uh, this is sort of a funny little anecdote, but there's a guy, there's another financial guru out there named the White Coat Investor. I don't know if you've heard of him. Uh, he's out of Salt Lake. He's actually a co-religionist of mine, which is interesting given how fraught our discussions have been over the years. He's an emergency room doctor who sort of had a penchant for giving financial advice. So he sort of became this financial guru and he's a really bright guy. He sort of is a very thoughtful writer and he read my book back in 2015. And the first blog post he did was like something like the David McKnight scam or something like that. And so I read it and I'm like, Why does he think I'm scamming people? And he said, because I'm trying to get people in high, high marginal tax brackets to do Roth conversions. He deals specifically with doctors and dentists, all of whom are in high, high marginal tax brackets. And the, the effective tax rate that I utilized in all of my examples was 25%. That includes state tax, that includes federal tax. I don't think that that's too exorbitant. And so that's what I use on all of my examples. So he says, You know, why would someone forego a, you know, back then a 39.6%, um, tax deduction today thinking that they're going to be in a higher tax bracket down the road? So, so I think a lot of people think that Power Zero strategy is one size fits all. It's not. It's primarily for middle-income America that's in the 22% or 24% tax bracket. It's not for dentists, it's not for doctors. Those guys need customizing and tailored recommendations to meet their specific needs. This is not Dave Ramsey where I'm trying to paint everything with a broad brush. I've got a specific market, target market that I'm trying to reach, and that's Main Street America, done a great job saving over the years. They're in the 22%, 24% tax bracket. By the way, funny ending to that story. So the White Coat Investor really poo-pooed Roth conversions, says it's They're stupid, they're dumb, why would anybody want to do them? And then right before Biden got elected and came out with his tax plan, he read the tax plan and says, if Biden gets elected, I'm going to convert my entire IRA to a Roth IRA all in one year, which by the way is something I don't even recommend. And he tweeted this out and I tweeted back, I said, glad to see you're coming around. And then he blocked me. And so I think that I think that more and more people are starting to come over into our camp because they see the handwriting on the wall. They see that the math doesn't add up, and they see that it's just a question of time before tax rates are likely to go up for good.

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It's hard, but you know, even in spite— let's just— in spite of the last 2 and a half years or so, that what you have been saying for 25 years just holds so true. I mean, philosophically, it's hard to— with Medicare and Medicaid and Social Security, you could just see where this was coming. It was like a ticking time bomb at some point, and it just has gotten accelerated so much over the last 3 years with COVID and everything else. So, um, David, this has been fantastic. I've really enjoyed the discussion. You mind if we go into a real quick E9 rapid-fire questions?

You betcha.

All right, what's the last book that you read?

The last book that I read was a book called, uh, Traction. It's a business development book. If you— if somebody's in business for themselves, I highly recommend it.

Yeah, Traction, Gino Whitman. That's awesome.

Whitman, that's right.

Yeah, EOS. That's a good philosophy for sure. What's the—

what—

that's actually probably was going to take my— other than Traction and other than your books, what's another book that you'd recommend to advisors, small business owners?

Anything by Ed Slott. Ed Slott is, you know, really, he's a peer of mine. He's a personal friend. And He's really been an inspiration, a bit of a mentor for me over the years. Anything that Ed Slott writes, if you're interested in the tax-free environment, is going to be spot on and it's going to complement— there won't be anything, you know, contradictory between our two writings. So anything by Ed Slott, his most recent updated version of The Retirement Savings Time Bomb came out about a year ago. It's excellent. So, so really anything by Ed Slott I would recommend.

Ed actually came on the podcast about a year ago or so and we talked about that. So if you've not listened to that episode, Go back, listen to that episode. And I agree with you, his book is fantastic. What's your favorite place to travel?

Well, my wife and I just got back from Ireland a couple of weeks ago. She said it was the best trip we'd ever been on. So I think that if, if I go by my wife's judgment on this, I'd have to say Ireland at this point.

Okay, awesome. Where's a place that you would love to travel to?

New Zealand. That's on the bucket list. New Zealand.

Absolutely. You could sit on a 10-hour flight, which I guess would probably be longer than 10 hours, but you sit on a long flight from Puerto Rico to New Zealand. Who would you love to sit next to? Can't say your spouse.

Oh man, that's a good one. Um, they have to be alive?

No, alive or dead.

Oh man. Um, gosh, that's, that's one of those ones where you should have called me last night and said, hey, think about this for a couple of hours and then and then come back with a recommendation. Gosh, there's a great unheralded US president that I would love to have met, and his name is Calvin Coolidge. And this was back when the presidency was much less muscular it is today. And they asked Calvin Coolidge, what he was proud— he didn't run for a second term, he could have. They asked him, what are you proud of about your presidency? And he said, I was proud that I just got out of everybody's way and let America do what America does. And so this was a guy that was well-read. He read in the classics. He was not power hungry. He got in, did one term, and decided he didn't want to run again and got out for the right reasons. And just tried to make a positive impact on the nation. And I think that that's a great model for politicians to aspire to today. So that's one of my own. And by the way, he was also Ronald Reagan's personal hero.

Hmm.

What year was he president? Or what era? Era? This—

gosh, I want to say it would have been the 1910s.

Okay.

So, um, I think you had, it was Coolidge and maybe Harding. Someone's gonna call me out on this, but I wanna say it was the teens. Okay.

So it was before the Great Depression. Yeah.

Yeah. So you had, you had, yeah, Hoover was, um, Herbert Hoover. Is that right? Or Hoover? Hoover. Hoover was the, was the lead up. And then I think before him was Harding and then I think before him was, uh, Coolidge.

Yeah, that's awesome. Uh, that's a really good answer. Uh, when you're not working, what do you love to do?

I love going on date night with my wife. Um, I love, um, you know what I love doing? I love taking, um, my kids on business trips with me. I took my son Abraham, he's, he's 12. Uh, he came to, uh, did a week of travel with me, saw me, um, do a training, saw me do a speaking event in front of 100 people, and really gave him an opportunity to see how the family business works. And so just spending time with my kids and my family is really my sweet spot. And if I do have spare time, it's how I like to spend it.

Oh, that's awesome. Uh, what's your most unusual talent?

Moo, man. I can blow bubbles off my tongue.

That is an unusual talent. I love it.

I also, I also like to do a few, few magic tricks. Most people don't know about this, this about me. I like to do magic tricks, not nothing real fancy, just with a quarter or a ball or whatever.

All right, so for those of you listening, if you see David, come up to him after our presentation, give him a quarter and have him do it, have him do a magic trick and tell him you heard about it on the podcast. I love it.

Uh, what'd you learn about yourself the most during the pandemic?

Uh, I learned that I hate traveling. I used to do about 90 speaking engagements per year. And here in Puerto Rico, it was really, really shut down. I mean, you get to the community gate because all communities are really behind gates in Puerto Rico. And it says, the sign says, "Are you sure you need to leave your house? Go back home unless it's an emergency." So I literally spent 4 months inside my house. I left once to go to the post office. I learned that I love being with my family much more than I love traveling. And so one of the things that I tweaked about my business is that I'm traveling about half as much now. So, and I, you know, I'd been traveling a lot for the prior 20 years and I made a deal with my wife that I was going to restructure my business so that I'm doing a lot more Zooms and spending much less time on the road.

I do think we've had a few guests that exact same thing. They were just so accustomed to defaulting into traveling, you know, 100 days out of the year around the world. And, and now just because people have gotten so much more accustomed to being on Zoom, that it has really helped the quality of their life, even though it's obviously really difficult for us all to go through that. All right, last question. It is the Club Capital Leadership Podcast after all. What's some best piece of leadership advice you've ever received?

You know, there's a line out of Good to Great. I love it. He talks about the window. He says bad leaders tend to, when things go well, they tend to look in the mirror and give credit for it. When things don't go well, they tend to look at that mirror as a window. They look through that window to see who they can blame. A good leader, when things go badly, they look at that as a mirror and say, what did I do wrong? How, what could I have done differently? And when things go well, they look through that window and say, who can I heap praise upon? Who can I give credit for what went right? And that, that little sort of description of good leadership really resonated with me. And I try to, I try to live by that in my own life.

Oh, that is really good. Yeah, I love that. David, I know if advisors, people want to be able to reach out to you and your team, where would you point them to? What's the best place for them to be able to get in touch with you?

I would point them to powerzero.com. I'd also point them to my YouTube channel, which is titled The Power of Zero. We put out 2, 2 new videos per week. So those 2 places are, I think, a great, great place to start.

Awesome. David, hope to have you back on in the future.

Thanks so much.

Hey, what— David is a really smart guy, isn't he? I mean, a few things stand out. I mean, it's hard not to know that the thing that stood out to me the absolute most was whenever he mentioned that, hey, everything's come to a head in 2030. And so really gives me kind of a peace of mind to say, hey, look, there's gonna be a lot of things that are going to happen over the next couple years, certainly in the next presidential election. But just to know, hey, it's 2030, 8 years, let's begin to make decisions not only for myself, but also for all of you listening, for your clients, what are the things you need to be doing now? And as we had the discussion, it's just really easy to kick the ball down the road, just like the federal government. And so what are the things you need to do in 2022, or begin to advise some of your clients to consider in 2022? And then the second biggest thing is multiple streams of tax-free income, and looking at those 6 different streams that David rattled off and seeing that as being a balanced approach and not putting all of your eggs in one basket. I mean, we You've heard me say before, it's better to be— oftentimes we need to be reminded more than we need to be taught. And the same thing is true whether it's for your money or whether it's for your client's money. Just looking at one single thing— he happened to focus in on just the life insurance as an example— um, it's just not going to be the recipe that's going to be a balanced portfolio for most people. And I think those two things is realizing that everything that's been happening over the last couple years, the liquidity that's been put into the market, that at some point— I mean, who knows, I'm recording this on June 22nd. Who knows what the Federal Reserve Chairman is going to do over the next few weeks. And by the time this podcast drops, there will be decisions that will be made. And but ultimately, just knowing, hey, we've got a few years before tax rates begin to go up. Now's the time to be really considering doing that over the next 4 years. Certainly made me think about my own money. And then just thinking about, okay, I need to make sure that I put myself in as good a position as possible, not before my retirement. I mean, I'm 41 at the time of recording this, and so I've got a little bit of time, but I certainly don't have, uh, as much time given what David was saying. And I need to make sure I'm in a good position leading up to 2030. Hey, big thanks to our podcast sponsors. We don't be able to have people like David on to be able to serve and give you all value if it wasn't for our podcast sponsors: Rock Solid, Club Capital, Coach P, and DirectClicks. Make sure if you are looking at— you want to be— you've heard me say before, best use of money is to be, be able to buy back your time. And one of the ways to do that is certainly through the leverage of your team. I wish earlier in my career I had considered bringing on an executive assistant in that 5 to 10 hours. And I certainly know Many of you may say, hey, I just don't have the money to be able to bring a full-time assistant on. You don't need a full-time assistant. I've said it many times that what my team gets done working 5 to 15 hours a week absolutely blows my mind. Go to rocksolidassistance.com. I was having a discussion with a client the other day, and we were talking about how growing their business— and we thought about in really 3 ways. Obviously, David talks about the, the 3 different buckets: the taxable, the tax-deferred, and the tax-free. We were talking about in terms of how do you grow a business, and I think you got to get more clients, you got to get the clients that you have to buy more or pay more, and then number 3, you got to keep them longer, right? That's it. Get more clients, get those clients to buy more, and then keep them longer. Well, one of the best ways to do that on the acquisition side, the top of the funnel, is you got to be able to have really good leads. You've got a sales team, you want to give them the very best leads possible, quality leads that they have the best chance to convert, to keep your cost per acquisition as low as possible. Going online is kind of fraught with a lot of different moving parts, and so you want to work with a partner that knows your business and knows exactly what it is that you're trying to accomplish in your specific agency. Go to directclicksinc.com. The team that Matt and Maddie have put together is absolutely full of A-players, and I know that you'll get a ton out of working with them, go to directclicksinc.com. You know, just talking about converting some of those leads. Well, one of the best ways to get your conversion up is you got to invest in the development of your team, and you want to be able to do that with somebody that knows what it takes to get it done at the highest level. Whether you're— you want to be one of the top in the country, top 10 in the country, or whether you just want to be able to see what it is you are capable of. I'm sure many of you listening to this, you have a growth mindset. And you're not performing as well as you know what you're capable of— forget competing with other people, but you know you're capable of more— you need to be able to develop with your, your team. You can't do it all yourself. And that's exactly what working with Coach P and his entire team— so you can see behind the scenes of how David really has been able to scale. And I think that that word scale is, is appropriate. It's oftentimes not really used a lot, but really he's been able to scale his agency. And you can look exactly what are the word tracks, what are the strategies, what are the tactics that they're using to be able to do that. And they work with you, you and your team twice a week. Go to coachpconsulting.com and they will give you an entire month for you. Have almost no obligation or no risk whatsoever to just give it a try. Jump on a call. See what it's like and see exactly why he's the fastest growing consultant across the country, you know. And of course, talking about what David— ultimately, you want to be able to make more money so that you have some, some wealth and build some wealth from your business. And you do that through not just the salary— you're not going to build wealth through the salary that you're making. You're going to make it through the profits and the distributions and the dividends that you take, uh, from your business. You got to be able to take some chips off the table to build wealth for you and your family. And that's exactly, I'm sure, why many of you got into that. Well, you got to know what's the, what's the formula? What's the recipe? How do I— what's the right mindset for me to have around my business finances? What's the skill set that I know I need to have so I can read some of these numbers? And then, you know, ultimately, I need to have the right tools. And that's exactly what Club Capital can give you. They can help you with the mindset and skill set and then ultimately give you the tools that you need to be able to make better decisions in your business and be more profitable. Appreciate all of our sponsors to be able to have people like David on. Hope you're enjoying the solo episodes that we started dropping just a few weeks ago. Short, impactful, to the point. Just get what you need and be able to go to help grow your business. Appreciate all of you. If you found this episode helpful to you in your business, why don't you shoot it over to one person? We appreciate all of you. Till next episode, lead well.

So the big question is this: how do small business owners like us grow our leadership, develop our teams, and scale our business in a way that allows us to get our products and services out to the world yet still remain profitable?

That is the question, and this podcast will give you the answers.

I'm Bradley Hamner, and this is the Club Capital Leadership Podcast. Hey, before we get into today's episode, did you know that Club Capital is the largest accounting advisory firm for insurance agency owners in the country, providing monthly accounting, CFO services, and tax preparation? Check them out at club.capital.