Answering Why Taxes Could Derail Your Retirement | David McKnight’s New Insights (Ep. 36)

Welcome to the Ideas by Mike podcast, where your one-of-a-kind life meets a one-of-a-kind financial plan. Every episode, we provide insights into financial markets, discuss strategies for navigating Wall Street, and explore how to make informed decisions in a constantly evolving financial landscape. All with the goal of helping you. So sit back, relax. This is not your typical money show. We're going to be all in on helping you live a one-of-a-kind life. Well, welcome back to the Ideas by Mike podcast. This is Mike Milligan, your host. Today on the Ideas by Mike podcast, we welcome David McKnight, nationally recognized. David's bestselling book, The Power of Zero, has become a go-to guide for achieving the elusive 0% tax bracket in retirement. His groundbreaking strategies have been featured everywhere from Fox Business to Forbes, and his films and workshops have helped thousands prepare for a more secure financial future. David's also the author of Tax-Free Income for Life and The Guru Gap, continually shaping the conversation around smart retirement planning. And we're going to talk about a new project he's working on today. David, welcome to the Ideas by Mike podcast.

Thanks, Mike, for having me.

Well, you have answered the question, what inspired you to create the Power of Zero approach, so many times in the past. And that could be found on your website. The answers to that could be found on the web, your website, davidmcknight.com, and on your YouTube channel. I'd like to ask the question, how has the power of zero changed your life?

Well, that's a really good question. You know, you can only— I'm going to go back to probably 2013. I was sitting in a presentation by our mutual friend, Tom Hegna. And Tom Hegna says, hey, look, you know, this is at the end of his presentation. He says, hey, look, if you like this presentation, and you wished your client had been here to listen to it, Well, you can get the book version of this presentation in the back of the room and it only costs you $20 a copy or something like that. And it hit me like a bolt from the blue because I had a presentation that I developed over the course of 10 years that talked about the likelihood of tax rates in the future being significantly higher than they are today and how people can go about systematically shifting dollars to tax-free to shield themselves from the impact of those higher taxes. And, but I'd never put— I'd never committed it to a book. And it occurred to me right there that if I want to expand my reach, I need to write a book. And it needs to be basically the book version of this presentation that I had sort of honed and refined over the course of 10 years. And so right then and there, I, you know, I basically decided to write that book and I wrote it over the course of the week. I was basically disgorging my presentation onto the paper and, you know, expanding it to about 130 pages. And I threw it out on Amazon, crossed my fingers, and hoped for the best. And to my utter surprise, people started to buy the book. And so, I remember one day somebody said, Dave, I was at a conference and I looked across the row and there were 3 people reading your book at once. And to me, this just absolutely floored me that people would be willing to read a book written by me of all people. And so, really, it just sort of put me on the map, as it were, in terms of, You know, you can only reach so many people when you're doing little workshops and presentations, 30 people at a time. But when you write a book that people can get on Amazon and people start to buy it and you get word of mouth and all of a sudden people start to want you to come speak to them about your book. And so, it's just your footprint gets a little bit bigger, your profile gets a little bit higher. And like I said, it's been above and beyond all my wildest expectations and I'm just enjoying the ride.

Well, I, I, uh, haven't gone through the book writing process myself. The Power of Zero is just such a powerful title, and I've heard you speak on this before. Like, you had many other options to name this book along the way, but then just something hit you one day that was the inspiration of Power Zero. Do you mind sharing that story? What got you to that?

Yeah, there was, uh, there was the working title at the time was The Virtues of the 0% Tax Bracket, which obviously is not as iconic. It's not as, you know, it doesn't roll off the tongue quite as easily. And the editor I was working with at the time, she said, look, books these days pack, you know, titles pack a little bit more of a punch, you know? And so she said, how about Zero? And I said, that's good. It's okay. But what would it be even more powerful if we made it a little bit more pointed, like The Power of Zero? And she said, I love it. And so that became the title. And so, you know, Power of Zero, POZ, sort of became a trend and sort of, I like to think maybe a little tiny revolution in thoughts about retirement planning. And so, yeah, I'm sure, like when I think back and I think, what if it had been named The Virtues of the 0% Tax Bracket? And Power's Year is obviously more catchy and more powerful. And I'm grateful that we landed on that title.

And it, you know, it's— there's been a real impact on people's lives, right, who have taken the content to heart. And it's not just like— it's not just the end reader, but it's also advisors who have implemented in their practice over and over again. And you, and you have like— and you've heard probably thousands of stories, to be honest, about people who have come back. Has there ever been a story that like just They're just like, wow, I'm so glad I wrote it for that person.

Yeah, I get a lot of very complimentary emails from people who both have implemented the strategy and advisors who have recommended it to their clients. And what people have found with The Power of Zero book is it's a great conversation starter. They can hand it to a client or prospect and it sets the table for a tax-free retirement discussion. And I've had people at conferences that walk up to me and they hug me and I say, well, what's this all about? Why is this stranger hugging me? And they say, Dave, by using this book to start conversations with people, I've helped this many more people. I've added a zero to my income last year and I couldn't have done it without you. And so, I'm obviously very grateful to have been able to make an impact on not just people that are planning for retirement, but those who are helping shepherd people through the process and just make that conversation go down a little bit easier.

David, you don't know this, but I teach Principles and Ethics of Financial Planning at Old Dominion University back in Norfolk, Virginia, as a virtual class. The students who come through there, I give them 4 books to read, right? And one of them is The Power of Zero. And they are just like, they're coming through this and they're looking at the textbook, like the IRS code, or they're looking at really deep textbooks about financial planning that make no sense. Then they read this and it's like an aha moment. And then, and so, and these, this is the next generation of young people who are going to be advising people 15, 20 years from now, who, yeah, I mean, your book has become a little bit of a textbook out in the academic circles. I'd be remiss, right, if I didn't have David McKnight on the podcast. And here we are in the fall around the Halloween season. If we didn't talk about maybe the spookiness of taxes a little bit and just, and just have a conversation again. I mean, the one big beautiful bill just passed. It kick the can out into the future, but the numbers haven't really changed. They're still real scary on the future of where we are from a tax standpoint. Is that what your research is still showing?

Yeah, I would say they've only gotten worse. And so, you know, I was fully anticipating the Tax Cuts and Jobs Act to be extended for another 8 years. just because the cost of extending those tax cuts was prohibitive. They look at the 10-year window and say, will this dramatically increase debt over that 10-year window? And if it does, it can only be passed through budget reconciliation, which gives it an automatic 8-year expiration date. But they basically made the case that the Tax Cuts and Jobs Act is the new baseline. It's the new normal from a budget perspective. Therefore, we're not increasing expense because That increased expense became the new baseline. It's like going on vacation and spending $1,000 more per week, coming back home and saying that new $1,000 increase in our budget is the new baseline. And so they made the case that they weren't really increasing the debt, even though it's going to increase the debt by $3 to $5 trillion. So we're looking at a situation, Mike, where by 2035, we're going to be at 150% debt to GDP. That's about a 63% trillion debt against about a $40 trillion GDP, which is at 150%. And the scary part, and if we're talking about spookiness, I like to quote a study out of Penn Wharton, which says that if we don't right our fiscal ship of state by 2040, no combination of raising taxes or reducing spending will arrest the financial collapse of our nation. And so, I'm telling people, look, this is a temporary permanent tax cut. the tax code is written in pencil, right?

Right.

There's everything, you know, if you look at the history of tax rates, tax rates are by definition temporary. And so even though this is a quote unquote permanent extension of the tax cuts, I'm telling people that we got about 10 years of historically low tax rates to get our fiscal house in order, get money shifted to tax-free, because by the time 2035 rolls around, we're going to have about a 5-year window within which to sort of right our fiscal ship of state. And if we don't act during that 5-year window, it'll be really scary. It'll be apocalyptic and catastrophic by 2040. And so, I'm sort of raising the warning cry that we do have 10 years to act. And that can be a scary proposition if you don't take advantage of each one of those years, those little mini windows of opportunity between now and then.

And that is the— in raising the siren, right? Giving everybody the warning on this is basically saying like, The, the US is what's, you know, the, the tax situations there. So, you know, you have the— you have this ability to plan during this time. And if you just passively take approach on this, then you're going to eventually pay more long-term. That's really what you're saying, correct?

Yeah, it's, it's literally a window of opportunity during which to take advantage of historically low tax rates. Remember, the cost of admission to get into the tax-free bucket is you got to be willing to pay a tax. You can pay that tax now at historically low tax rates on your terms, or you can postpone the payment of those taxes to a point in the future when we know that we're going to be at a very fiscally uncertain and unstable position when tax rates are going to have to go up or we could risk defaulting on the national debt. So I think it's a pretty clear alternative for people who are looking to shield themselves from the impact of higher taxes.

You know, being originally from Norfolk, Virginia, I have a soft spot for veterans. But what most people don't realize is that we've kind of been in this position before, after World War II. And that generation is called the Greatest Generations for a lot of reasons. But one is not only did they go fight for freedom, right? They fought for what was right. Then they came and they paid for— we paid a lot of lives for that. But then they literally came back and they paid off that debt, right? And that's the really intriguing thing is that the cost of freedom is not free. The debt that was paid in lives, but then the actual cost to pay back those war bonds was a huge sacrifice by a generation. And I just don't know. If we have that in us again to keep that going. And so, but that's, that's what people have to realize is that that generation, the Greatest Generation, is what we need again to be able to get this done. And like, it's politicians, but again, if you don't plan for it, it's a big problem coming forward.

Yeah, I mean, this is the scary part, that we raise taxes, and rightfully so, because we were fighting a war. We were fighting the Axis of Evil, right? And so that's justified to raise taxes. There are certain times when, when, when the federal government reserves the right to raise more revenue, and wartime is specifically one of those, one of those, you know, situations that's justified. But what did they do when the war was over? They had war demobilization, and they immediately were able to lower those, lower those tax rates to more, you know, more reasonable rates. The problem is, we're not really fighting a war right now, yet we have World War II style levels of debt. And there isn't anything we can do at this point, other than dramatically raise taxes or dramatically reduce spending to be able to stave off that tax freight train that's bearing down on America. And so, I think it's been— and the debt that we've accumulated, $37 trillion, hasn't even really touched the larger problem, which is the— underfunding the unfunded obligations for Social Security, Medicare, and Medicaid, which is about $239 trillion, meaning we would have to have $239 trillion sitting in bank accounts today earning Treasury rates to be able to deliver on everything that we promised that we can't afford to pay. I mean, that's, that's the scary part is the debt that we've accumulated that is approaching unsustainable levels doesn't even strike at the heart of the issue that's really bearing down on us. And so, I think there's a— you rightfully point out the contrast between what happened in the wake of World War II and what's happening right now.

Right. I mean, that's a— I'm sure everybody's just so depressed now by taxes, right? But let's change it. Let's talk about like The Guru Gap, which was another transformational book that you wrote and not a book that you wrote to kind of go negative on people. I mean, it's not— it's written in a very positive tone. It's written as like a counterpoint to some of the big media personalities giving financial advice today. You know, now that it's written and it's been out for almost a year now, not quite a year, what has been— what's been some of the feedback that you have received from writing that book?

I've asked a lot of people if I've gotten any reprisals from the gurus that I've talked about. And I had one guru who sent me a letter from his attorney. So, I had to take some things out of the book that would have otherwise gotten me in hot water.

Mm-hmm.

But otherwise, I think people have said, look, it's a refreshing sort of a take. And why did it take this long for a book like this to come out? And really, the premise of the book is financial gurus think that the big— and this is something Dave Ramsey says specifically. He says, I can help more people in 10 minutes than Mike Milligan, CFP, can help in his entire lifetime. So the idea is that the larger your platform, by definition, the better the advice, right? And what I found is that the converse is actually true. The larger your platform, the more you have to dispense one-size-fits-all financial planning advice, therefore, the less applicable it is to somebody's given financial situation. And so, my intent was simply to draw a contrast between what these gurus have been saying about certain financial tools over the last 40 years and what PhDs in academia have been saying. And those 2 viewpoints couldn't be more diametrically opposed. And so I just wanted to strike a contrast and engage the American public in a dialogue over sustainable retirement planning principles. And that was really the goal. It wasn't to make a personal attack on Dave or Suze or Ken Fisher or anything like that. It was just to start a dialogue with the American public over sustainable financial planning principles in retirement.

I think Dave Ramsey's done an amazing job at that.

Right. Absolutely.

I mean, he's just like, he's transformed so many people from living a life that was going to end in, not in physical, in like bankruptcy, to actually getting them to budget and debt. I mean, absolutely amazing. You know, uh, Suze Orman raises great points about like, uh, how you spend your money, but it's just the reality is, is you can't from a stage give advice for 500 people or on a podcast, give advice that's good for a million people. It's just absolutely impossible. If that is your only source of financial education, you're going to find yourself lacking in the future.

And there's some people— And that was really the inspiration behind the title, which is there's a gap between the advice that these gurus provide and their one-size-fits-all, you know, vanilla, non-customized, non-tailored advice and the advice that you actually need. And so, the goal of the book was to sort of bridge the gap between what people are getting and what they need to be able to wring the most efficiency out of their retirement savings.

Well, this is something that I'm really excited about, right? Because I don't even know, except for maybe a few posts on social media, if you've talked about your new book much lately. Or to anyone recently. And here you are at it again, coming out with a financial parable called The Secret Order of Millionaires. Why? Uh, well, I mean, first of all, um, a parable, right? I mean, obviously, uh, that, you know, the, the, the most famous parable writer of all time was Jesus Christ, right? And so here David McKnight's coming. He's going to give parables about money. So, I'm really intrigued by the inspiration for this book first, and then we could talk about like the actual book itself.

Yeah. You know, most of my books historically have been aimed at people who already have money. They're just accumulating in the wrong types of accounts, right? This book is aimed at people who don't have money yet, but they're trying to figure out how to save money in the most effective and efficient way for retirement. In my research, I found that Gen Z and millennials at this point in their lives have saved less money. They're less educated generally about investment principles than their Gen X and baby boomer forebears. And so, the idea was to create a book that is fiction. It's a fictional story. When we think about parables, we think about Jesus and we think about it's a few paragraphs long. The Financial Parable is what they call a work of fiction in our industry. I said, I said, isn't this like a financial novella? They said, yes, but they don't call it that. They call it a financial parable. So it's just like a, it's a little story. It's like, it's like Dan Brown and M. Night Shyamalan and Dave McKnight got together and they, and they, and they wrote a book about financial, you know, you know, how to prepare yourself for retirement as a 20 or 30-year-old. And so, so really the idea was to Give them a book that they would not only pick up and start, but they would actually finish. And so, it's got a plot, it's got a protagonist, it's got an antagonist, it's got a cool twist ending at the end. And it's really designed to shepherd people through the story and absorb these financial principles all the way, even if they don't realize they're absorbing these principles because they're so engaged in the book, but they're absorbing 7 principles that will help them build a tax-free retirement. And I'm looking forward to the reactions from it. Wade Pfau, Dr. Wade Pfau, has given me a great blurb for it. Tom Hegna has agreed to do it and a few others. So, it should be interesting. I've written one other financial parable before called The Volatility Shield. And frankly, I prefer writing fiction to boring business books. But occasionally, you got to write the boring business book too.

Oh, wow. So, that's the inspiration behind it. I mean, is there Is there anything you want to share, like, without going into the story? Like, you know, if a 20 or 30-year-old or one of the beneficiaries of our clients were listening to this, right? Is there 3 or 4 points you would share that could get them ahead and then come back to the book when it's released? I think the release is going to be May of 2026, correct?

Right.

Yeah. So, is there 3 or 4 points you would like to share about like just wisdom for 20 and 30-year-olds and then come read the book for more details?

Yeah. And I won't give away too much from the plot, but the main character, Caleb Calloway, is— he's a social media maven. He's, you know, he's got this huge social media following. He's got millions of followers on YouTube and Instagram. And he's got a very modern, exotic, you know, way build wealth. And it involves NFTs and Bitcoin and a lot of these exotic things that aren't necessarily time-tested. And he's writing a thesis. And if he passes his thesis, he's going to land this job at a fancy investment firm where he's going to have ownership. And so, he's got a lot riding on passing his thesis defense. And his thesis defense is built upon his own investment philosophy. And of course, the people who are grilling him at the thesis defense are professors who put a premium on data and track record and time-tested financial planning principles. And so, he fails his thesis and they say, you have a week to try to reformulate your thesis. And on the way out of the school, he sees this he sees this, um, this janitor who had warned him he was going to fail his thesis. And so he, he says, well, you seem to know what you're talking about, can you help me? And so the janitor introduces him to this, this sort of shadowy group called the Secret Order of Millionaires, who are a group of everyday people who over the course of 30 to 40 years built million-dollar portfolios by implementing time-tested principles of wealth accumulation. And, you know, these are things that we've heard of before. You want time in the market, and you don't want to have timing the market. You don't want to buy just one stock, you want to buy the entire market. And then I have a whole part on tax-free versus tax-deferred. And so those are— that's just a little bit of a teaser. But there's a lot at stake. And there's a lot of You know, there's a, there's a lot that Caleb has to do over the course of one week to be able to pull off this miracle and, and pass his thesis defense. And like I said, there's a really cool twist ending, and I'm excited to see people's reactions.

Well, I'm excited. I mean, I know the presale will probably come out probably February or March, and it'll be available on Amazon, and I'll be on there getting my copies for my whole team and all those, because if it's anything like The Power of Zero, if it's anything like The Guru Gap, right? It's going to be, it's going to be actually transformational. And I mean, you've, you've been given a gift on how to, to put great words of wisdom on paper that people can, can, can change. And I, I'm guessing like when you, when you graduated from college, you, you probably in your wildest dreams did not think author, right?

No.

Was your biggest—

I didn't think in my wildest dreams financial planning, right? You know, I was planning to go to international business school, and I sort of fell into this industry by accident. And I had a pretty steep history with writing and, you know, with my major, did a lot of writing in college, a lot of writing in high school. And so, it's not very often that somebody who loves writing ends up in this industry by accident. And I think it was sort of the alignment of those stars where, you know, I, I see a concept that I feel like is, you know, interesting and new and maybe a reformulation, a new reformulation of maybe an old principle, and I just want to write about it. And so, you know, we're at 5 to 6 books into this journey now, and every, every year I seem to be inspired to write another one. So.

Well, that's the thing. Well, that's the thing. You're just getting started, right, on this journey. Because I mean, like, you know, from a career standpoint, right, you're, you're not close to the end by any stretch, right?

From at least from an age standpoint. Let's see, how old am I? I'm, I'm almost 52. So I've got— I'm just getting warmed up here.

That's right. That's right. You got plenty of— you got plenty more wisdom to acquire and share. That's the, that's the beautiful part about this. Uh, I was on with, uh, with Riley Moyens. Have you ever heard of Riley Moyens before? Uh, the 4, 4 phases of retirement. Have you ever heard of that?

Yeah.

Yeah. So he, um, he's writing, uh, he's writing legacy letters to his family right now. And, uh, you're not quite in this phase yet where you're ready to write legacy to your family, but like, have you thought about like what your one-of-a-kind legacy is going to be beyond your books?

That's a good question. I mean, I think my real legacy is how I live my own life. I mean, I think that actions speak louder than words. And so, I want to lead my life in such a way that my children say, what would Dad do in this situation? And they absorb my example over time more so than they absorb my words. And so, that's sort of how I lead my life is I want to teach my children through my actions, also my words, but mostly by my actions so that they— so that my actions inform how they lead their lives. And so, that's really the legacy I hope to leave. And if all of this other stuff that I'm doing is part of that legacy, I'm okay with it.

Well, you're, you're on your path. I know because, because I know where you are right now with your kids. You're on your path to, to leaving that legacy for them. David, if people want to— your books are available on Amazon and other media outlets. But if people wanted to connect more and learn more, like about your YouTube channel and others, where, where can they find you?

Yeah, best place to go is davidmcknight.com.

Yeah, that's— it's powerful. It's so simple on there. Easy to find all of his work. Subscribe, you know, weekly. You're putting Power of Zero content out on social media. So yeah, go, go follow David because he will continue to inspire you. Thanks again for being on the Ideas by Mike podcast. For those who are looking to again connect with us, you can go to oneoakfinancial.com. That's the number oneoakfinancial.com. Again, like and subscribe and share this podcast. Either on YouTube or wherever you're listening. And until next time, we will, we'll see you soon. Go out and live your one-of-a-kind life. Thank you for joining us today on the Ideas by Mike podcast. This has been Mike Milligan, your host, where I look to bring real-world conversations with you of people changing the game. In the financial planning, investment, and retirement income space. If you want to reach out to our firm to learn more, you can go to oneoakfinancial.com. That's the number one oak financial.com. One Oak Financial is a nationwide firm here to help you build a one-of-a-kind financial plan for your one-of-a-kind life. CFP Board owns the marks CFP, Certified Financial Planner, and CFP. In the United States. As a reminder, Mike Milligan, Certified Financial Planner, is an investment advisor representative of Advisory Alpha LLC, an SEC-registered investment advisory firm. All opinions expressed by me or our guests are solely our own opinions and do not reflect the opinions of Advisory Alpha. This recording is for informational purposes only. It should not be relied on for investment, tax, or legal decisions. And it's in no way intended to communicate or guarantee specific performance or suitability of any security instrument or product as we may have discussed. Investment advisory and financial planning services offered through Advisory Alpha LLC, a registered investment advisor. Insurance is offered through Ideas by Mike, a Virginia-based LLC here to serve you in all 50 states and the District of Columbia. Ideas by Mike is a separate and unaffiliated entity of Advisory Alpha LLC. While tax and legal issues may be discussed in the general course of financial and investment planning, Advisory Alpha does not provide tax or legal services. Please consult with your tax or legal professional prior to making a decision relative to those decisions. Any and all statements of purported or observed general practices of non-affiliated firms and advisors or conditions of the broad financial services industry are solely the opinions of Mike, And are not intended to be offered as factual. The validity of these statements has not been verified, and as such, no representation of their validity are made. An annuity is a long-term financial product designed largely for asset accumulation and retirement needs. All guarantees are backed by the claims-paying ability of the issuing insurance company. This podcast is produced in conjunction with Mike Milligan, LLC. Thank you again for joining us today. We'll see you on the next podcast. In your one of a kind mind.

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