The Baby Boomer Dilemma came about because of Doug’s work with David in the past. After a podcast crowdfunding event last January, Doug received enough funding to get things off the ground. The Baby Boomer Dilemma is based around the simple choice families face between a defined benefits plan or a defined contribution plan. During World War 2, there were price wage controls in place, and it was illegal to lure recruits away from other companies with a higher compensation. This became the basis of the corporate pension. Right now, we have the opportunity to reevaluate our assumptions about retirement. Essentially, should people go for a big pile of money with a deferred compensation plan or go for something guaranteed? Doug has conducted several thousand interviews, but the most impressive interview Doug has done is with Olivia Mitchell. Not only was she charismatic, she had an incredible depth of knowledge on both social security and economics in general. When it came to annuities, she was the one that discovered that you could draw more in retirement by incorporating an annuity than with stocks alone, up to 40% more. The film dives into pensions, both corporate and public, and the global issue of social security. The Baby Boomer Dilemma is not unique to America. Doug’s other favorite interview was with Dr. David Babel, an economist at UC Berkeley. One of the most interesting things about Dr. Babel is that his dissertation was one about inflation, and as the expert on the topic, he decided the most important place to put all of his money was in annuities. Economists disagree regularly on just about everything, but the one thing they all tend to agree on was the mathematical value of having guaranteed lifetime income in retirement. According to the father of the 401(k), the 401(k) is a disaster for the average investor. While it has done some good, there are plenty of risks involved. Nearly every top economist recommends that some portion of the plan should include some level of annuitization in the accumulation years of someone’s life. If you lose 20%-30% before retirement, it’s essentially impossible to make it up. Generally people tell you to stick to the plan of consistently accumulating dollars in your stock portfolio, and that works during the accumulation years, but that rule works against you once you start taking money out. If the stock market goes down when you have to take money out of your portfolio to fund your lifestyle in the first ten years of your retirement, you’re in big trouble. In Tax-Free Income For Life, the essential message is that when you take your lifestyle needs and subtract your pension and social security, that gap is what should be covered by a guaranteed lifetime stream of income. The Baby Boomer Dilemma is built around a narrative largely inspired by The Social Dilemma. The options were either an immense number of charts and graphs, or build the information around a compelling story, so they went with a story. The story may have been dramatized, but a lot of the reactions from the actors in the movie are genuine to the situation being explored. Doug wanted people to feel the emotions of the story in particular, because he wanted to make something that moved the needle for society. Nothing has seemed to really make an impact in terms of the trajectory of the national debt or the direction society is going. That’s the impetus for the message of the Baby Boomer Dilemma. Doug never planned to own an annuity before David’s book came out. Prior to that he didn’t realize the value of annuity and how it can be done. It’s impossible to be an annuity skeptic after seeing the most intelligent people laying out the mathematical case for their benefits.  78% of all businesses with three or more employees are owned by Baby Boomers, and most of those businesses will be sold in the next decade. The $10 trillion that will change hands or fail to sell will pose serious issues in the next ten years. People who sounded crazy in 2006, are now at the forefront of the taxation conversation. Even if we taxed everyone in America at 100% for the next ten years, we would still have a tough time dealing with the existing debt.   Mentioned in this Episode: boomermovie.com

Inflation is here, the question is “Is it here to stay?” Consumer prices soared in October 2021 and are up 6.2% from a year earlier, the fastest increase in over three decades. We’ve grown accustomed to inflation of 2% a year, so the current level of inflation is considerably higher than economists have expected and is having some serious impacts on people’s daily lives. High inflation will likely be with us well into 2022 and beyond. The reasons prices are rising are complex. One of the variables is supply and demand and for goods ordered online, demand has far outgrown the ability of the market to produce. We have grown accustomed to ordering online and that trend is likely here to stay. Shipping container costs from China have increased, in some cases up to 15 fold, and those prices have to be passed on to consumers in order for the supply chain to still function. The same is true with labor, and those increased costs are the unintended costs of the increase in demand. Increased demand and reduced supply is the perfect formula for increased inflation over time. Supply chain conditions continue to be stressed which is only exacerbating the problem of disruption and increased prices. There are over 500,000 shipping containers in Southern California alone waiting to be offloaded and processed. From shoes to hot tubs, there is no industry that is unaffected by the supply chain disruption. These challenges are going to continue for the next year at least. We should be getting used to higher prices as the new normal. Paul Tudor Jones says inflation is here to stay, and it poses a major threat to the US economy. Maya MacGuineas feels the same way. Inflation is not just a supply and demand issue, it’s also being driven by the money printing that has happened over the past decade and which has recently exploded during the pandemic. We have a tremendous amount of money that has been injected into the economy, and when you have more dollars chasing fewer goods, that drives prices up. In a rising-inflation environment, you don’t want to invest in a fixed-income vehicle. Stocks and equities are better options. From the Power of Zero perspective, the number one threat to your retirement is longevity risk. If you have guaranteed lifetime income, it must be indexed to inflation. If your pension and/or Social Security are not enough to cover your living expenses in retirement, the shortfall should be covered by an annuity, but to protect against inflation, the annuity needs to be a particular type. If your annuity is not adjusted for inflation, a high-inflation environment can kill your retirement portfolio. A fixed indexed annuity that’s linked to the growth of the stock market protects you from that risk. For the rest of your stock market portfolio, you need those dollars to compound in a fairly aggressive way to keep pace with inflation. With your basic needs covered, you have a permission slip to take more risk in your stock market portfolio. This also allows your portfolio to recover during down years instead of forcing you to take money out during those years which can put your portfolio into a death spiral. The LIRP is another excellent place to draw money for discretionary expenses during the years the market is down. The Volatility Shield covers this strategy in depth.     Mentioned in this Episode: How the supply chain caused current inflation, and why it might be here to stay - pbs.org/newshour/amp/economy/how-the-supply-chain-caused-current-inflation-and-why-it-might-be-here-to-stay Paul Tudor Jones says inflation could be worse than feared, biggest threat to markets and society - cnbc.com/2021/10/20/paul-tudor-jones-says-inflation-could-be-worse-than-feared-biggest-threat-to-markets-and-society.html

As a financial advisor, David came up with the concept of the three buckets and a quick five-minute presentation to convey the idea to clients. This developed into an hour-long presentation which eventually became the seed of the Power of Zero book. It took David just three days to write the book because the core of the material was already in place. He just had to commit to putting it onto the page. The book was republished in 2018 with new content by Penguin Random House. David is currently writing a fictional story centered around a financial theme that has a lot of real-world applications right now. The plot basically revolves around the very real threat of Modern Monetary Theory. Modern Monetary Theory is the idea that the government isn’t constrained by the same restrictions as the average American family and can essentially print as much money as they want without repercussions. All of the economists that David has interviewed for his podcast essentially agree on the fact that implementing MMT would lead to hyperinflation. However, this doesn’t stop MMT proponents from espousing the theory though. If you start accumulating debt in the belief that it won’t affect anything, reality will prove you wrong. The cost of servicing the level of debt the US government currently has is taking up a large portion of the federal budget. By 2040, it would consume the entirety of the federal budget if interest rates simply went back to where they were at in 2003. David believes the moment of reckoning for the US is going to be 2030. Brian Beaulieu has predicted the major economic trends with 90% accuracy over the past 40 years, and he believes that 2030 will be a confluence of events that will result in a global depression. As rough as the dollar is, it’s still one of the most stable currencies in the world. It’s relatively unlikely to be usurped. The real issue is that Social Security and Medicaid are tied to inflation, so if we print more money, the cost of the programs also rises and you will never really get ahead. The US is facing down a fiscal gap of $239 trillion just to be able to deliver on the promises already made. The Biden tax legislation has pros and cons for many Americans, but the bottom line is that he’s not addressing the underlying problem. It doesn’t arrest the slide into fiscal solvency. Politicians are generally reluctant to push anything through right before midterms. If the legislation doesn’t get passed before the end of the year, it may never happen. If David were the president of the United States, he would take a page out of Larry Kotlikoff and basically guarantee that Biden wouldn’t be elected for a second term. The big focus would be to reform the social programs that are driving the debt, in particular MediCare. Without this kind of action, the national debt will grow by definition. Maya MacGuineas did a study to find what the government would have to do to simply prevent the debt from growing by $1 trillion per year, and she found that they would have to tax every dollar earned above $50,000 at a rate of 40%. There is no way around the math. If we are going to fix this problem, no amount of taxing the rich or everyday Americans will do it. We have to fundamentally reform Social Security, MediCare, and Medicaid to get our country back on track. On Jan 1, 2026 tax rates are going to revert to what they were prior to the tax cuts. If you want to do Roth conversions, now is the time. You have five years to take advantage of the current historically low tax rates.  Every year that goes by that you fail to take advantage of those tax rates, it increases the likelihood that you will rise into a tax bracket that gives you heartburn. When it comes to Roth conversions, time is your friend and when time is short they become less appealing. When doing a Roth conversion, you have to be convinced that the tax rate you will pay today will be lower than what you would be forced to pay somewhere down the road. If tax rates are even 1% higher, then it’s probably the right move.

The situation with the Biden infrastructure plan continues to evolve. Senators Joe Manchin and Krysten Sinema have continued to be obstacles in the Democrats' way from getting the bill passed.  The Democrat caucus has been in disarray and seems to be pulling in different directions. Biden was hoping the bill would pass by having everyone vote before the legislation was written prior to him landing in Rome. Right now, it looks like things are dead in the water including raising tax rates on the rich. The big question is whether the Trump tax code will remain in place until 2026. Joe Biden has expressed his desire to raise taxes on the rich, and the easiest way for him to do that is to simply let them expire. For most Americans, this means that if you want to shift your money from tax-deferred to tax-free, you have just five years left. The fewer years you have to shift your money, the more likely you are to rise into a tax bracket that is going to give you heartburn. Whatever happens in the next week is going to determine how people plan for retirement in a significant way and is going to determine the legacy of the Joe Biden presidency. Will Congress simply change the laws regarding Roth accounts? Not likely. To do so at this point would cause political and economic chaos. The Roth IRA is also one of the accounts that both the federal government and the average American likes. If anything, the government will try to make the Roth IRA even more attractive in order to raise more tax revenue now. David is currently writing a new novel based on the very real threat of the Modern Monetary Theory to America. There is a massive fiscal gap in the US of $239 trillion dollars which is going to have to be dealt with eventually, but the Modern Monetary Theory has been saying the debt is nothing to worry about. Modern Monetary Theory is becoming more in vogue recently with many politicians advocating it as a solution to our economic woes. Inflation is already here. We feel it at the grocery store and in our everyday expenses, but we are just at the tip of the iceberg. There is no question that inflation is coming, but whenever MMT proponents are asked about it, it’s never their fault. We have been practicing MMT for decades at this point, and eventually we will get to the point where interest rates begin to rise toward historical averages. When that happens the interest on the debt will consume the federal budget. Social Security, Medicare, and MediCaid are tied by law to inflation, so when money is printed to pay for those programs their cost goes up commensurately. It’s not possible to print enough money to solve the issue. Longevity risk is a major concern for all retirees, and one of the ways to mitigate it is with the 4% Rule, or what some economists now call the 3% Rule. The trouble is the rule is a very expensive way to mitigate the risk. The alternative is with a guaranteed income annuity.  The financial industry has accepted the reality of longevity risk and the benefits of annuities in mitigating that risk, but since the standard is to implement that annuity in the tax-deferred bucket it comes with a number of drawbacks and other risks. Some companies allow for piecemeal Roth conversions which allow you to convert that annuity money to tax-free. For people who say annuities are not for them, they aren’t going to like Social Security or their company pension plan since they operate exactly the same way. The Power of Zero paradigm basically says that tax rates are going to rise dramatically in the near future, and when you have the majority of your money in tax-deferred accounts like 401(k)s and IRAs, you are at risk. David advocates for five or more streams of tax-free income including the Roth IRA, Roth 401(k), Roth conversions, and LIRP. The LIRP stands out because of its additional features of mitigating long-term care and coming with a death benefit. Very few Americans will be exposed to the estate tax even if it’s lowered by Joe Biden. There are strategies you can use to avoid going past that threshold. David’s number one tip as a father of seven is that you have to remember to stop and smell the roses along the way. Have a long-term perspective and know there are precious moments that will pass you by. Starting a life insurance policy is like getting married, it only really works if it’s until death do you part. You have to make sure you have a list of things in mind when picking a policy. They are long-term contracts so have a long-term perspective when choosing one. Required Minimum Distributions may be impacted by the Secure Retirement Act working its way through Congress right now, but RMDs only affect 20% of Americans since most people will be accessing in excess of their RMD. The death of the stretch IRA is a big deal and puts an emphasis on converting your IRA to tax-free today. Even if you think your tax rate is higher now, it may still be lower than your kid’s tax rates in which case you should strongly think about doing Roth conversions today.

Joe Biden has talked about how his tax plan is cost neutral, where the increases in taxes on the wealthiest Americans will offset the costs. Maya MacGuineas recently took a look at the numbers to find out if that’s true. The Build Back Better Act is set to cost $2.1 trillion as it’s currently written. It relies on a number of sunsets and expirations to keep the costs down. If the plan’s temporary policies were made permanent, the costs would increase by an additional $2.2 trillion. When the federal government is trying to make a bill seem cost neutral, they often build expiry dates into the legislation, knowing full well that Americans will get hooked on those programs and then demand they be renewed. This makes the cost of the program appear lower and much more palatable on the front end. The Build Back Better Act has several such gimmicks built into it including extending the child tax increase, the earned income tax credit, and setting universal Pre-K and childcare to expire after six years. These are things that are likely to be around for the long term. The most expensive provision would cost roughly $1 trillion to make permanent. Universal Pre-K and childcare subsidies would cost over $400 billion a year when combined if extended beyond their expiration dates. As written, the Build Back Better Act will increase the deficit by $800 billion over the first five years and then taper off from there for a net additional cost of $2.2 trillion. If the legislation were made permanent without additional taxation, it would add nearly $1.5 trillion to the deficit over five years and increase the total debt by $3 trillion by 2031. The Build Back Better Act relies on short-term policies and arbitrary expiration dates to lower the cost. This allows the government to present the bill as cost neutral, although any extensions will have to be funded by debt. History serves as a model, and it’s fairly likely that those short-term programs will become permanent in time. The tax rules have recently been updated for 2022. Because of higher than usual inflation in 2021, the index for inflation has increased as well. The standard deduction has modestly increased from $25,100 to $25,900 for married couples. The personal exemption is not coming back until 2026. Under the current law, the standard deduction will be reduced when the personal exemption returns and will end up with a net neutral effect. Capital gains tax rates remain the same, but the tax brackets are changing. The federal state tax exemption for decedents dying in 2022 will increase to $12.06 million per person. The gift tax exclusion jumps from $15,000 in 2021 to $16,000 in 2022. The Roth IRA is not changing to adjust for inflation because that would require an act of congress. 401(k) contribution limits are being adjusted alongside Roth 401(k) and 403(b) plans. Roth income limits will go up slightly in 2022 from $204,000 to $214,000. This is something that should definitely be changed because the cost of living is not the same all over the country. There has been no change to the provisional income thresholds. If inflation continues to go up and Social Security is increased to keep up, there are going to be more people that bump into Social Security taxation.

There is a little-known part of the IRS tax code that allows you to access your 401(k) or 403(b) prior to 59 and a half without penalty. Traditionally, the penalty is 10%, but the Rule of 55 gives you access without paying a penalty, but it comes with certain requirements. If you leave your job in the calendar year you turn 55 or older for any reason and your employer has stipulated that you have the ability to tap into your plan, you can do so without penalty. Some plans may require you to withdraw your entire balance as one lump sum, which would most certainly be a bad deal. To maximize the Rule of 55, there are a number of roll-over strategies you can use. For example, if you have an old 401(k) or IRA, you can roll those balances into your employer’s plans, and then when you separate you will have unfettered access to the total amount between age 55 and 59 and a half. If you have specific circumstances or know that you’ll have heavy cash flow needs between those ages, this is a solid, penalty-free option. You have to get all the shifting done before you leave your employer. You won’t be able to roll over a balance after you are no longer employed. There are some caveats. You can only withdraw funds from your most recent employer, and you can’t make penalty-free withdrawals from your IRA. The Rule of 55 is very specific and only applies to narrow circumstances. People are retiring at younger and younger ages, and if that’s the case for you in that period between age 55 and 59 and a half, the Rule of 55 is a great option. You will want to apply Power of Zero principles during those years because if you don’t you may bump into a higher tax bracket than you expect or accidentally suffer a 10% penalty. Another reason you may want to take money out of your 401(k) using the Rule of 55 is to take advantage of historically low taxes. You can use the money to fund your lifestyle as well as your Roth IRAs and LIRPs.  A 72T is another viable option for some people, but it comes with artificially low limits that may be an obstacle. The 72T works for a lot of people, it just doesn’t work for everybody, particularly those that want to retire early.

The Joe Biden legislature is currently dead in the water. Congress people are looking for ways to pay for the package, but even if they could there may not be a package to pay for. Every Senator wields considerable power and a couple in particular have been vocal opponents of the proposed bill. Joe Manchin and Krysten Sinema have voiced concerns about the package and the price tag. Other members of the Democrat party have lambasted Joe Manchin on social media and on the floor, and he has not taken the criticism lightly. He’s gone from proposing a $1.5 trillion dollar limit to $0, and Krysten Sinema has made it clear that she’s not interested in any sort of tax increases at all. Congress has now turned its attention to a different sort of tax. They’ve proposed a wealth tax, also described as taxing the unrealized capital gains on the liquid assets of anybody who has $1 billion or more in assets or anyone reporting more than $100 million in income for three consecutive years. This would affect only the 700 richest people in the country, and will generate $200 billion in revenue over the next decade. The reasoning is that raising the tax rate isn’t going to directly affect the highest earners because so much of their net worth is tied up in the value of their stock ownership.  Democrats are not calling this a wealth tax because it’s not being levied against the entire net wealth of a wealthy person. Elizabeth Warren proposed a wealth tax in her presidential run and it is considered to have sunk her campaign. Jeff Bezos doesn’t liquidate his stock to fund his lifestyle. He borrows money and uses his stock holdings as collateral. This allows him to fund his lifestyle while still maintaining a controlling interest in Amazon. Democrats have asked Krysten Sinema to weigh in on the proposal, but she’s not likely to vote for it since she’s opposed to similar measures already being proposed. This would leave the Democrats below the threshold of a simple majority. Critics of the plan say that it will force billionaires out of the stock market and into more opaque markets like art and real estate. The real issue is that, even if passed, this tax only raises $200 billion in revenue. Even if the Democrats managed to pass the bill, there is still no clear plan to pay for it. The real question with this package hanging from a thread is what will happen to individual tax rates? Joe Biden’s proposed tax increases are tied to the bill so right now we have a choice.  We can either assume the tax rates will expire in 2026 and this bill will not pass. The trouble with this is compressing the amount of shifting you need to do over five years and possibly bumping into a higher tax bracket along the way, only to realize after the fact that you had nine years all along. The reverse is also troublesome. You don’t want to plan for nine years when you only have five and end up in the scenario where you didn’t shift as much as you need to. Joe Biden wants to increase tax rates on the rich, but the only way for him to really accomplish that is by allowing the Trump tax cuts to expire in 2026.  The more time that passes that Joe Biden fails to push through this legislation, the less likely that anything is going to be adopted. Few Congress people want to have their name tied to a controversial piece of legislation leading up to midterms because that’s the kind of thing that will get you voted out of office.   Mentioned in this Episode: With corporate tax off table, U.S. Democrats turn to billionaires to fund spending bill - reuters.com/world/us/with-corporate-tax-off-table-us-democrats-turn-billionaires-fund-spending-bill-2021-10-25/ Secretary Yellen: How new billionaire tax would work [video] - edition.cnn.com/videos/politics/2021/10/24/yellen-on-billionaire-tax.cnn

David gets variations of one question pretty frequently whenever he gives one of his presentations, whether that’s in front of financial advisors or members of the general public. At the end of the workshop, there are five takeaways. The first is that tax rates are likely to be dramatically higher in the future than they are today. Mathematically speaking, we are past the point of no return. The second is that the only way to truly insulate yourself from the impact of higher taxes is to get to the zero percent tax bracket. The third is that it is nearly impossible to get to the zero percent tax bracket with only one stream of income. This is where most people stumble. Invariably at the end of the presentation, someone will come up and ask what the other streams of tax-free income are despite having just gone over six different streams during the presentation. People tend to fixate on the LIRP and forget about the rest. The LIRP is great, but it has a narrow focus and doesn’t do enough to generate a stream of tax-free income on its own. Typically, David recommends diversifying your tax-free streams of income because each one is unique and accomplishes different parts of the strategy. Getting to the zero percent tax bracket is like fitting pieces of a puzzle together. Only when you fit them all together does the zero percent tax bracket come into play for you. The first stream is the Roth IRA. If you’re younger than 50, you can contribute $6000. If you’re older than 50, you can contribute $7000. The thing that makes the Roth IRA unique besides being tax-free is that when you put money in, you can take money out right away. It’s the only tax-free stream of income with that feature. The Roth 401(k) is unique because it’s part of a company plan and they will often have inducements that go with it. The Secure Retirement Act 2.0 that is working its way through Congress will also allow you to direct that match to your tax-free bucket. This company match is free money and that’s something you should always take advantage of. The Roth conversion is unique because it can be the workhorse for your retirement planning. It allows you to convert as much as you want to tax-free because there are no limits at the moment. If you have a lot of money in your IRA ($10 million+), it probably makes sense to convert all of that money before tax rates go up next year. Required Minimum Distributions are interesting in that they come from your tax-deferred bucket. The idea is that the balance in your IRA is low enough that your RMDs at age 72 are equal to your standard deduction and don’t cause Social Security taxation. RMDs are the only strategy where you get a deduction on the front end, the money grows tax-deferred, and you can take it out tax-free, also known as the holy grail of financial planning. The LIRP has a lot of things going for it, but one thing that really stands out is the death benefit. Should you die prematurely, your heirs get a death benefit. With the right LIRP, you can also receive that death benefit in advance of your death for the purpose of paying for long-term care. This avoids the heartburn of paying for something you hope you never use. Social Security is the final stream of tax-free income. As long as your provisional income is below certain thresholds, it’s tax-free and functions a lot like an annuity. It can help you mitigate longevity risk, inflation, and sequence of return risk. The longer you live, the better it gets. The Power of Zero approach is built around having multiple streams of tax-free income. This is also how you know whether an advisor is following the true Power of Zero plan. Each stream of tax-free income is unique in its own right and contributes something to your retirement plan that none of the others can do. 

It looks like Joe Biden’s landmark legislation is running into some challenges in Congress. Joe Manchin, one of the most powerful men in Congress right now, has pushed back on the $3.5 trillion bill and counter-offered with a more narrow $1.5 trillion plan. Progressive Democrats in the house are saying that it’s too small to make their priorities a reality. Both sides of the aisle are pulling in opposite directions and don’t seem to be able to come to a compromise. Joe Biden is making tax reform a major aspect of the Human Infrastructure plan. The increase of tax rates on those making more than $400,000 per year are the means for paying for part of the plan. If the bill fails to pass, the current tax law expires in 2026. If it does pass, the Trump tax cuts will still be in effect for another 8 years. The time difference could be the determining factor in shifting your money to tax-free without bumping into a higher tax bracket. Joe Biden is on the clock. If he can’t get this bill passed relatively soon, he’s going to convey the impression that his party is in disarray and they aren’t going into the midterm elections in a unified way. Typically, the party in power needs to get their priorities done in the first two years. The stalemate in Congress runs the risk of pushing the legislation so far out into the future that nothing happens. The bill will end up somewhere between the two extremes. There are other Senators and Congress people saying that the $3.5 trillion is too small while others are saying $1.5 trillion is the maximum. Nancy Pelosi has recently abandoned the effort to tie the Infrastructure bill and Human Infrastructure bill together. The longer this bill takes to pass or fail, the more likely failure becomes as congresspeople won’t want their name attached to it. This means that every day that goes by where this bill doesn’t pass, the likelihood is that the current tax rates are going to expire in 2026.     Mentioned in this Episode: A top House progressive says $1.5 trillion is not enough to pass social spending plan - npr.org/2021/10/03/1042862107/a-top-house-progressive-says-1-5-trillion-is-not-enough-to-pass-social-spending-?t=1633978400218&t=1634060208587

The increase on taxes on the rich with the Human Infrastructure plan is rumored to cost the average American nothing, but that’s not quite the full story. The long-term implications of the cost of the plan say differently. Fiscal insanity has been a bi-partisan venture, and it has been for at least the last 20 years. Debt goes up under Republican administrations just as much as Democrats. Under Donald Trump’s administration, the debt rose by an average of $2 trillion per year. Historically, the debt rose by $1 trillion driven primarily by Social Security, Medicare, and Medicaid as Baby Boomers begin to retire. Broken down, this means that there is an extra $23,500 in federal debt for every person in the country. Only two other presidents have come close to spending as much, George W. Bush and Abraham Lincoln, both of whom oversaw extraordinary circumstances during their presidencies. One of the things that drove up the debt was the Covid-19 crisis, but the debt had already soared to grave levels prior to the pandemic. Trump cut taxes but didn’t do anything to cut spending, and this caused debt to soar to unprecedented levels. The national debt is now at the point where it’s higher than it was at the conclusion of World War 2. The difference is that we could demobilize after WW2 but we can’t avoid the primary expenses looming over the nation now. A common myth that many people believe is that we can grow our way out of the national debt. The debt is growing at an extraordinary rate and there is no way for revenue to grow in comparison. The tariffs Trump introduced were believed to help eliminate the budget deficit and pay down the national debt, but that was not the case. The Trump tax cuts were primary drivers of increasing the debt, when combined with a lack of cuts to spending. The tariffs also had a minimal impact on the debt once it had been allocated. The fiscal gap and the national debt are so large that the idea of taxing the rich pales in comparison. Taxing the rich, even at 100% levels, it’s only enough to pay the interest on the debt and fund a couple of programs for a few weeks. There are huge fiscal unsustainabilities in the scope of the federal government’s budget. By early 2019, Trump was telling the American public that the national debt was a grave threat to economic and societal prosperity. Other officials began sounding the alarm as well. Historically, we have racked up debt but with good excuses for doing so. This time we accumulated debt when the stock market was booming. When every other country was getting their house in order, we continue to pile debt onto the national credit card. We are currently at 130% debt-to-GDP and for most economists, alarm bells are going off. The reason why now is different from WW2 when we had similar levels of debt is we are now funding social programs that are slated to grow dramatically in the near future. The real issue is the cost of the interest on the debt. Most of the debt has been financed in the short term and will have to be refinanced. If interest rates go up in the interim, the cost of that interest is going to skyrocket and consume the federal budget. Low-interest rates are manageable now, but if and when that changes in time, the risk becomes greater. Blame can be laid on both sides of the aisle, but if you’re a Republican you need to acknowledge that the Trump administration accumulated a record amount of debt in a short time period. If you’re a Democrat, you need to insist your representatives show some leadership regarding the fiscal future of the country. Social programs like Social Security, Medicare, and Medicaid are driving the debt and unless something is changed the problem will only escalate. This will only increase the likelihood and magnitude of higher tax rates in the future.   Mentioned in this Episode: Donald Trump Built a National Debt So Big (Even Before the Pandemic) That It’ll Weigh Down the Economy for Years - https://www.propublica.org/article/national-debt-trump

Dr. Larry Kotlikoff is the foremost expert in the world on fiscal gap accounting and has done a great job transforming how we should be thinking about a nation’s debt. Dr. Kotlikoff recently stated during an interview that most retirement planning is wrong.  According to Dr. Kotlikoff, the basic problem with financial planning is that the goal of our life is not to accumulate wealth so that people can charge us fees on our assets. It’s about having the best lifestyle we can, given our resources, so we don’t end up on the street if the market crashes or we live to be 100 years old. You don’t necessarily need to pay someone to manage your assets, but it can be worthwhile to have someone help you stick to your objectives. Most people without a financial advisor participate in emotionally driven investing, which is why the average investor’s returns suffer. Saving for retirement is a requirement in consumption smoothing, but there is an optimal amount to save. Once you know what you have, you know what you can spend. Part of the job of a good financial planner is helping you reverse engineer what you need to create the lifestyle you want in retirement. This is where the Power of Zero paradigm deviates from mainstream financial planning. You have to get the tax part of the equation right. It’s not enough to know what you should be saving, because if you execute that plan in your tax-deferred bucket and watch as tax rates rise over time, you’ll find that your financial plan only delivers about half what your lifestyle needs. You need to contribute the right amount of money into the right kinds of accounts. Dr. Kotlikoff feels the stock market is overvalued and dependent on the Federal Reserve’s support to maintain its levels. Market timing is tricky at the best of times. Statistically, it’s nearly impossible to do. Over the course of a given year, that 80% of the rise in the market occurred on 6-8 days and you have to predict exactly which days those are going to be.  If you can guarantee your lifestyle expenses with your Social Security, pension, and/or a guaranteed lifetime income annuity, you can take much more risk in the market.  A good rule of thumb if you need to dip into your assets during a down year is to take money out of your LIRP instead of your stock market portfolio. Dr. Kotlikoff recommends that you push off taking Social Security for as long as you can to mitigate longevity risk. The key here is predicting how long you are going to live. The worst thing that can happen to you is push it off until age 70, and then die at age 71. The best way to predict how long you are going to live is to go through the LIRP underwriting process. When an underwriter accepts you, they are basically betting that you are going to live a long, healthy life, and you can use that to push Social Security off as long as possible. Is paying off your mortgage early smart? The question we should be asking is whether we “should take money that could be invested in the stock market or pay off a mortgage early?” When you look at the arbitrage between the market and your mortgage, the math doesn’t add up. Converting money to an IRA has to be done over a period of time to avoid paying more taxes than necessary. We are in a rising tax rate environment, so it makes sense to take advantage of today’s historically low tax rates, but it has to be done systematically. You shouldn’t be drawing Social Security during your conversion period because it will cause Social Security taxation and lock you into a lower amount. There are secrets to all stages of the life cycle. When you’re young, stay home to save on housing costs and don’t borrow for college if there is a reasonable likelihood you might drop out. Invest more in stocks as you age in retirement, especially if you have your lifestyle needs guaranteed already. Mentioned in this Episode: Medicine’s Golden Age Is Dawning. 10 Stocks to Play the Latest Innovations. - barrons.com/articles/medicine-healthcare-stocks-roundtable-51632527474

Most of the changes of the two infrastructure bills working their way through Congress right now will mainly affect high-income earners, but the details may change as time goes on. There are seven major takeaways from the recent house tax bill. The first is that personal income tax rates are going up, but only for roughly 2% of households that make more than $400,000 per year. Joe Biden campaigned on not raising taxes on the middle class, and the current form of the bill seems to reflect that. Takeaway #2 is that capital gains rates are going up, but not as much as Biden originally proposed, which is primarily going to affect high-income earners. This is a retroactive bill which if it comes into effect retroactively to the date of Sept 13. If you sold anything after that date you will be affected by the higher capital gains tax rate. Takeaway #3 is that the bill brings back the marriage penalty. This bill will become somewhat punitive for married people when compared to single people. Takeaway #4 is that the Roth conversion is going away for the wealthy. Whether the Roth conversion is applied to the limit is a question right now, but if that’s the case it will be a major roadblock for any Power of Zero planning. The effective date of this provision is December 31, 2031. It’s speculated that by delaying the start date it will create a buy-now mentality. The IRA and the Roth conversion are two of the only things in the world that Americans like and the government likes. The government gets revenue today, and Americans get to insulate themselves against the impact of higher tax rates down the road. Takeaway #5 is that the backdoor Roth conversion is going away.  Takeaway #6 is that there will no longer be any IRA or Roth contributions for the rich, basically anyone making more than $400,000 or anyone with more than $10 million in retirement accounts. The intent is to prevent extremely wealthy people from taking advantage of the tax code, but the end result is generally pretty minimal. Takeaway #7 will have a particularly large impact on people with large amounts of money in their Roth IRA. This is largely inspired by Peter Thiel who recently revealed that he had over $5 billion in his Roth IRA. People in the higher income bracket and who have over $10 million in their Roth IRA would be required to distribute 50% of the excess of $10 million. If your balance exceeds $20 million, you would have to distribute 100% of the excess over the $20 million mark.  As it’s written right now, if you’re a married couple that earns under the $450,000 per year income amount, the rule won’t apply to you. Earn one dollar more though and you will have a massive RMD coming your way.   Mentioned in this Episode: Jeff Levine, Twitter: @CPAPlanner

Whether you like to talk about politics or not, the things that are happening in Congress right now will affect your retirement. All the unmitigated spending during the Covid pandemic is catching up with the US. Treasury Secretary Janet Yellin revealed further measures to avoid breaching the federal government’s borrowing limit and also announced they would be suspending reinvestments for a number of retirement funds. Debt negotiations have always been a game of chicken between the Democrats and the Republicans, but there’s more at stake right now. The Treasury uses emergency maneuvers to conserve cash so the government can keep making payments on its obligations. Once those measures run out, the Treasury could begin to miss payments which could trigger a default on US debt. A default on the debt in the US has never happened before, and if it did happen it would likely precipitate a global depression. There are only two things the federal government is Constitutionally required to pay: Civil War pensions, and interest on the national debt. Similar instances have happened in the past, like in 2011 when Standard and Poor stripped the US of its AAA rating for the first time. If we default on our debt, it could trigger a sovereign debt crisis, which will likely result in the costs of servicing the national debt to go up dramatically. The debt ceiling has been raised 98 times in the past, but it’s possible for this time around to go differently. It’s possible that the tipping point will occur mid-September and we could be seeing the consequences of this as early as October.  We refinance the national debt every two years, so when interest rates go up it gets even more expensive to service the debt, and that can result is taxes being raised even earlier than we thought. The national debt is projected to increase by $3 trillion by the end of 2021.  All of this is a backdrop to the Democrats trying to pass a $1 trillion infrastructure bill and a $3 trillion human infrastructure bill through Congress. The Democrats want the debt ceiling increase to be a bipartisan effort, but the Republicans are positioning themselves as opposing the increased spending and forcing the Democrats to own the bill. It seems like no one saw this spending initiative coming face-to-face with the fiscal constraints of the repercussions of unmitigated spending by both parties over time. Mitt Romney said that the Democrats would be wise to raise the debt limit in reconciliation and own the decision. Joe Biden’s tax increase initiative is part of the drama. If this debt crisis implodes, he may not get anything that he wants and the Trump tax cuts may simply expire in 2026.   Mentioned in this Episode: Janet Yellen to Enact Steps to Avoid Breaching Debt Ceiling - wsj.com/articles/janet-yellen-announces-measures-to-avoid-breaching-debt-ceiling-11627936540 McConnell vows no GOP help with debt limit hike - politico.com/news/2021/08/05/mcconnell-gop-debt-limit-502593

If Joe Biden can’t get his tax legislation through before midterm elections, it’s unlikely he will be able to pass it at all. The situation in Afghanistan has lost Biden approval points in polls across the nation and since the midterm elections usually involve the sitting administration losing either the Senate, the House, or both, there may be no opportunity for him to push it through later. The Senate, which is currently controlled by the Democrats, has proposed a $1 trillion infrastructure, which has bi-partisan support, and a $3.5 trillion human infrastructure bill, which has been opposed completely by the Republicans and doesn’t have universal support from the Democrats. The Democrats have imposed a September 30 deadline to vote on both bills at the same time. Joe Manchin wrote an op-ed for The Wall Street Journal showing substantial misgivings for the human infrastructure bill. This gambit of Joe Manchin not only threatens the human infrastructure bill, but also Joe Biden’s presidency. Joe hints at the implications of both borrowing more money and printing more money in the article. Joe Manchin has been echoing many of the sentiments from David Walker, Larry Kotlikoff, and Maia McGuinness. Joe Manchin warns about spending too much money when things are going well and what happens then when we have a real crisis on our hands and the coffers are empty. Manchin recommends that Congress should pause on the budget reconciliation legislation to give everyone more clarity on the situation with the pandemic and inflation. You should not push through legislation unless you have a full understanding of the implications of that legislation. If you can’t get your constituency to agree to raising the taxes needed, you shouldn’t be layering on additional unprecedented debt. According to David Walker, the death of Social Security and Medicare accelerated by three years due to the impact of COVID-19 spending. Joe Manchin has a pattern of putting up a lot of fight during the legislative process, but then almost always falls into line when it’s time to vote. Given how well the economy is humming along, there is no clear and present danger to the country and this spending bill sets a very bad precedent. The biggest issue our country is facing is our own fiscal irresponsibility. The decision to vote for the two bills in tandem means that if there is any pause, then that is going to contribute to the perception of dysfunction and chaos, which is something voters do not like to see. The danger of the pause is it could set off a cycle of failure. Delay creates the impression of chaos, making Biden and Congress less popular, in turn reducing the popularity of any bills they pass, and making Congress less likely to support them. Joe Biden’s tax proposal is part and parcel of the $3.5 trillion human infrastructure bill. If he can’t pass the bill, he doesn’t get the tax increases needed to pay for it. The next two weeks will be instrumental in determining what happens to tax law in America over the next eight years.   Mentioned in this Episode: Why I Won’t Support Spending Another $3.5 Trillion - wsj.com/articles/manchin-pelosi-biden-3-5-trillion-reconciliation-government-spending-debt-deficit-inflation-11630605657 Joe Manchin Has Put Biden’s Presidency in Mortal Danger - nymag.com/intelligencer/amp/2021/09/joe-manchin-pause-biden-presidency-failed-danger-congress-democrats.html

In August 2016, the University of Michigan began a trend by offering their football coach a split-dollar life insurance arrangement as an alternative to deferred compensation. Other football coaches in different schools have similar arrangements. The overarching principles of these kinds of plans can apply to you as well without having to be rich or famous to take advantage of the benefits. This is a program where the employer agrees to loan dollars to an employee, generally over a period of 7 years, that are invested in a cash accumulation life insurance policy. Unlike traditional life insurance policies where you want the highest death benefit at the lowest premium, these plans are the opposite. The plan is attempting to mimic the best aspects of the Roth IRA without any of the limitations, and there are a number of limitations of a Roth IRA that would make them unattractive to people like Jim Harbaugh. At some point, the loan will be repaid, but in the meantime policy cash flow in excess of the balance can be accessed tax-free to supplement cash flow in retirement. It’s a win/win arrangement for both parties. For the employer, they incentivize the coach to stick around and for the employee, they get to take advantage of a tax-free accumulation tool that otherwise wouldn’t be available to them. As good as the arrangement is, it can be improved upon. Interest-free is not cost-free. Every year Jim Harbaugh has to pay tax on imputed income. Since the money is broken out over 7 years, the interest rate ebbs and flows, and the cost to him is variable. Jim Harbaugh won’t know the full extent of his imputed income until the final seventh installment has been made. If they were to do this deal again, it would make more sense to make the loan all upfront and lock in the interest rate. The key to this approach is having an accumulation tool that’s going to grow the money to the point where it far exceeds what the repayment of the loan has to be. Without that tool, you won’t have the ability to grow. Rumour has it that the arrangement with Jim Harbaugh involved a whole life policy, but when they compared that to an indexed universal life policy it could have been even better. This kind of arrangement has two key components: the money has to grow safely and productively (net of fees 5% to 7%), and you need to look at how you get the money out. With whole life policies, we know they can have a net cost of borrowing. The problem comes when there is an arbitrage between the rate on your collateral account and the loan rate. One of the most important provisions in the life insurance retirement plan contract is the loan provision because if you give them 30 years to make up their mind, it’s not always going to be in your favor. At its core, the purpose of the program is to promote the long-term retention of the employee in a tax-efficient manner. It works best when the employee is able to receive the maximum benefit possible from the dollars provided in exchange for expressing a long-term commitment. All of this reinforces the virtues of the life insurance retirement plan. Wealthy coaches have used this type of arrangement because they have attributes you can’t find in any other type of retirement plan. There is no income limitation or contribution limits, and you can take the money out tax-free and potentially cost-free, and it comes with a death benefit.   Mentioned in this Episode: Why College Coaches Are Being Paid With Split-Dollar Life Insurance - fa-mag.com/news/why-college-coaches-are-being-paid-with-split-dollar-life-insurance-56010.html?section=

Is it possible for the tax proposals moving their way through Congress to be retroactive for 2021? Biden has proposed raising the business tax from 21% to 28%, and when you add in the State corporate income tax of 7% that will put the US near the top highest corporate tax rates in the world. For individuals, Biden has proposed increasing the top income tax bracket from 37% to 39.6% for married couples making over $400,000 He has also proposed a large change to the FICA taxes. For people making $400,000 or more the FICA tax makes a comeback and when added up to all the other tax increases the baseline is 55.8%. In high tax states like California that total approaches 70%. Biden also wants to turn death into a taxable event and make the tax benefit for itemized deductions be limited for people making more than $400,000. If you’re making less than $400,000 per year you don’t have too much to worry about regarding taxes. If you make more than $400,000 you will find that the IRS’s crosshairs are aimed squarely upon you and your retirement account. Many times throughout history Congress has either raised taxes, reduced exemptions, or some combination of the two. The latter seems to be the case right now. Long term capital gains will be taxed at the ordinary income tax rate of 39.6% on anyone making more than a million dollars. In a state like California your effective capital gains tax rate will be over 50%. Estate tax exemptions will also be affected by the tax proposals, as well as the lifetime gift tax exemption, and more. Joe Biden is proposing these tax changes to finance his spending initiatives. All this money is being earmarked for future spending, not for paying down debt.  According to the Wall Street Journal, the Biden administration tax increases would be retroactive to April 28th, 2021 in order to avoid giving people the ability to plan for it. There is historical precedent for this kind of increase with it happening under the Clinton administration.  The question is which taxes will be retroactive and which ones will come into effect in 2022? Right now, it’s only the capital gains tax but there is precedent for it being applied to income taxes relatively late in the year as well. We don’t know if any of the tax rates will go up this year or next year. The situation in Afghanistan may have lost him some political capital and slowed him down, but maybe not.    Mentioned in this Episode: Bracing For Biden - fa-mag.com/news/bracing-biden-63031.html?section=47 Biden Budget Said to Assume Capital-Gains Tax Rate Increase Started in Late April - wsj.com/articles/biden-budget-said-to-assume-capital-gains-tax-rate-increase-started-in-late-april-11622127432

Legislative hijinks are happening in Congress right now and they are going to have an impact on the timing of a potential tax increase coming down the road. The Senate has struggled for a while now to come to an agreement on a $1 trillion infrastructure package, but with some bipartisan cooperation they’ve pushed it through. Democrats in Congress have turned their attention to a $3.5 trillion budget that is going to be a much bigger challenge. Any tax increase that gets pushed through will be part of this budget because it is going through budget reconciliation, which has several implications. Everything included in this bill will expire in 8 years because of the nature of budget reconciliation.  The Speaker of the House, Nancy Pelosi, has declared that they won’t vote on the $1 trillion infrastructure bill until she feels they have enough votes for the larger $3.5 trillion budget. The GOP has made it clear that they will oppose the larger bill at every turn which is why the Democrats are resorting to budget reconciliation to get the bill done. The proposal contains plans to expand healthcare coverage, universal Pre-K and free community college, ambitious federal programs to combat climate change, and a path to citizenship for qualified immigrants. There is a lot riding on this package for President Biden and the Democrats going into the 2022 midterms. There are a group of moderate Democrats that are uncomfortable with the size of the bill. Joe Manchin has spoken out against the high level of spending among other prominent Democrats. Progressives are pushing five things with the bill by recasting different political issues as economic. This is the argument for pushing the bill through the budget reconciliation process. Because of the lack of Democrat cohesion on the bill, it is unlikely to pass anytime soon. Biden needs a win going into the midterms and stalling now is not going to look good. Tied into that is the future of tax rates. Even with the increased taxes built into the bill, spending will still go up. The government will not have enough revenue to cover the cost of the bill, which means the debt will continue to rise. The tax cuts on middle America will likely be extended for another 8 years, and this means the debt is going to continue to compound and the fix in 2030 will be even more aggressive. These developments not only directly impact people making systematic shifts from tax-deferred to tax-free over the next eight years, but we need to consider the environment of fiscal instability coming down the road.   Mentioned in this Episode: Here Are 5 Hurdles That Democrats Face Now For Their $3.5 Trillion Budget - npr.org/2021/08/12/1026184120/here-are-5-hurdles-that-democrats-face-now-for-their-3-5-trillion-budget

A new report says that retirees who convert their savings into guaranteed lifetime annuities effectively double the amount they are willing to spend each year on themselves and their families. This indicates that retirees holding more of their wealth in guaranteed income are more willing to spend on luxury items and experiences because of a higher comfort level with additional spending. The report looked at retired households with more than $100,000 in savings and spending more than $25,000 each year. They were making an apples-to-apples comparison between people that had a guaranteed lifetime income and those with enough assets that they could. They were looking at the most simple form of an annuity, the Single Premium Immediate Annuity. When people get into retirement they tend to get into a protective mode where they spend defensively. Without a baseline of guaranteed income, you’re basically in fear mode throughout retirement. If these guaranteed lifetime income annuities are so great, why do so many Americans not take advantage of them? The first major hang-up for most people is the lack of liquidity. When you purchase a Single Premium Immediate Annuity those funds are gone from your balance sheet and that gives some people a lot of heartburn. Another concern is inflation. The payment may be sufficient for your basic lifestyle needs now but that may not be the case in the future. Solutions to this problem include purchasing an annuity that scales with inflation, or to buy more guaranteed income than you need, the trouble with both of those is that they end up compounding the liquidity issue. The third issue is the idea that a person’s heirs may be disinherited if they die prematurely. The Mac truck factor may play out for you and that’s a real worry for many Americans. The annuity industry is listening and has created another type of annuity called the fixed index annuity, which goes a long way to solve those problems. It solves the liquidity problem by not requiring you to take your income right away. During the deferral period you have 10% liquidity, which is often more than enough. Once you elect to take your income, the income is linked to the growth of a particular stock market index. In the case where the index declines you are protected from the loss. The last issue fixes the inheritance, where if you die prematurely your heirs will receive whatever your initial investment was plus the growth minus any distributions.  One thing missing from the article is that if you do decide to do an annuity, it’s important to have the ability to do a piecemeal internal Roth conversion. A fixed index annuity in your tax-deferred bucket can result in Social Security taxation, which can force you to spend down your other assets five to seven years faster. The piecemeal internal Roth conversion also helps mitigate tax rate risk. In a rising tax rate environment like we are in now, this is a very important feature. Once the money is within the tax-free bucket, it is no longer exposed to tax rate risk. If you combine all the advantages of a fixed index annuity and a piecemeal Roth conversion feature, you too can have a happy and fun retirement.   Mentioned in this Episode: Opinion: Retirees with annuities have more fun - marketwatch.com/story/retirees-with-annuities-have-more-fun-11628192718

A Democratic representative out of California has introduced a bill to change the way that Social Security cost of living adjustments are calculated. It proposes to link the Social Security increase each year to the Consumer Price Index for the Elderly, instead of the CPI for Workers. The difference between the two indexes over the course of a 30-year period is roughly 0.2% each year, which doesn’t sound like much, but when you compound that over the 30 years, it adds up quickly. The cost of living adjustment has only passed 2% twice since 2010. If you add up all the growth in the CPIE, it would amount to an increase of 10.1%, versus the CPIW which only amounted to 8%. Switching may not necessarily be good for seniors, with gasoline prices being weighted disproportionately between the two. Inflation has been in the news a lot recently. Increasingly as time goes on, politicians are going to be tempted by the Modern Monetary Theory proponents to print more money to solve their fiscal problems, and the end result is going to be inflation. The Senior Citizen’s League is estimating that the Social Security cost of living adjustment could be as high as 6.1% in 2022, which would be the highest cost of living adjustment in a very long time. The proposed bill has yet to receive a vote, but the bill has overwhelming support from those currently on Social Security. Prior to Covid, we knew that Social Security was slated to run out of money in 2035. Because of the additional spending during the pandemic, Social Security could run out of money in 2032 with Medicare running out in 2023 instead of 2026. This means that the likelihood of higher taxes is closer than we thought.  This bill would likely bankrupt the program at an even greater acceleration.  A better way to increase your own Social Security is to position your assets from tax-deferred to tax-free. Anything above and beyond the ideal balance in your taxable and tax-deferred buckets should be systematically repositioned to tax-free.  With the right amount of money in the first two buckets in a rising tax rate environment, and everything else positioned as tax-free, you can be perfectly positioned to insulate yourself from the impact of higher taxes, but also get your Social Security tax-free. Simply positioning your assets properly between those three buckets will add an extra five to seven years to your retirement.  You can choose to rely on the government, or you can be proactive in positioning your assets.

Joe Biden campaigned on the platform of raising taxes on the top 1% of earners in America, yet six months into his administration, there haven’t been any increases thus far.  The main pillars of his proposal are to increase the corporate tax rate from 21% to 28% and to increase taxes on married couples earning more than $400,000 per year ($200,000 for individuals) from 37% to 39.6%. For those making $1 million or more, your long term capital gains tax rates would increase from 20% to 39.6%, effectively doubling. There are few reasons for the proposal running out of steam. The first is GOP opposition, as well as a number of economists warning that raising taxes now could jeopardize the economic recovery. Former George W. Bush Treasury official, Tony Fratto, says that the chances of big tax reforms in the near term seems reduced. There is a fear that tax reforms could squelch the growth of the economy as corporations are still trying to battle their way out of the quagmire of the Covid-19 recession. When corporate tax rates go up, those tax increases are typically passed on to consumers. We can look at major Wall Street players and how they are reacting or preparing for the proposal to get an idea of what the future may bring. Blackrock is mildly bullish on the tax rates going through with a number of senior strategists believing it to be likely but still hedging their bets. JP Morgan believes that Joe Biden will not be able to deliver on his tax proposal increases, but the discussion of increasing taxes may put a damper on market returns. Mitt Romney believes tax increases are off the table. Being able to pay for infrastructure bills with increased taxes is going to be extremely difficult to pull off. Tony Fratto says that borrowing is probably going to be how Biden will pay for all the various bills being proposed. As long as Democrats and Republicans disagree on how to pay for expenditures, borrowing is the easy solution. The US government has to refinance its loans each year, and they are directly impacted by interest rates. Interest rates may be low now, but they won’t stay that way forever. If Joe Biden is going to push through his tax proposal, he has to do it soon. As a president, when you can’t get things done in the first 100 days to one year, they tend to become lame ducks leading up to the next election. Biden is hoping to get all his initiatives done in the first year because polling indicates that Republicans will likely take back the House and the Senate. If he doesn’t push it through soon, he may not have a chance at all. In terms of the Power of Zero worldview, this means that the status quo is likely to be maintained and that the Trump tax cuts will expire Jan 1, 2026. You have 5 years to reposition your assets from tax-deferred to tax-free. This isn’t set in stone yet, we have until the end of the year before it becomes clear on what’s going to happen with Biden’s tax proposal.   Mentioned in this Episode: Biden's plans to raise taxes on corporations and the wealthy are losing momentum - https://www.cnbc.com/amp/2021/07/07/biden-tax-plan-corporate-capital-gains-and-income-hike-uncertain.html

The 3% Rule says that if you want to have $100,000 per year in retirement, you would need $3.3 million saved up, which is not very attainable for most Americans. If you can offload longevity risk to a company that can handle it better than you can, you have to save far less. If you take a portion of your liquid investment portfolio and purchase an annuity, you can potentially achieve the same income flow at roughly half the cost. An annuity from an insurance company also mitigates withdrawal rate risk. If you have an income guaranteed in retirement by an insurance company, you won’t have to rely on your stock market portfolio to take care of your lifestyle needs. Long-term care risk is one of the most pernicious risks for most Americans. Almost, but not quite dying, is much worse than simply dying. In that case, the surviving spouse is often left with a subsistence living instead of the retirement lifestyle they planned for.  People don’t love paying for long-term care insurance for a variety of reasons, but there are alternatives to traditional long-term care insurance that accomplish most of the same things. If you give an insurance company a chunk of your liquid assets, they will give you a guaranteed stream of income that will live as long as you do. Your assets get pooled with thousands of other people’s and statistical averages work everything out over time. Mathematically, the single premium immediate annuity is going to give you the most bang for your buck but there are three things that people tend not to like. The first is giving up some amount of liquidity, the second is the lack of inflation protection, and the third is the risk of dying early.  The alternative is a fixed index annuity, which allows you to tie the growth of your income to a stock market index. This protects you from inflation, comes with a death benefit, and gives you a period of liquidity which addresses the three biggest concerns that people have with instruments that guarantee lifetime income. Your income in retirement can be guaranteed, but if you do that out of your tax-deferred bucket, the after-tax amount is not guaranteed. To plug that hole, most Americans dip into their stock market portfolio. This can also result in social security taxation, leading them to spend their stock market portfolio even faster. You should think very carefully before dropping a large amount of money into a single premium immediate annuity that doesn’t have the ability to do a piecemeal Roth conversion. The Life Insurance Retirement Plan comes into play in retirement when you need to pay for discretionary expenses, typically after the 10 year mark. The years where the stock market is down are the perfect time to take money out of your LIRP. The LIRP is the perfect vehicle to fund discretionary needs like plugging the hole in your roof or taking the grandkids to Disney World without withdrawing anything from your stock market portfolio. Most LIRP companies also allow you to receive your death benefit in advance of your death to pay for long term care. If you die peacefully in your sleep, your kids can inherit the death benefit which negates the feeling of paying for something you never receive. The ideal amount of money to have in your taxable bucket is about six months worth of expenses. Any more than that is a great candidate for funding your LIRP. It’s crucial for life insurance that the money be growing safely and productively. With some products, your cash value ebbs and flows with the stock market. There are scenarios where people can run out of money and death benefit, as well as long-term care. A whole life policy or an indexed universal life policy are your best choices. David favours the indexed universal life policy for most people. The IRS has strict limits on how much money can be put into a life insurance policy. Those limits were premised on what the interest rates were over time, but since interest rates have changed, they adjusted the rule and consumers can put almost twice as much money into those programs for the same amount of death benefit. People up to the age of 62 can still make use of the LIRP since they still have time to let it gain steam. Once you get to the age of 65, it’s not the best option if your objective is to accumulate wealth. Insurance companies are in the business of predicting how long you will live so the viability of the LIRP is directly related to your health and life expectancy. If you can figure out which spouse is going to live the longest, it informs many different decisions regarding the overall retirement plan.  Joe Biden will likely honor his campaign promise to not raise taxes on anyone making less than $400,000, which means there’s a lot of opportunity to take advantage of the tax sale of a lifetime before taxes go up for good.

David’s first appearance on the podcast was one of the most downloaded episodes. Back in 2014, David wrote the Power of Zero book and since then the national debt has grown considerably. We are now at $28 trillion in debt and the primary problem is that much debt is only affordable as long as interest rates stay historically low. At some point in the near future, the US will no longer be able to borrow money at the current rate and this will result in the cost of servicing the national debt will grow and consume more and more of the national budget. Many experts are saying that tax rates will have to raise dramatically or the US will go broke as a country. Everybody has been saving the lion’s share of their money in tax-deferred accounts. In doing so they are entering into a partnership with the IRS where the IRS gets to vote on what percentage of your profits you get to keep. The best way to insulate yourself from higher taxes is to get into the zero percent tax bracket. Taxes are evolving at a rapid pace. We have to approach retirement with a sense of flexibility and be nimble enough to make changes to the strategy. Joe Biden’s tax plans are going to have major repercussions for every American, whether that is now or eight years from now. David’s belief is that Joe Biden is going to extend the tax cuts under budget reconciliation for another 8 years and if that happens the government is going to have to crank taxes up to make up for lost time. Everyday Americans need to take advantage of the current historically low tax rates, stretch out their tax obligations out over the next few years, and position as much of their money to tax-free. Historically, the highest marginal tax brackets are bellwethers for all other marginal tax rates.  Maya MacGuinneas did a study that showed that the government would have to raise taxes on everyone making above $40,000 to 40% just to prevent the debt from growing each year. Even though Joe Biden has made the promise that he’s not going to raise taxes on the middle class, mathematically it’s just not tenable. If he refuses to broaden the tax base sooner rather than later, the fix on the back end is going to be much more aggressive. Raising taxes can be a catch-22, where it stifles economic growth and lowers revenue in the end. The reality is that there are not a lot of good choices to fix the situation, but the later we wait the harder the choices are going to become. Harvard Business School did a study to discover at what point do people feel comfortable with the amount of money they have saved and whether they will run out of money. Nearly everyone said they were worried. Ultimately, the study asked the question “do you need to have $15 million in your investment portfolio to feel like you won’t ever run out of money before you die, or is there another way to mitigate longevity risk?” People’s greatest fear in retirement is running out of money before they die. In today’s financial planning world, not a lot of people can mitigate tax-rate risk and longevity risk within the same financial plan. If you have a stream of guaranteed income from social security, an annuity, or a company pension can be the difference between being comfortable in retirement and not worried about running out of money and the fear that your money won’t last. Saving more money doesn’t solve your longevity risk. It’s not about your assets in retirement, it’s about your income. The people that have guaranteed streams of income are happier in retirement and they generally live longer lives than people that don’t. Even high net worth people can benefit from guaranteed streams of income because it gives you permission to take much more risk in your stock market portfolio. Even if they don’t need the income, they can take it and reinvest it. Sequence of return risk references the order of which you experience returns in your stock market portfolio. If you have a sequence of negative returns early on in your retirement, it can send your portfolio into a death spiral from which it never recovers. Sequence of return risk can be devastating. The 4% Rule used to be the prevailing wisdom for people taking money out of their stock market portfolio. As recently as 2010, those projections are outdated and the 3% Rule has become the norm. The problem with this approach is that it is extremely expensive. Having an annuity is your tax-deferred bucket, which 97% of people do, you are exposing yourself to tax-rate risk as well as social security taxation risk. Using a piecemeal internal Roth conversion to convert it tax-free insulates you from rising taxes. The problem comes from not being able to do that Roth conversion all at once and you need another solution for the first five to seven years of retirement. This is where a time-segmented approach can come in.

Roth IRA’s have been trending on Twitter recently because it was discovered that Peter Thiel accumulated over $5 billion in his Roth IRA. Peter Thiel was one of the original founders of Paypal in 1999 when the Roth IRA was still in its infancy. At that time, his salary qualified him to contribute to his Roth IRA and he placed 1.7 million shares of Paypal into his account. The shares started off at the value of one-tenth of one penny ($1700), and after Paypal went public, those same shares rose to over $50 each. With all this wealth in his Roth IRA, Peter Thiel used it as a slush fund for his other investments. In 2004, Mark Zuckerberg solicited a $500,000 investment from Peter, made within his Roth IRA, and that went on to grow considerably. By the end of 2012, Peter Thiel’s Roth IRA was valued at roughly $1.7 billion. Mitt Romney did something similar, where he put undervalued shares into his own Roth IRA, which ended up creating a lot of negative press for him. By 2019, a large majority of Peter Thiel’s investments took place under the umbrella of his Roth IRA. He has over $5 billion spread across 96 different sub accounts reflecting different investments in different companies. Peter Thiel plans on living to 120 and is making investments in antiaging technologies. In that situation, by the year 2087 he would have roughly $263 billion in his Roth IRA. In 2010, Congress removed the income threshold that prevented people from converting to a Roth IRA. This led hedge fund managers and venture capitalists to convert portions of their existing IRA, but Mitt Romney did not. Mitt now has around $100 million in his traditional IRA. In a rising tax rate environment, Mitt should have adopted the Peter Thiel approach. Under Joe Biden’s tax proposals, Mitt stands to lose upwards of 70% of that money upon distribution. The best course of action for Mitt would be to bite the bullet and convert all of that money in a single year. Even with all the taxes he would pay now, it pales in comparison to what he would pay once Joe Biden’s tax reform bill comes into play. According to the Power of Zero principles, Mitt is foolish to have that much money in his IRA. He should take advantage of the tax year of 2021 because it’s never going to be a better rate than 37% for him. One thing you can draw from the Peter Thiel approach is the power of the Roth IRA. Once you put the after-tax dollars in, they grow in a tax-free way no matter what you invest them in. Contrasted with Mitt Romney, the larger his wealth grows, the larger his tax bill grows. He will probably end up paying at least 50% in taxes by the time he needs to take that money out, unlike the venture capitalists like Peter Thiel, Warren Buffet, and others that have taken advantage of the Roth Conversion.  

Americans have over $30 trillion sitting in 401(k)’s and IRAs, and people are waking up to the fact that those accounts are in the crosshairs of the US government to solve their debt problems. In a recent interview with Maya MacGuineas, she said the fiscal condition of the US and what’s going to happen over the next 10 years is terrifying. The Biden administration will likely try to kick the can down the road and that’s only going to make the fix more draconian. The political class is hyper focused on the top 1% of earners right now, but everyone needs to understand that when tax rates go up, they tend to go up for everyone. In 1960, the highest marginal tax bracket was 89% with the lowest at 22%. The highest rate tends to be a harbinger of what all the other tax rates are doing. In Maya’s study, she found that the US government would have to tax the highest earners at a rate of 103% just to prevent the debt from continuing to grow. It’s not enough to tax the rich. There will come a time when everybody is going to fall under the scope of the IRS and will have to pay up. The national debt that the government references is not the true national debt. If we did our books like every other country in the world, which includes unfunded liabilities, we would have a very different number. The true national debt is around $180 trillion and 8x-9x the GDP. You can’t control your payroll tax or your sales tax, but you can control the money you have in tax-deferred accounts. The true purpose of a retirement account is not to give you a deduction, it’s to maximize your cash flow at a period of time in your life when you can least afford taxes. The way most people are planning for their retirement is backwards. Unless you can predict what tax rates are going to be in the year you take money out of your retirement account, you don’t really know how much money you have and that makes it very hard to plan. We have an aging population in the US which is creating a demographic time bomb. As the Baby Boomer generation retires, later generations have to shoulder the brunt of that increased burden on social programs like Social Security. These programs only survive when subsequent generations are larger than the previous, which has not been the case for decades. We are not having as many children as we have had in the past and that’s making those social programs more unsustainable. There will not be enough people in the future generating enough taxes to pay for everything we’ve already promised. When the programs were created, the variables were very different. People didn’t live as long and they had more children. That is not the reality of the situation now, but nothing about the programs has changed. We have three possibilities for when tax rates are going to go up. The first is when the tax cuts expire in 2026. The second is the tax cuts get extended to 2030. The third, proposed by Ed Slott, is that the government will come to its senses and, starting next year, tax rates will go up for everyone.  

President Joe Biden has recently proposed a $6 trillion budget designed to make the US more competitive. Spending is already on an unsustainable trajectory so we need to examine the impact this budget proposal will have on the fiscal outlook of the country. A lot of people believe a $6 trillion budget is too much, too soon and will exacerbate the debt problem in the long run.  The budget proposal introduces budget deficits over the next several years, financed mainly by additional debt. This will result in over $15 trillion in additional debt by the end of the decade resulting in a  national debt of roughly $42 trillion by 2030. The assumption being made is that this level of debt is sustainable because of the belief that interest rates will stay relatively low. Should that assumption not hold true, this level of debt will cause some major issues for the US economy. The stated goal of the budget is to help Americans attain a middle class lifestyle and to make the US more competitive globally. The proposal hasn’t been voted on yet. The budget focuses on infrastructure projects, as well as shoring up of social programs like affordable childcare, universal Pre-K education, and a national paid leave program.  Joe Biden campaigned on the promise that middle income earners will not have to pay for this additional spending. Biden plans to raise taxes on corporations and high-income earners and expects his plan to be offset by those additional taxes over the next fifteen years. The debt continues to grow each year because of the unfunded liabilities within existing social programs like social security. The budget proposal does not address this. It’s important to note that the proposed budget allows the middle income tax cuts that Trump signed into law to expire. There are sources in the White House that say that Biden will address these tax cuts at some point in the future. By 2024, debt as a share of the economy would rise to its highest level in American history, eclipsing a World War II-era record. Another worry is that the new level of spending will become the new normal going into the future. Joe Biden believes that this additional spending can be financed by an economy that is growing by just under 2% per year. We also need to be concerned about  inflation. As businesses recover from Covid, people are making money again but that money is chasing fewer goods and causing prices to rise. Additional spending by the government will further increase the money supply and accelerate the inflation. If you had any doubt that tax rates will not be dramatically higher down the road than they are today, this budget calls for it. By 2030 there will be so much debt the government will be forced to broaden the tax base.  Experts are no longer talking about passing the debt onto the next generation. More of them are talking about how the current generation will have to pay for it. If you have money in a 401(k) or IRA the government’s crosshairs are focused on your accounts. We need to keep an eye on the fiscal trajectory of the country because that’s a barometer for where tax rates are going to be over the course of the next 10 years.   Mentioned in this Episode: Biden's Plan: President to Propose $6 Trillion Budget to Boost Middle Class, Infrastructure - https://www.nytimes.com/2021/05/27/business/economy/biden-plan.html

Politicians are in a state of mind where they are not interested in fixing the problem, which means that the fix on the backend is going to have to be more aggressive and draconian. The damage the debt does is, in many ways, invisible to the average person. We have had decades to fix the debt problems but politicians have failed to do so. If we made these changes to something like Social Security years ago, we could have fixed it without affecting anyone depending on the system, but that is not the case anymore. If you look at where we’re headed, we will continue to see lower growth in the economy going forward. Economic growth, mobility, and income growth will be slower than it otherwise would have been. One of the real major concerns has less to do with economics than it does with national security. The US will not have the economic dominance that it had in the past that secured its geopolitical place in the world and will find itself falling behind places like China. We need to begin thinking more about the long-term changes in the nature of work due to technology. We need a social contract that reflects and recognizes these changes so people can work effectively and productively with the changes that are happening more and more rapidly. As our fiscal health weakens, our ability to meet the challenges of this century is greatly diminished and we will be dangerously weak for it. Modern Monetary Theory says that you can’t default when you borrow your own currency., which is true, but just because we can’t default, that doesn't mean we have a healthy economy. MMT recommends fiscal policy to control inflation, which means basically raising taxes. The trouble with that idea is that there aren’t any politicians willing to raise taxes, let alone cut spending or both. MMT proponents don’t understand the dangers of inflation. Inflation can wipe away your entire savings and create an economic recession that is difficult to escape and painful for everyone. Borrowing during the downturn is not an example of MMT being correct. MMT is dangerous because it’s so seductive. Who doesn’t want to be able to spend as much as you want indefinitely with no consequences? But just because you want it to be true that doesn’t make it true. Economists need to be unbiased and neutral when it comes to political ideology. There are politicians in power right now that recognize the threat of the national debt, but there are also groups that are working against the effort. Many politicians are willing to do the right thing, but they can’t do it in isolation. There is no point in having people who are willing to do the right thing get destroyed politically without achieving anything. Part of the problem is that the national debt does lend itself to grassroots outrage. Ideally, there is some leadership at the top to champion the cause.There are a lot of great members in congress and there’s a real chance for them to come together, but we are going to have to figure out how to come together as one country to solve these big problems if we want to see them rise to that challenge.   Mentioned in this Episode: Committee for a Responsible Federal Budget - crfb.org

Maya is the President of the Committee for a Responsible Federal Budget. The committee itself has been around for a couple decades at this point and came about after several members of Congress left and realized how difficult it really is to be fiscally responsible with a government budget. It’s very difficult to govern in a fiscally responsible manner in a political environment because, in many ways, those two things are completely at odds with each other. Fiscally responsible is simply the notion that you will be paying for your budgetary items yourself and not pushing the cost onto the future. Politics puts pressure on politicians to promise as much as possible and defer the cost to someone else. In terms of where we are now, the current fiscal path is dire. We have just come out of one of the times to borrow and borrow we did. The US borrowed $6 trillion in response to the pandemic and the debt-to-GDP ratio is about to reach its highest point in history. The difference between the last time the debt-to-GDP ratio was this high (after WW2) and now that demographic is working against us. We are now slated to be running budget deficits of well over $1 trillion indefinitely and the debt-to-GDP is on a trajectory to grow faster than the economy every year from now on. When your debt is growing faster than your economy is the definition of unsustainable. In order to flip that and have the economy grow faster than the debt, we need to bring our deficits and debt trajectory down. When Maya started looking at this problem she was mainly concerned with the economic risks like inflation and debt crowding out investment, and those risks still exist today, but now we are also dealing with polarization. We are so polarized now that both sides of the aisle care more about beating the other party than doing what’s good for the country. One of the easiest ways to win over the public is to give them things for free, and this tactic happens on both sides. If we don’t get a handle on the dividing mentality that runs politics right now, we are not going to be able to solve the debt problem. We have to look at the costs to taxpayers to figure out if a proposal is worth it, but when you push the cost onto the future and borrow money to pay for it the cost calculation is thrown off. The truth is that there isn’t enough money in the pockets of the wealthy if you want to expand the government. Taxing the wealthy would not bring the debt to a manageable level, and certainly not if you want to expand government programs. Universal broad-based taxes will have to be part of the picture, along with reductions in spending. Politicians need to be honest with voters about paying for the things that they want and how much they cost. We can’t stay on the path we are on because it will do too much damage to the economy and our strength, and it will hurt families in an ever growing way. Maya used to be confident that lawmakers would eventually be able to compromise and come up with a plan, but not so much anymore. Politicians are being pulled to the extremes and it’s no longer a given that they will be able to come together for the good of the country. If we hadn’t postponed everything, we would have had much easier choices to make. Now, we will probably need another revenue source like a VAT or carbon tax. The solutions are available, but the political environment and leadership isn’t.

In Prosperity in the Age of Decline, the authors are predicting that 2030 will be the opening year of the greatest depression since 1930. Dr. Kotlikoff believes that it might not wait until 2030. China is already beginning to overtake the US in terms of GDP. By the end of the century, the US will no longer be the dominant economic superpower. It’s not looking good in terms of projection. For a depression to occur, there would usually have to be an event or collapse beforehand, which is definitely possible. There are too many examples of hyperinflation over the course of history for the proposition that we can just print our way out of our problems to be true. There is still time to correct our mistakes. We need an independent party to run and expose Americans to the truth of the fiscal condition of the country. One of the problems we are dealing with right now is the marginal taxation of the poorest Americans. Roughly 25% of the poor are facing marginal taxes of .70 on the dollar. We need an incentive system that helps people instead of punishing them. There isn’t much political will to change things. Dr. Kotlikoff wrote a bill to force the CBO to do fiscal gap accounting each year and it only garnered the support of eight senators. To right the ship of state, we need to broaden the tax base. Dr. Kotlikoff suggests putting everybody into a 30% marginal tax bracket while incorporating a progressive system so that the poor are differentially helped. With a few other tax structures and some reform of the welfare programs, it would be possible to get the fiscal gap under control. Reforming healthcare should be a major focus. If we could reduce the spending on healthcare to only 14% of GDP, the US would still have a very good healthcare system and be able to reduce spending considerably. Politicians need to be honest about the fiscal condition of the country if there is ever going to be momentum to change. There are a number of ideas being floated that can help reform healthcare and other social programs, but as the years go on, the options become slimmer. Politicians need to get out of the way and let economists propose solutions that can actually help people. Economics brings an entirely different way to bring financial planning to the table when compared with the industry, which is heavily focused on selling more products. Dr. Kotlikoff has a financial planning software tool you can access at maxify.com to help ensure a smooth retirement.

The official debt-to-GDP numbers are on track to be 110% by the end of the year, which is nearly a 30% increase over the last decade. The trouble is this calculation doesn’t count unfunded obligations like Social Security. Economic theory doesn’t differentiate between official borrowing and unofficial borrowing. The government has left a number of things off the books in order to keep the public in the dark about the true costs of what they are doing. Fiscal gap accounting puts everything going in and going out on the books and looks at the difference between the two streams. Right now, the US is counting the official debt of one year worth of GDP. This leaves another seven years' worth of GDP that we are not counting which is the real problem. In terms of fiscal gap, the US is in twice as bad a shape as the worst country in the European Union. In absolute numbers, the national debt is closer to $160 trillion than the $22 trillion that is officially reported. One proposed solution from the Modern Monetary Theorists is to simply print 8 years' worth of GDP, but that’s not really an option and would likely result in immediate hyperinflation. The money printed since 2008 is already beginning to have an effect on consumer prices, and printing money is only a temporary solution. Printing money is a form of taxation. While the US needs to collect more in receipts, printing money comes with inflation and that can take on a life of its own. Once people begin to expect a period of inflation, the Federal Reserve can’t do much other than accommodate those expectations. Programs like Medicare are paid in kind. If we try to inflate our way out of our Medicare problem the cost of the program will rise commensurately. When we look at what the government has been doing as a whole, it looks like Modern Monetary Theory has already taken hold. MMT proponents don’t sound like regular economists. They’re actually closer to religious fanatics or political ideologues than economists. The idea behind MMT is that as long as the printed money results in increased economic output we won’t see inflation. In order to judge inflation, we have to look at what would have taken place had the money not been printed. The big danger is a sudden spike in either prices or just the general awareness of the US government’s true fiscal situation. Like going bankrupt, right up until the day you lose everything it can all appear to be working just fine as you continue to spend down your borrowed money. Historically, MMT has not played out well for countries that tried it. The process is like a slow-growing cancer. It may take decades to take its course but the effects will become obvious and pervasive eventually. There are no great choices. To reverse course it would require either imposing a lot of pain on a small subset of people or accepting an environment of permanently high taxes forever.

Brian Beaulieu is in the business of predicting economic trends. He’s been forecasting trends for the past 39 years and he’s very transparent about his methods. Brian is politically agnostic and aims to be as objective as possible. He doesn’t make money if the market goes up or down, he makes money by being right. Between March 20th and 28th of 2020, his GDP retail sales forecast came out with a 98% accuracy. When it comes to long-term trends, there are only a few ways they can play out. In terms of accuracy, Brian forecasted the great depression of 2008 and 2009 at the tail end of 2003, so their clients were well prepared when the crash hit. Back in 1987, a month before the stock market experienced a short but rapid decline, Brian warned his clients to get out and saved them from heavy losses. Brian’s team has a unique methodology as well as business cycle theories which help them achieve such a high level of accuracy. By using a system of leading indicators, Brian can forecast major market trends with confidence. Business cycles don’t turn based on old age, but that does produce imbalances which accumulate eventually causing major trends. Overall, Brian and his team have had an average accuracy of 94.7%. It’s not particularly useful to read financial publications when it comes to trying to make predictions. Publications like the Wall Street Journal are in the business of selling ad space and have financial biases. They often look for data that reinforces what they already believe, and if they don’t play that game, then their subscription base dwindles. Financial publications are interested in articles that get clicks, not in predicting the future. Brian knows that he’s not immune to that, which is why he tends to be very dogmatic about his leading indicators. Humans have a tendency to think linearly. Financial behavior has a recency bias and whatever we have experienced most recently has the strongest imprint on us. This leads people to think that next month will look a lot like last month, and next year will look like this one. Most Millennials and Gen Xers have only experienced falling interest rates. Because they haven’t experienced a rising interest rate environment they can’t figure out ways to take advantage of it. If the success of stimulus spending is defined by people receiving a check and thinking fondly of the political process, then the most recent stimulus was indeed successful. Long-term, the stimulus has made the forecasts worse and someone is going to have to pay for it. People are aging, and as a population gets older they spend less and cost more. We are not going to get out from underneath those healthcare costs until 2036. Another issue is that the government has refused to fund Social Security, Medicare, and Medicaid. When interest rates start to rise again, the government is going to find itself in the position of not being able to afford both the mandatory and discretionary items. Most people like to think that rising healthcare costs are due to litigation or the greed of pharmaceutical companies, but the truth is more complicated than that. All these trends are going to line up around the time when the US national debt is so large that it becomes untenable. Advocates of Modern Monetary Theory believe that because we can print our own money that we don’t have to worry about that, but history tends to disagree. What happens when the rest of the world stops lending the US money at the current interest levels? Over the next 8 years, Brian does not expect any politicians appearing with the political will to change the trajectory of the country until it’s too late. Since the inflation from stimulus spending is not immediately present, people are going to believe that they can print money indefinitely with little to no consequences. Even with Covid-19, the level of stimulus hasn’t changed the date of Brian’s prediction. In order to prepare, you need to make as much money as you can in the intervening years and invest in assets that do well when the US dollar is declining. Around 2029, you should flip into assets that will protect you during a period of deflation. The goal is to preserve your cash on the way down, and then in 2036 get ready to begin buying assets and stocks when things get back on the upswing.     Mentioned in this Episode: ITReconomics.com

There is a new bill moving through Congress right now that has bipartisan support and is fairly likely to pass in its current form. We can get a good sense of what the bill is intended to do by looking at the title page. The stated goal of the bill is to increase retirement savings, and to simplify and clarify retirement plan rules. Change #1 is that the bill enacts changes to required minimum distributions and does so according to a schedule that depends on how old you are now. This change will affect roughly 20% of IRA owners who don’t need their RMD’s to cover their lifestyle expenses and they will be able to push their RMD’s further into the future. Change #2 involves catch-up provisions for IRAs, and that includes Roth IRAs. This section of the bill indexes IRA catch-up contributions for inflation, which brings them up to par with other retirement investment accounts. Change #3 are age-sensitive changes to catch-up provisions for traditional retirement plans. This change only affects people who are currently between the ages of 62 and 64 and says that starting in 2023 your catch-up provisions for traditional plans go from $6500 to $10000. This provides a narrow window for people who are just on the threshold of retiring but need to make greater contributions. Change #4 requires all catch-up contributions to be made to Roth accounts. Roth IRA’s are so beneficial to people, especially in a rising tax rate environment, that many people believe that at some point they will be taken away, but the truth is that the government loves the Roth IRA. It provides the short-term infusions of cash that the government and politicians desperately need today rather than decades from now. Change #5 is that retirement plan employer contributions can be designated to Roth accounts. Is a rising tax rate environment, this is exactly what we want. With a 30-year time horizon, this will allow us to squeeze the most efficiency out of our retirement dollars. This will probably result in you having to pay taxes on the matched amount, but given the historically low tax rate environment that we are in that’s still a good deal. Change #6 are changes to the penalties for failure to take required minimum distributions. Instead of being penalized by 50% for failing to take your RMD by the required date, the penalty is reduced to 25%. The penalty becomes 10% if you correct that within three years. This sounds like an improvement but it may also mean the IRS is less likely to waive the penalty than they were previously. One of the biggest takeaways from these changes is that the government loves Roth IRAs. They love it because it gives them revenue immediately, during their tenure in office, and we love it because it allows us to take advantage of historically low tax rates before they go up for good.   Mentioned in this Episode: H.R. 2954: waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/BILLS-117hr2954ih.pdf Jeff Levine on Twitter: @CPAPlanner

With the recent release of the US Census we are getting a picture of the upcoming demographic time bomb facing the country. The 2020 census revealed that there are 331 million US residents, which represents a 7.4% increase since 2010. This is significant since this period is the second slowest rate of growth we have experienced as a country since the Great Depression and roughly half the growth rate we experienced during the 90’s. When you combine the lower birth rate and declining immigration with a rapidly aging population, it indicates that we are entering a period of substantially lower population growth. If it stays this low, it could mean the end of American exceptionalism in this regard. The US population has always outpaced the growth of other developed countries but that’s no longer the case. This means that the US is losing one of its major competitive advantages. The question is why we are experiencing low population growth? Fewer births and more deaths reflect a reality where more people are delaying child bearing and delaying marriage, as well as a rise in drug and endemic-related deaths. The average age of Americans also continues to rise because of this trend. The current birth rate of America is 1.7, which is below the threshold for the replacement rate of 2.1. Historically, the answer to this demographic quandary has been immigration, but we haven’t seen the immigration levels we’ve had in the past. Fewer birth rates in Mexico and a generally improving economy means that the historical source of the majority of immigration is lower than usual. The growth rate of our nation is as tepid as it’s ever been at any point in our history, and we are likely to see a slowdown of economic output as a result. We have more people above the age of 80 than we do below the age of 2. There will come a time when we sell more adult diapers than baby diapers. With fewer people in the country producing fewer goods and services we will see a lower GDP over time. Other countries are facing the same issues and have begun offering incentives to young people to encourage a higher birth rate. From an economic perspective, we are going to have a hard time funding social safety nets and entitlement programs for citizens of the US. Ideally, every generation is bigger than the previous generation. It should look like a pyramid with more younger people at the bottom but the current reality is an inverted pyramid. With 78 million Baby Boomers, there are not enough younger people working to support Social Security, Medicare, and Medicaid. This means that we will need massive infusions of cash to pay for these programs. The only real solution for retirees facing this sort of demographic time bomb is to save in tax-free vehicles. If you’re one of the 95% of Americans that have the majority of their money invested in tax-deferred vehicles, it’s time to take advantage of today’s historically low tax rates. Given Joe Biden’s position on taxation, you probably have until 2030 to get most of the heavy lifting done. 2030 will be a perfect storm. Demographics, underfunded entitlement programs, and economic events will converge and could lead to a depression the likes of which we haven’t seen for 100 years. We cannot ignore demographics because in many ways they describe what the future will look like.

This is an apolitical podcast. The goal is to call out fiscal irresponsibility no matter what side of the aisle it’s on. It’s less about politics and more about math. Joe Biden recently came up with a proposal to reform capital gains taxes. The increased revenue that is thought to come from this reform is earmarked to pay for childcare, universal pre-kindergarten education, and paid leave for workers. The state of capital gains taxes currently is that if you are in the 10% or 12% tax bracket you don’t pay any capital gains taxes. It currently sits at 20% for people above those brackets and for people making more than $250,000 per year there is an additional surtax of 3.8%. This puts the baseline for wealthy Americans at 23.8%. When it comes to capital gains tax, there are four different taxes that may come into play. The first is at the federal level, then there are also state capital gains taxes and local capital gains taxes in some parts of the country, and finally the Obamacare surtax. The Biden proposal basically says that anyone who makes more than a million dollars per year would see their federal capital gains tax go from 20% to 39.6%. If you lived in New York City and included the other governmental layers of capital gains taxes, this would result in a total capital gains tax of 58.2%. Residents of Portland, Oregon would be looking at a capital gains tax of 57.3%. This doubling of the federal capital gains tax rate would generate roughly $1 trillion in additional revenue. This proposal will not likely pass through the usual route and would likely have to come through budget reconciliation. In its current form, the proposal will not likely pass because there are Democrats who believe that the tax is too high. Most people see the bill as the initial salvo in the negotiation process and the end result will be somewhere in the middle. Compared to other countries, this proposal would put America at the top of the list for capital gains taxes. If you make more than a million dollars per year, this proposal will likely affect you quite a bit. If you make less than that, you won’t have to worry about it. If you’re concerned about capital gains tax rates, you need to stop accumulating huge amounts of money in your taxable bucket. Raising capital gains taxes is not going to solve our country’s problems. We need to see broad base increases in taxes across the board and dramatic reductions in spending. If you want to protect yourself from the inevitability of higher capital gains taxes, you need to stop accumulating money in your taxable bucket and take advantage of all the tax havens that are available to you. The Roth IRA and Roth 401(k) are great options and allow you to put a lot of money into tax-free vehicles. There are unlimited amounts of money that can be converted to the tax-free bucket with Roth conversions. The LIRP is the great antidote to taxation in the taxable bucket. Someone is going to get your money, you might as well get something useful in exchange for it. There are no income limitations or contribution limits with the LIRP. Whether you make a million dollars a year or not, there are a number of alternatives to situate assets to grow tax-free wealth without having to worry about what’s coming down the pipe with regards to taxes. One of the fundamental issues with these tax raises is that they are always earmarked for some new initiative and never aimed at restructuring or fixing the entitlement programs that are driving the fiscal problems in our country.

If you want to maximize the amount of money you can safely spend in retirement some economists say that you should sell some of your bonds and replace them with annuities. According to Tom Hegna, there is only one mathematically ideal retirement plan and annuities are a key component. While you are working, a diversified portfolio of stocks and bonds is the most efficient way to save for retirement, but once you retire the rules of the game change and you need to start thinking about distribution. Tax rate risk is not the number one risk in retirement, longevity risk is more frequently cited by retirees as the number one risk they are most concerned about. In retirement, you should not have a lot of bonds in your portfolio. There is a simple guideline that you can use to determine how much income you need to guarantee with an annuity. Look at your lifestyle and subtract your guaranteed streams of income, like social security or rental income, and whatever is left should be guaranteed with an annuity. Everything else goes into the stock market portion of your portfolio. If you have your lifestyle expenses guaranteed, you have the luxury of watching your stock market portfolio recover after a down year. If you have money accumulated in a life insurance retirement plan, you can take tax-free loans out of that life insurance as well. The last thing you want to do is to cover discretionary expenses by taking money out of your stock market portfolio while the market is down. Annuities are a form of longevity insurance. It offloads your longevity risk to an insurance company which can manage better than you can. The alternative is relying on the 3% rule to avoid running out of money in retirement, but accumulating enough money to make that a viable choice is very difficult. Annuities will extend the life of your investments more effectively than a well-allocated balance of stocks and bonds. The bottom line is that bonds and stocks do not mitigate longevity risk and actually expose you to a number of other risks that can threaten your retirement. If you have longevity in your family or anticipate living a longer life, annuities reward you for doing so. The stock/bond approach penalizes you the longer you live. There are instances where you don’t need an annuity. If you have plenty of income to pay for essential expenses there may be no need. You need to cover your fixed expenses with income that will last the rest of your life. However, this approach can spook some investors since the only money left over with this strategy is invested in the stock market portfolio. Social security is an inflation-adjusted income annuity itself and it’s generally best to max it out by not claiming it until age 70. If you want to get an idea of how long you will live, go through the underwriting process of the life insurance retirement plan. The very best annuity you can buy is to delay social security. Replacing the bond portion of your portfolio with annuities runs counter to much of mainstream financial thought but it really is a great strategy for mitigating longevity risk. All these strategies are true, but if you take your guaranteed stream of income from your tax-deferred bucket you can unleash a chain of unintended consequences which can bankrupt your portfolio years in advance. Once taken, income from your tax-deferred bucket is stuck and is exposed to tax-rate risk for the rest of your life. It’s also counted as provisional income which will dramatically increase the likelihood that your social security will be taxed. When there is a hole in their social security and guaranteed income, most Americans are forced to spend down their stock market portfolio. You can end up spending down all your other assets seven to ten years faster this way. Bonds and cash are not a great place to store your money in retirement. If your lifestyle expenses are covered you have the luxury to leave most of your money in the stock market and can take more risk. If you want the dollars that are earmarked for your discretionary expenses to last the full arc of your 30-year retirement, you can’t have a lot of money in bonds.   Mentioned in this Episode: The Case for Replacing Some Bonds With Annuities - https://stockxpo.com/the-case-for-replacing-some-bonds-with-annuities

Bernie Sanders is heading up the proposals regarding estate taxes, and his proposals are deviating to some extent from what President Biden has campaigned on. Joe Biden’s plan says that the estate tax exemption, which is currently $11.7 million as a single person, or $23.4 million as a married couple, will be reverted back to its 2009 levels. Anything above and beyond those limits would be taxed at a rate of 40% and as high as 45%. Bernie Sanders’ proposal begins at 45% and goes up as the amount being passed on increases. When Bernie Sanders ran for president he proposed a maximum estate tax of 77% at the highest tax bracket but has since toned it down. He is targeting the top .5% of all Americans with this tax and has promised that 99.5% of the American people will not see their taxes go up under the plan. The wealthy already pay a tremendous amount of taxes. The 657 billionaires that are in America will end up owing $2.7 trillion in estate tax under the current tax law, and that money has already been accounted for. Bernie Sanders’ proposal would generate an additional $430 billion in revenue and would be earmarked for additional proposals, not to pay down the existing debt. This is essentially rearranging the deck chairs on the Titanic. It doesn’t change the overall trajectory of the US and does nothing to shore up the programs that are driving all of the debt on the government’s balance sheet. It’s not about what your estate is worth now, it’s about what your estate is worth when you die. You may not have an estate that would be taxed now, but you need to project out what your estate could be worth in the future. Another question is what the estate tax exemption will be at this point. When a country is going insolvent, it looks at quarters to raise revenue to keep itself solvent and that could be the estate tax again in the future. There are ways to mitigate the risk of estate taxes but it requires a long runway and careful planning. It involves shifting money, gifting money, and even loaning money into a trust. The specter of a much lower estate tax exemption means we are going to have to start addressing ways to mitigate tax rate risk when we have 20 to 30 years of runway to be able to position into the right types of accounts.

Modern Monetary Theory (MMT) is a pernicious threat to the Republic and has become a popular theory among left-leaning economists. MMT is less an economical theory than it is a political theory. There are politicians in certain quarters that truly believe that MMT will solve all of our economic problems. They believe that the debt doesn’t matter, printing money has no consequences, and if we want something we can borrow or print as much as we need with no adverse effects. America is already in dire fiscal straits and if we adopt MMT as the prevailing economic policy, it will send the country into a tailspin from which it will probably never recover. MMT says that as long as a country’s debt is denominated in its own currency, that country can borrow as much as it wants. Such proponents also believe that you can print as much as you want with no inflationary consequences. The idea is that the additional money printing will grow the economy, and that will prevent inflation from taking hold. The loudest supporters of MMT come from the progressive wing of the Democrat party, which is the basis for such programs as the Green New Deal, Universal Basic Income, and Free College and Healthcare. The claims of MMT are not only flatly false, they are dangerous. To understand MMT’s appeal, you have to understand the three basic ways you can eliminate debt. The first is by reducing fiscal deficits by either raising taxes or cutting spending. The second is to grow our way out of the debt. Lastly, you can use central banks to print money. MMT proponents will often point to Japan as an example. Japan has a 250% debt-to-GDP ratio so it would seem like a good example of MMT working, but Japan has also taken steps to cut spending, raise taxes, and hold interest rates close to zero for decades. If interest rates ever return to historical levels, Japan, like most countries, would be in trouble. There are certain special qualities that allow the US to continue to borrow at lower rates, the main one being the reserve currency status. Eventually, interest rates will encompass the federal budget of the US government and this could cause a crisis of confidence which could threaten the reserve currency status. MMT advocates deny the existence of that limit and therefore propose to borrow to infinity. They also ignore the history of debt and inflation, with Weimar Germany being a salient example of a country trying to print its way out of a debt problem. At the end of 1923, German currency was worthless with $1 US being equivalent to 4,210,500,000,000 German Marks. Weimar Germany wasn’t the only country to experience hyperinflation. Brazil, Zimbabwe, and Venezuela have experienced extremely high levels of inflation in the recent past, with Zimbabwe’s economy essentially falling apart so completely that the US dollar had to be substituted for their currency. The real mystery is how MMT has such a following despite not having a foundation in reality. The theory has more in common with a moral ideological movement than it does with economics. You can’t borrow in perpetuity, because eventually the people loaning you the money will become skeptical of your ability to pay the money back. Interest rates will eventually rise and inflation will follow shortly after. There are only a few different ways we can solve our problem. We can either cut spending, raise taxes, or some combination of the two. MMT is a dangerous fairy tale that could be more dangerous if it becomes more popular.   Mentioned in this Episode: nationalaffairs.com/publications/detail/the-weakness-of-modern-monetary-theory

Now that Joe Biden has the pandemic relief bill behind him, he can begin to focus on his tax plan which he heavily campaigned on before the election. Joe Biden’s pledge that nobody making less than $400,000 per year will face tax increases has a small asterisk next to it. That threshold only applies to families, and if you are filing as an individual, your threshold is $200,000, which means it will come into play for a much larger number of people. He is still planning on increasing the taxes on corporations, going up from 21% to 28%. For all intents and purposes, this will be felt like a stealth tax for most people since this will likely result in prices going up. If you make more than $400,000, your tax rate will rise from 37% to 39.6%, but he also wants to cap itemized deductions at 28%. Joe Biden tends to view the current system of 401(k) deductions as unfair to people in lower tax brackets, so he’s also planning on leveling that out. This will ultimately result in getting the 401(k) deduction on the front end. That makes much less sense if you are in the 26% tax bracket or above. You are much better off taking the Roth approach and paying taxes on those dollars today so they can grow tax-free in the future. The arrival of the tax bill is still up in the air until we have more information regarding the vaccine rollout. Social Security is also a major focus for a number of reasons. Biden has discussed some major changes to the taxation scheme for the Social Security Payroll tax to try to shore up the coming shortfall. Social Security was previously projected to be insolvent by 2034 and Medicare by 2026. Those projections have been revised to 2031 and 2022. As a president, they typically try to accomplish their biggest changes in the first 100 days in office, which is why there is such a big emphasis on tax reform so early in Biden’s administration. All these changes are likely to take place this year because of the Democrats only needing a simple majority to make it happen. For those who make more than $1 million per year, he wants to make it so that capital gains are taxed at ordinary income. He has also talked about raising the estate tax rate, which could impact people looking to pass their businesses and wealth onto the next generation. There has also been discussion around eliminating the state and local taxes deduction, but that could be seen as a tax break for the wealthy, which is something that he’s trying hard to avoid. More recently, one of Joe Biden’s big initiatives is a $2 to $3 trillion infrastructure package, which may be combined with his tax legislation proposals. This indicates that any tax increases coming down the pipe are not going to be earmarked to pay down debt or shore up the things that will be driving debt going forward. There is currently nothing in the works to shore up Medicare or Social Security to any real extent or paying down the national debt. Joe Biden is currently contemplating extending the Jobs Act tax cuts implemented by Trump and pushing them back all the way to 2030, at which point they would revert back to 2017 levels. 2030 is likely to be a point of reckoning for America. The country will probably be in such dire straits by then that the government will have to raise taxes across the board on every tax-paying American. Ed Slott believes that the math will force the government to raise taxes on Americans starting next year, but David disagrees. If you raise taxes on mainstreet America before you are absolutely required to do so, you will probably be voted out of office, but that time will come. There is a slim possibility that we will see higher taxes for people making less than $400,000 as Americans begin to recognize that there is just not enough revenue to pay for all the entitlement programs. We will see the tax reform bill over the next couple of months, and it will probably be pushed through budget reconciliation. In terms of the extended tax cuts, assuming they come to pass, you now have nine years to shift your money to the tax-free bucket which could be very beneficial. The lower the tax bracket you are in as you shift money to tax-free, the more money that stays in your pocket, and the longer your retirement savings lasts.

If you have a history of premature death or cancer in your family you may still be a good candidate for an annuity. If your spouse has longevity it can still be a good option. Even if you’re not in the best health there are still annuity products with certain features that can still make sense. Some people always want to have control of their money, but they have to realize that an annuity is not giving up control, it’s about taking control over your risk. Annuities give you control over longevity risk, the risk of deflation, withdrawal and the sequence of returns risks. You’re simply taking key risks off the table. The people who buy annuities are the people that want to have control of their future. Annuities are not meant for all of everybody’s money. Most people should put 20% to 40% of their portfolio into annuities. If they did that it would solve most people’s retirement issues. Life insurance is a great bond substitute for younger people, once you’re 65 and above you can replace it with some time of income annuity. The way an income annuity functions inside a portfolio are like a triple A-rated bond with a triple C rated yield and zero standard deviation. This makes them a much better alternative to bonds. Most people don’t realize that they can lose half their money in a government bond because of the risk of interest rates rising, which is a risk that’s not present in life insurance and annuities. You aren’t getting any younger and you can’t take your money with you. This means you are supposed to spend your principal. If you have life insurance in place it allows you to spend your money guilt-free in a way where everyone wins. Annuities are ordinary income, but most people overestimate the amount of capital gains they are receiving. If you’re in a mutual fund or managed money account, a lot of the time it’s actually ordinary income because of the turnover within the fund. When it comes to the stepped-up cost basis the only area that applies is in unrealized capital gains. Most people think the stepped-up cost basis applies to their whole account but they actually paid for it in taxes for all the years they have it. It doesn’t matter whether it’s Republicans or Democrats, both parties spend like drunken sailors. Both parties are spending too much and borrowing to pay for everything. If you look at Modern Monetary Theory closely it only works as long as interest rates are low. Once interest rates start to rise they advocate for slashing spending very strictly which is the source of the problem. We are always willing to take the easy road (spending) but we’re not willing to do the hard things (cutting expenses). It’s hard to predict where the economy is headed over the next ten years because of the crazy amounts of unprecedented money printing recently. 1 out of every 5 dollars in America’s history were printed in the last 12 months. They can keep printing money in the short-term but they can’t do it indefinitely. Tom believes that at some point in the next ten years taxes will go, the market will crash, and there are good odds of another great depression-style event. People need to move from the mindset of building wealth to protecting wealth, and that’s what life insurance and annuities can do. Another interesting point is that in the state of Arizona, the money you put into annuities is protected from lawsuits. Protecting your wealth is more important than building your wealth.   Mentioned in this Episode: For advisors interested in learning more about Tom's training materials, go to tomhegna.com/webinars

Popular speakers in the financial and retirement space like Ken Fisher and Suzy Orman have made annuities rather unattractive. The major objection has to do with the supposed fees of the product, even though many of the annuity options are not actually fee-based products. Ken Fisher has high fees, just like other investment options like commodities, hedge funds, and real estate. Variable annuities have higher fees than mutual funds but they also come with guarantees, and he’s essentially convincing people to move from those guaranteed products to another high fee fund. People often say they want no fees, but if that was the case they would just put their money into a savings account. It’s not about the cost of the fees. Its about the value you’re getting in return for the cost. Life insurance and annuities are not a religion and don’t require your beliefs. They are both basically risk transfer vehicles. An annuity is essentially a guarantee that you will never run out of money as long as you live. With all the medical breakthroughs that have happened recently, people are living longer lives, which is only increasing the odds of falling prey to the number one risk in retirement. Tom believes that you should spend all your money and leave life insurance to your kids. Leaving your IRA to your kids is not a great vehicle to transfer your wealth. People have been programmed to spend their paychecks while they are working while not touching their 401(k)s and IRAs while they are working, but once they retire they have to switch their mindset. You should use your money to actually enjoy your retirement. Any money that you want for retirement is appropriate for an annuity, especially after the age of 59 and a half. Annuities are not meant for a down payment on a house or your children’s college education, but depending on your goals, annuities can be one of the best places to put your retirement money. If you’re young and want to save as much as possible without losing what you have, an annuity is a great option. It would be possible to purchase a significant stream of money by the time you’re retired and it wouldn’t be that painful if you spread it out over your working years. People need to start thinking about income, rather than accumulating a big pile of money by the time they retire. Tom owns eleven annuities but he has even more in cash-value life insurance. Tax-free income in retirement is going to be vital, and people are not prepared for how much taxes are going to go up in the near future. If taxes go up and the market crashes, there are going to be a lot of people who are going to suffer. Liquidity is not a one time event, it’s a lifetime event. When you buy additional lifetime income you are increasing your lifetime liquidity. Annuities are a long-term plan. That money is not for emergency expenses. The overall strategy is not all or nothing. You can’t put all your money into an annuity or life insurance, they are all part of a balanced portfolio. If you guarantee a portion of your income in retirement by way of an annuity, it will free up the money in your stock market portfolio to continue to perform for you. Life insurance and annuities are permission slips. They give you the ability to spend all of your money and invest more aggressively elsewhere. Tom has been a proponent of investing 1% of your portfolio in Bitcoin which fits right into his overall strategy. Having guarantees in your portfolio gives you that kind of option. In this low interest rate environment annuities are more efficient than normal because the interest rate matters less and less as you get older. You also have to compare the other options. Why be in the market when you can guarantee a 12% payout rate for the rest of your life? Mortality credits are extra money from the risk pool that you get paid the older you are and the longer you live. Because the insurance companies can predict mortality in a large group pretty accurately, they can price the plan differently and afford these kinds of payouts.   Mentioned in this Episode: For advisors interested in learning more about Tom's training materials, go to tomhegna.com/webinars

The amount of money that we’ve printed over the course of the past year and what we’ll print in 2021 is equivalent to the entire economy of Japan. Van Mueller believes that at some point in the future the US dollar will no longer be the reserve currency, and when that happens the standard of living for Americans will go down almost immediately. Every country is printing money and destroying their currency’s purchasing power, but the US is doing it on a scale that’s unheard of. If you talk with the right specialist, they can show you a strategy where you won’t be hurt by these economic shifts. Leadership is the key missing factor in solving these problems. If we had politicians that were willing to make tough decisions we could salvage our country but those are few are far between, and people need to elect the ones that show leadership. There is no end of the world situation. Eventually, the US will fix everything, either through great leadership or a great calamity. For the people that don’t strategize and plan for the upcoming changes, they will have a lower standard of living. If you want a better standard of living you need to plan now. The debt will never be paid back and we can make a number of assumptions from that. The government will do everything they can to keep interest rates low and there will likely be a ton of volatility in the markets over the next ten years. There are products and strategies that allow you to win in any circumstance, but you have to take the time to build these strategies or these forces will destroy everything you’ve worked for. Studies have shown that 93% of Americans take Social Security to their detriment instead of their benefit. If the goal is to maximize retirement income you should be maximizing your Social Security. There are all kinds of planning opportunities if you understand the right questions to ask. If you really want to know how long you’re going to live, go through the life insurance underwriting process. Almost everyone is willing to have the conversation of how to keep their wealth to their family’s benefit instead of sending it to the government, a hospital, or a nursing home. Based on the math, if you’re married and don’t do any planning, and you have two children, if you both pass away the IRS is going to be the primary beneficiary of your money and not your children. 99% of Americans don’t understand tax law and don’t realize the government’s need for revenue in the future, and if they don’t plan for that there are going to be a lot of people’s hopes and dreams decimated by that. If you’re an advisor, talk to your dry cleaner, your mechanic, and anyone that you know and ask them some simple questions because chances are they have no idea what’s coming. This is the greatest time ever to be an insurance or financial professional. This is also the greatest time ever to own cash value life insurance. There is nothing else that can compete based on what the American government is about to do to people.   Mentioned in this Episode: Van Mueller's newsletter and audio training for financial advisors can be found at vanmueller.com

The general public should definitely be paying attention to the impact of inflation and what’s driving it. The government has gone to such ridiculous measures printing money that by the year 2029 the government will literally have to print the entire budget of the United States. Instead of inflation, we should be thinking of it in terms of a stealth tax. The M2 money supply is a good barometer for inflation statistics and by 2029 they are expecting the current M2 money supply to exceed $122 trillion, a near ten-fold increase from what’s in circulation today. This increase in the money supply reduces every single American’s purchasing power and constitutes an additional tax over and above the existing taxes. If you can reduce or eliminate your income tax liability, you are offsetting some of the damage of reduced purchasing power. It’s vital to understand that not only is the government going to increase your income tax, they are also going to dramatically increase your stealth tax by decreasing your purchasing power. There are solutions to these situations that allow you to win, not just reduce the pain. The secret is in taking action before these problems can impact you. Truthinaccounting.org was created by accountants to give people an accurate picture of the financial state of the federal and state governments. The situation is bleak with the vast majority not being able to pay their bills already. We will be about $87 trillion in debt by 2029. We are going to have to deal with a new financial world that requires some strategies that protect you from the ridiculousness of government. States and cities are unable to print money, so the only way to pay their bills is to increase taxes, reduce benefits, borrow more money, or a combination of all three. The bailout precedent has already been set, but even if they get a bailout you will still be impacted. Even if the benefit remains, they are going to increase the taxes on it and reduce your purchasing power at the same time. If you add up all the money that the US government has ever printed, you will find thatover 40% of it was printed in the year 2020. They now have an unlimited printing machine that they are going to use regardless of the damage it’s going to do to you, your children, and your grandchildren. The debt we talk about is not even the full picture because it does not include all the unfunded obligations. Most people expect to inherit their money all at the same time, regardless of the taxes they will have to pay. This usually doesn’t end well. Van helps his clients to eliminate the income tax burden completely. It makes much more sense to pay taxes at the grandparent’s historically low tax rates and reposition the money to tax-free now, instead of having to distribute the money all at the same time because of the Secure Act. Covid-19 has changed everything, but nobody knows just how much yet. The latest jobs report indicated that another 792,000 people have filed for unemployment. This means that 49% of all the workers in the US have filed for unemployment since the pandemic began. There are many jobs and industries that are not coming back or will be operating under a completely new paradigm. Even if we taxed every person who made more than $100,000 by 100% it would barely make a dent in the yearly federal budget. 81% of Americans make less than $75,000 a year, so anyone who makes more than that has a major target on their back. The government needs revenue, and they aren’t going to wait. Over the next 25 years there are going to be 140 million Americans over the age of 65 and they are going to need money to pay those people. We don’t have a tax problem, we have a spending problem. It’s easy to blame taxes, but if we spent what we brought in and lived within our means we would be in a completely different scenario. The trouble is no one has the political will to say no.   Mentioned in this Episode: Van Mueller's newsletter and audio training for financial advisors can be found at vanmueller.com

Some people have a concern about the implications of the tax arbitrage they could be receiving if they just waited. This is the key to the Roth plans and Life Insurance vehicles that Ed described. The big myth is that you will be in a lower tax bracket when you retire. If you let your IRA just continue to grow, at age 72 the plan will be out of your control, and you will be forced to take the money out at the prevailing rates, whatever they are at the time, for the rest of your life. For married couples, there is another problem they don’t think about, and that’s that one spouse usually dies first. This means the surviving spouse becomes a single taxpayer again. This means they will have the same assets and income but at much higher rates. If you don’t pay the taxes now, there will always be uncertainty. If you lock them in now, you will never have to worry about taxes again. Most retirees don’t suddenly begin spending like rock stars. If your single child inherits a million dollar IRA, they are going to be forced to realize it as income over the course of 10 years when they are probably at their highest earning potential, at a period of time when they can least afford to pay the taxes. If you don’t need some of your money in retirement, doing a Roth conversion on that money is like a gift to your children and grandchildren. You can give them a tax-free account which can be coupled with a tax-free life insurance plan to maximize the benefits. We are in a period of historically low tax rates, and in a rising tax rate environment, it only makes sense to pay the taxes now and get the money moved to tax-free. Yet 90% of all retirement dollars are in tax-deferred accounts. Most people believe that tax rates are on the rise, yet still have the majority of money in tax-deferred accounts. The secret to having more later is to pay the tax now. All the good things in life you pay for upfront, but it’s the bad things that you defer that end up costing you. If you take care of the problem early, you have less to worry about. Like spending money on dental care, waiting until the very end makes the problems more painful and more expensive. Covid has led to people running to their estate planners. It has put more attention to making sure people have a plan in place in case they die or get sick. When you combine that with the additional $3 trillion dollars in debt the US government has accumulated, we are going to have to face the day of reckoning much sooner than we thought. Just like stocks, with taxes we should buy low and sell high. Right now taxes are low, and they may never be this low again in our lifetime. A good analogy is like paying off the mortgage to your house. When you finally make that last payment and own your house free and clear, it’s a great feeling. You can get that same feeling by paying the taxes now and owning your investments tax-free forever. You can do everything right when it comes to your IRA. You can build and save and invest well, but if you don’t protect it, all your family will remember about you is that you blew it. The people with the most money want the best trained advisors. Ed has several opportunities for advisors to learn how to help people keep more of their money and other tax planning technologies. All people want larger inheritances, more control, and less tax. You control your rate and which advisor you work with. Only invest with an advisor that invests in their education. The problem with the tax rules in the tax code is that they are rigid and unforgiving. You need to get the right answer the first time.   Mentioned in this Episode: The New Retirement Savings Time Bomb by Ed Slott can be pre-ordered on Amazon here: https://www.amazon.com/gp/product/B07TSZSSY5/ref=dbs_a_def_rwt_bibl_vppi_i0

Ed Slott has a new book coming out called The New Retirement Savings Time Bomb. It’s the updated version of the original book written 20 years ago where the time bomb was the tax building up in your IRA account. If you didn’t know how to plan, you could be hit twice and lose up to 80% and 90%. Some of the Estate taxes have gone away since then, but there are other new threats to your retirement savings than ever before. Congress always needs money, and they will always go for the lowest hanging fruit, which is your retirement savings. It’s like a deal with the devil, getting those deductions on the front end with the hope that you will be in a lower tax bracket. This assumption is where the danger lies. The Secure Act has ironically made your retirement savings less secure. The biggest threat is the elimination of the stretch IRA and the estate implications. Every plan needs to be reviewed and revised, maybe scrapped altogether for different thinking entirely. Congress needs money, which means tax rates are going to go up and that people will have less money in retirement. What is driving the need for these huge infusions of cash? Deficits and debts are the issue. The government has been recklessly spending for decades, and now it’s only increased with the effects of Covid-19. When most people think of compound interest, they think of how Albert Einstein is the 8th wonder of the world. It’s great when it’s working for you, but awful when compounding is working against you. Compounding debt is the real issue. The math doesn’t discriminate. The math bears it out that we will never see tax rates as low as they are today. We need a more stable and secure plan for the future. The history of tax rates shows that we could return to where rates were as high as 90% for the top tax brackets. You may only have one more year to take advantage of these historically low tax rates. People have to realize that they are in control of their tax rates. Taking advantage of the current low tax rates is the best tax planning you can do. Always pay taxes when the rates are the lowest. That may mean paying some taxes now, but you have to remember that taxes are a bill that won’t go away. The concern about losing out on compounding interest when converting to a Roth IRA is a myth. If you are truly comparing apples to apples, there is no loss when using the same rates of return and taxes, but if rates go up, then everything changes. When rates go up, everything tax-free becomes more valuable. When you have money in your IRA, it is accruing to the benefit of the IRS. When you convert now, you are claiming your portion of the money, as well as the future interest. Taxes have to be paid for. It’s not if, it’s when. Why not pay them while they are on sale? Even in the worst case scenario, by converting now you lock in a zero percent tax rate for the rest of your life, which is not a bad consolation prize. After the Secure Act, using a trust to protect your money after death is no longer viable. Regardless of what happens with tax rates, this is going to become a huge burden for a number of people, and this makes a permanent life insurance policy even more attractive. People don’t care about the vehicle. They want the results. They want low taxes, larger inheritance, and post death control, and a permanent life insurance plan that fits the bill.   Mentioned in this Episode: The New Retirement Savings Time Bomb by Ed Slott can be pre-ordered on Amazon here: https://www.amazon.com/gp/product/B07TSZSSY5/ref=dbs_a_def_rwt_bibl_vppi_i0

Joe Biden’s tax proposal has serious implications for anyone attempting to use the Power of Zero paradigm for their retirement planning. We know that the current tax cuts enacted by President Trump will remain at their current levels for the next five years and will revert to what they were in 2017 starting January 1, 2026. This tax sale gives us a historic opportunity to take advantage of low tax rates when we are executing a shift between the tax-deferred and tax-free buckets. If you wait until 2026 to shift that money, the tax brackets will go up and it will cost you significantly more. The Democrats won the runoff elections in January which have created an opening for Joe Biden to bring about the tax initiatives that he campaigned on. Joe Biden wants to raise taxes on anyone making more than $400,000 per year. Not only that, but you will pay a FICA tax on any dollars above the $400,000 mark of 14%. Right now, Joe Biden has to go through the budget reconciliation process to effect a permanent tax cut, but he can use the same process to extend the current tax cuts. For all intents and purposes, Covid has thrust us into a recession. This means that Joe Biden will not likely raise taxes until 2022. Joe Biden could create a tax cut that would last for 8 years essentially extending the Trump tax cuts for another 3 years. For people making less than $400,000, their tax brackets would stay historically low almost until 2030. This gives you 8 years to get your shifting done and allows you to spread out the burden even more. David calculated the benefits of an additional 3 years when shifting $1.5 million to the tax-free bucket. The difference is an 11% difference in taxes that you would have to shift the money in a shorter time period. This won’t be a great deal if you make more than $400,000 or if you are planning on shifting enough money to put you above that threshold. The reality is that tax rates are likely to be much higher in 2030 and beyond. Even if the dates are pushed back, it only kicks the can further down the road. When taxes are on sale, every year counts. As of Jan 1, 2018 you are on the clock. By keeping tax rates low for middle America the day of reckoning is a bit further away, but the fix will have to be much more draconian. Joe Biden is not fixing the root of the problem. In order to balance the budget by raising the tax rates on everybody, tax rates would have to go up to 49% across the board. Simply taxing the top 1% is not enough in order to get the revenue we need to right our financial ship. The tax base has to be broadened and everyone will have to pony up eventually. David believes that Joe Biden will work through the budget reconciliation to extend the Trump tax cuts by the end of 2021, despite that it’s the opposite of what we need to do to fix our financial situation. If you’re looking to get into the zero percent tax bracket this will be a great opportunity to stretch out your tax burden over a longer period of time. The Covid stimulus and vaccine are the priorities right now, but once those are dealt with he’s going to start tackling tax reform.

There are some basic updates and thresholds you need to be aware of if you’re interested in implementing the Power of Zero strategy. The first change is that your standard deduction went from $24,800 to $25,100. This may not seem like a big deal but does mean that you can have a larger amount of money in your IRA by the time you’re 72. The Roth IRA rules are not being changed at all, despite other account types having their thresholds changed. There haven’t been any dramatic increases within the tax brackets yet, just the usual adjustments to keep up with inflation but there are still numbers you need to pay attention to, particularly where the 22% and 24% tax brackets start. The 24% tax bracket is still the sweet spot within the tax code. It’s only 2% more than the 22% tax bracket but allows you to convert nearly an extra $150,000. In the grand scheme of things when we are trying to protect ourselves from the impact of tax rate risk the 24% tax bracket is an important tool. The Roth income limit phase-out range has shifted slightly, this means that when you reach the top of that range your ability to contribute to a Roth IRA reduces commensurately. If you exceed that range your options include a backdoor Roth or a LIRP. As we go forward into 2021 you are likely to see changes to the deductibility of your 401(k). Joe Biden plans to level the deductibility around 26%, which means that at higher levels of income the 401(k) becomes less attractive and you should forego that deduction and put that money into your Roth 401(k). You are likely to see a change in the marginal tax rate for people making more than $400,000 per year. In an article by the Committee for a Responsible Federal Budget, they did some studies that showed that at a certain level of tax will depress economic growth. It appears that the Biden administration may have taken their cues from the study. For example, if you live in California and add up all the taxes proposed by the Biden administration (39% Federal, 13% State, 3.8% Obamacare surcharge, +14% New Biden Tax Increase) it approaches the threshold that studies show directly impacts the economy. We are also likely to see forgiveness of federal student loan debt up to $10,000. Other people are lobbying for up to $50,000 of student loan forgiveness. If you have $10,000 or less in student loans, avoid making payments on those loans until the Biden administration confirms their plans over the next 6 months or so.

Due to low prevailing interest rates, the federal government has restricted the ability of industry experts to show the robust rates of return that LIRPs are capable of. When the Consolidated Appropriations Act was passed in the final hours of 2020 it amounted to a Christmas miracle, and it will be immensely positive for LIRPs and will position them to thrive in an environment of low-interest rates. Section 7702 is the section of the tax code that governs the tax treatment of life insurance and it hasn’t been changed in decades. The tax limitations within the section are calculated by asking a simple question. Namely, at what premium level will the policy stay in force based on the life insurance expenses and assumed interest rate? Baked into the 7702 code was the assumption that your cash value would grow at either 6% or 4%, depending on premiums. When you put money into a life insurance policy, there is a relationship between how much money you can contribute and the death benefit that you are purchasing. This is because the IRS wants to define how much tax benefit you can get, this was directly affected by the assumed interest rates. On page 4923 of the Consolidated Appropriations Act that was passed at the last moment of 2020 we find a hard coded rate of 2% for 2021 and a floating rate based on prevailing interest rates in 2022 and beyond. This essentially means that you are going to be able to put considerably more money into a life insurance policy for the same death benefit. The expenses of these life insurance policies are relatively fixed, which means you are incentivized to put in as much money as you can to maximize your return. For people between 40 and 55, the amount you can contribute has increased anywhere from 60% to 100% with triggering a modified endowment contract which would result in the distributions becoming taxable as regular income. The end result is that LIRPs are going to become more efficient going forward. Bobby Samuelson runs some calculations in his article to illustrate the differences between the past regulations and the recently passed act. Using the new 2% hard coded interest rate, the scenario illustrates that you could contribute significantly more money while still maintaining the preferential tax-free treatment, while also increasing the rate of return. This allows you to also increase the distributions over the life of the program. Because of this act, all policies will now have more efficient cash value growth, which means the LIRP will be an even more attractive alternative to those who are using it as an accumulation and distribution tool. Other countries will eventually stop loaning the US money as we experience a sovereign debt crisis, which means that interest rates won’t stay low for very long. The long and short of it is we should feel better and more optimistic about LIRPs now than we ever have. The ACLI and Finesca were primarily responsible for the new act by persuading legislators to lower the hard coded interest rate and linking it to prevailing rates in the future. This change will not affect any existing LIRPs that are currently in force but there is still some uncertainty regarding whether increasing the death benefit of an existing policy will be affected by the new legislation. This is great news for anyone who has a LIRP or is considering one to maximize their tax-free benefits.   Mentioned in this Episode: https://lifeproductreview.com/2021/01/05/257-the-section-7702-christmas-miracle

Things may seem bleak when you look at the numbers, but there are solutions that we can implement that could help our situation and ultimately prevent the worst outcomes when it comes to the national debt. David Walker’s book was divided into three parts: a wake up call, a call to action, and a way forward. He has a number of solutions that he’s proposed that meet six principles. Any solution would have to be: pro-growth, socially equitable, culturally acceptable, have mathematical integrity, be politically feasible, and have meaningful bipartisan support. We have to agree that the real metric to measure is debt-to-GDP and we need to get it to a sustainable level within a reasonable period of time. We also have to recognize that this can’t be done one reform at a time and needs to be addressed as a package. Medicare seems like the hardest nut to crack because it is tied to demographics and health care costs grow faster than inflation, which prevents the US government from printing their way out of the problem. Most Americans agree regarding gradually increasing the age of retirement over several years which was done in the 1980s Social Security reform package. Increasing the the taxable wage base cap and adjusting the benefits paid out (e.g., higher replacement rate for lower income and somewhat lower for higher income individuals) are reasonable solutions for Social Security. When it comes to healthcare there are a number of more complex issues to deal with. The first is that the US government has overpromised on healthcare. Government needs to determine a reasonable, affordable and sustainable level of healthcare that should be available to everyone and government needs to have a budget. Government will do more for the poor, disabled and veterans. The US is the only country on the Earth that doesn’t have a budget for healthcare, which is one of the reasons that there are so many healthcare horror stories in the US. If interest rates simply return to 2003 levels, the cost of servicing our current debt quintuples. Interest rates are not going to stay low, they are going to go up. The only question is how much and how fast. David Walker believes that we will not default on the debt because federal debt is guaranteed by the U.S. Constitution. The responsibilities of the federal government envisioned by the founders took up 97% of the budget in 1912. This has fallen to 29% of the budget, and was declining as of 2019. The higher the debt-to-GDP goes, the higher that taxes are likely to be, and the lower the level of economic growth we are likely to achieve. The longer we wait to solve the problem, the higher that taxes are likely to go as well. The biggest deficit the United States has is a leadership deficit. We have too many people living for today and not enough people focused on how to create a better tomorrow. The two party system is part of the problem. 43% of voters are unaffiliated, and are largely unrepresented. It ultimately falls onto the President to make this issue a top priority. We need a mechanism that engages the American people in unprecedented ways and sets the table for tough fiscal choices in Congress (e.g., a Fiscal Sustainability Commission), and the sooner we do it the better off we’ll be. President Biden needs to deal with this problem because we only have one President at a time and one bully pulpit where the message can really make an impact. We need a number of political reforms because today we have a Republic that’s not representative of, or responsive to, the general public. David recommends redistricting reform, integrated open primaries, ranked choice balloting, campaign finance reform, and 12-year term limits. Career politicians are not what the US needs. It’s not what the founding fathers intended and it’s one of the many things that we need to change to revitalize our republic. On a personal level, we need to focus on our families and our clients. We can’t control what happens in Washington but we have to take steps to hold our elected officials accountable as much as we can.

David Walker is a certified public accountant and has spent many years in public accounting. He’s run three federal agencies, two in the executive branch and one in the legislative branch. As the Comptroller General of the United States he was the chief performance and accountability auditor of the US. More recently, David Walker has run two non-profit companies and been a distinguished visiting professor at the US Naval Academy and has been on a number of boards and advisors groups dealing with a number of issues facing the US. Historically, there have been four things that have defined a superpower and the question is whether the US will still be a world superpower by the year 2040. The four main things are global economic, diplomatic, and military power, and global cultural influence. Under these definitions, in the years after World War 2 the US was the only country to qualify as a superpower, but in modern times China is beginning to overtake the US in many of those areas. China has already passed the US in terms of GDP on a Purchasing Power Parity basis. They have more embassies around the world than the US does. China is currently the #2 military power in the world today but they are dedicated to becoming #1, and they are spending a lot of money on it. Culturally, Chinese investors own the largest movie chain in the United States as part of their effort to have a cultural impact. Economics, demographics, and foreign alliances are starting to work against us instead of for us. It’s important that we wake up, learn from history, and heed the lessons from our nation’s founders, and that we start to change course so that we can remain a superpower and make sure our future is better than our past. The reasons that we are currently having problems today is because we have strayed from the values on which the US was founded. We have also not heeded the prescient warnings of George Washington: to avoid foreign wars, not have excessive debt, to avoid regionalism and factionalism. We are actually experiencing the same challenges as the Roman Empire did before it fell. It’s important that we learn the lessons of history so that we can do what is necessary to stay great and ensure greater opportunities for future generations. We were on an unsustainable fiscal path before Covid-19, and now we are in much worse shape. Debt-to-GDP in 2020 increased by 20% which is the most important metric we need to be paying attention to. It’s clear that additional legislation will be passed now that Biden will be President and the democrats control the House and the Senate. We will defeat Covid-19 but once we do, we need to put a mechanism in place that will allow us to make the tough choices that will get the debt-to-GDP ratio to a reasonable and sustainable level over the next 10 to 20 years. Prior to Covid-19, the Social Security and Medicare trustees estimated that the trust funds were supposed to go to 0 by 2035 and 2026, respectfully, but because of the economic effects of Covid-19, the years are now 2031 and 2023, respectfully. This means that revenue will still be coming in but any bills would have to be paid out of those funds. In the case of hospital insurance, payments will have to be cut 10-15% immediately and across the board, with cuts of 20-25% to Social Security benefits. All the more reason we need to recognize reality and start making the tough choices now. What are the implications of having debt balloon out of control? We have passed the all-time record for Debt-to-GDP which was previously set after World War 2. Unlike then though where we rapidly decreased Debt-to-GDP dramatically after the war, we are now adding Debt-to-GDP and plan to add more. Currently, our interest expense is not increasing because we are not experiencing regular market conditions. The Federal Reserve is buying significant portions of US debt and artificially holding down interest rates, which isn’t sustainable. The other problems stem from the proponents of Modern Monetary Theory, a theory that runs contrary to history and long established economic history. Politicians are already fiscally irresponsible, the last thing you want to do is give them an excuse to be even more fiscally irresponsible. History has shown that when debt as a percentage of the economy reaches unsustainable levels, it has an adverse effect on economic growth and this has a knock on effect on personal opportunity. Over 70% of the national budget is already on autopilot, the remaining 30% covers all the governmental responsibilities envisioned by the founding fathers. Modern Monetary Theory is dangerous and fundamentally flawed. The Biden administration will probably not adopt the theory, but even if that’s true we still need to make tough choices on spending and revenue. The problem can not be solved solely by controlling spending and economic growth, revenue will have to go up because of the reality of compounding and math. A wealth tax will enter the conversation, but it’s not possible to solve the issue only by taxing the rich. There is no question that the tax base will have to be broadened and that most individuals will have to pay higher taxes. One of the most important things to understand is that tax rates will never be lower than they are now. Assuming you will pay lower tax rates in retirement is no longer a viable plan. Tax rates may still have to double in the future, the longer we wait to make changes the more likely that’s going to be the case.