The Hero Of Zero: How To Win With Tax Strategy

This article appeared in the December issue of InsuranceNewsNet Magazine.

David McKnight’s warning on pending tax increases becomes more undeniable as each passing year throws trillions of dollars on the national debt.

The debt clock ticked past $27 trillion this year, with another couple of trillion expected to be added to the pile if another stimulus measure is passed. It is a staggering bill that American taxpayers will be left to cover.

At some point, tax rates must increase. Some experts say rates will have to double even to start making a dent in that mountain.

With low interest rates expected to stick around for the foreseeable future, retirees will be struggling with little gain and substantial loss in taxes.

McKnight’s mission is to save retirees from taxmageddon, a future that he described in his book The Power of Zero: How To Get To The 0% Tax Bracket And Transform Your Retirement and his movie by the same name.

He has built a large following of advisors as he has gone on the road preaching his strategy. Lately, he has been based in the tax haven of Puerto Rico, where he has perfected a remote teaching and coaching model in which he can repurpose recorded material to reach thousands more people without the rigors and sacrifice of the road warrior life.

His message has only grown more urgent in recent years as he urges advisors to help their clients take advantage of the golden opportunity of historically low rates following the tax cuts of 2017.

In this interview with Publisher Paul Feldman, McKnight reveals how advisors can use the tax message as their rallying cry and their killer sales proposition. He also shares tips on how advisors can improve their remote selling game.

FELDMAN: Your book has a really great title, The Power of Zero: How To Get To The 0% Tax Bracket And Transform Your Retirement. Can you tell us how that works?

McKNIGHT: You begin with this premise that a lot of experts believe:  Given our fiscal condition in our country, tax rates will be dramatically higher than they are today. It’s the 10,000 baby boomers per day marching out of the workforce onto the rolls of Social Security and Medicare. Throw in on top of that everything, all the bailouts for COVID-19, I think we’re going to be at $4 trillion by the end of the year.

Debt is growing out of control. The cost of renting the money we’ve already spent is only going to grow and compound. A lot of experts are looking at these numbers and saying, “Hey, look, tax rates have to rise dramatically or we go broke as a country.”

Yet, when I asked rooms full of people in my speaking engagements all across the country “How many of you think tax rates are going up?,” they raise their hands. “How many of you have the lion’s share of your retirement savings in 401(k)s
and IRAs?” Most of the hands in the room go up.

What that tells me is that there’s a disconnect between what people think about the future of tax rates and what they’re actually doing about it. The whole goal of the book is, No. 1, to educate people that tax rates are going up. No. 2, to teach them how to shield their hard-earned retirement savings from the impact of higher taxes.

The premise of the 0% tax bracket is you can reposition your retirement savings into tax-free accounts so you can be in the 0% tax bracket in retirement. You can fund all of your most wild and lavish retirement dreams but still be in the 0% tax bracket. We think the 0% tax bracket is powerful, because if tax rates double like some experts predict, two times zero is still zero.

FELDMAN: What are your strategies for advisors to take advantage of this?

McKNIGHT: I advocate an approach that calls for multiple streams of tax-free income, none of which show up on the IRS’ radar, but all of which contribute to you being in the 0% tax bracket. So, for example, a typical recommendation might include a Roth 401(k), a Roth IRA, a Roth conversion.

Through the Roth conversion, if you can get the balance in your IRA low enough, that will produce an RMD at age 72 that is equal to or less than your standard deduction. And if you can keep your provisional income thresholds low enough, and provisional income, that’s the income the IRS tracks to determine if they’re going to tax your Social Security.

If you can keep those thresholds low enough, then your Social Security can also be tax-free. Oh, by the way, I call Chapter 5 of my book “The Life Insurance Retirement Plan.” It is a way, when structured properly, to mimic all of the tax-free benefits of the Roth IRA, without any of the limitations of the Roth IRA.

That’s an additional stream of tax-free income that can be leveraged. Really what we’re advocating here is five or six different streams of tax-free income, none of which show up on the IRS’ radar but all of which contributes to your client being in the 0% tax bracket.

FELDMAN: Is now a good time for doing Roths and converting to Roths?

McKNIGHT: It’s a historically good time.

With the Tax Cuts and Jobs Act of 2017, that inaugurated an eight-year period of historically low tax rates. So how is this story going to end for most Americans? Well, so long as they take advantage of the now six years of remaining historically low taxes, and get those tax-deferred assets, systematically repositioned to tax-free, then they get to determine how much of their hard-earned money they get to spend.

FELDMAN: How do advisors spread this gospel? What are ways to do that today in a world where people aren’t going to seminars and aren’t responding to direct mail like they once did?

McKNIGHT: First, you have to be educated on the fiscal issues facing our nation. And once you are convinced of that, you have to find a way to successfully convey that to your clients.

They are not going to be anxious or motivated to preemptively pay taxes on all of these retirement accounts if they are not absolutely convinced that tax rates starting in 2026 are going to be dramatically higher and go up from there. There are many ways I think you can do that. We have a movie that we made called The Power of Zero: The Tax Train Is Coming, in which we interviewed all of the experts across the nation.

We interviewed former Secretary of State George Shultz, Dr. Larry Kotlikoff of Boston University, Ed Slott, former Comptroller General David Walker, Larry Kotlikoff, Tom Hegna, a lot of the experts in academia. They’re all looking at the same data, and they’re all singing the same song. They’re saying tax rates, even 10 years from now, must go up dramatically or we go broke as a country.

So, whether it’s my book The Power of Zero or any of my podcasts, I think there are a lot of resources out there that can be leveraged to communicate this idea to America that tax rates will be dramatically higher in the future than they are today.

FELDMAN: As far as marketing goes, specifically, what are some good strategies that you see working today?

McKNIGHT: A lot of people are obviously doing webinars. But you must have a coherent and cogent message. And I think that that message really must revolve around our country’s fiscal condition.

They see that we just borrowed $2 trillion to build half of a bridge across the COVID-19 abyss. And then, we’re going to have to borrow another $2 trillion before the end of the year. They know that tax rates have to go up. This is a real hot button. This is a real trigger for people.

No. 2, lay out a strategy that shows them how they can scratch that itch, how they can fix the problem.

FELDMAN: I’ve spoken to a lot of financial advisors and agents. They’re redefining how they do business. Where they used to run an hour one way for a client meeting, they can now do it over Zoom. Do you think clients have adjusted to Zoom?

McKNIGHT: We give people the option of coming into an office or talking over Zoom. What we’re finding is that the appointment ratio is going up; more people are willing to talk to you over Zoom. We’re getting more spouses to appear on these calls than would otherwise come into the office. Because it turns out that the spouse just didn’t want to take the time to leave the office or leave home to go into the office.

But they could do everything via Zoom. We have some advisors who do Zoom meetings all day every day. They don’t meet with anybody in an office space. It’s really completely transformed the way a lot of our advisors have done business. And it may be the new reality. We’ll see.

FELDMAN: What did you find through your trial and error, what are some of the successful methods of prospecting?

McKNIGHT: One of the things that we’ve done that has been really interesting is my book The Power of Zero.

I wrote it in 2015. I self-published it, threw it out on Amazon, and here we are five years later. It sold 250,000 copies and really exceeded all my wildest expectations. But over that five-year period, I’ve noticed that there’s this organic way of generating leads.

People will wander onto Amazon, look for a retirement book, find my book, read through it, go to my website, learn more about me, listen to some of my podcasts and say, “Gosh, maybe I need to work with David McKnight.” They’ll call or they’ll email David McKnight, and they’ll say, “Hey, look, I’d love to work with you.”

I say, “I’m happy to hand you off to an advisor in your neck of the woods. Are you OK with that?” And 90% of the time, they’re absolutely OK with it. Over the past six months we have reengineered that whole organic process so that it happens in an automated way.

We can drive people to watch a webinar that I’ve created that really is just a shorter version of what I gave to MDRT in 2014. We drive them into a webinar, and then at the end of the webinar, we give them the opportunity to get a free copy of my book. And then they fall into an automated funnel that feeds them Power of Zero content, whether it’s my movie or podcasts or what have you.

We nurture them along a six-week automated nurturing campaign that at any point in that campaign, they can raise their hand and say, “Dave, I need help with this, I can’t do this on my own.” At which point, I can hand them off to an advisor.

We find that these are the most golden leads that we have ever experienced. Because they made up their own mind after having gone through this journey to meet with us.

FELDMAN: Where do you see advisors most needing to improve today?

McKNIGHT: As excited as we are to forge this new frontier with online webinars, a lot of us don’t know how to sell online. We’re very good in person, but we have yet to understand how all of our touchy-feely, warm fuzzies can be conveyed over a Zoom meeting. And frankly, I think that’s going to come about organically as we have more and more experience meeting with people over Zoom meetings.

This is something that every advisor will struggle with, making that transition from being able to close a sale in person to being able to close a sale online. It’s just not the same. We have advisors that do it very, very well. But we have advisors who are excellent in person but don’t have the ability to marshal that same effectiveness over the internet.

FELDMAN: Do you recommend advisors use video or a combination of video and PowerPoint slides for meetings?

McKNIGHT: When we did our live meetings, we were very big on using whiteboards. We would put three buckets up on the board — your tax, your tax-deferred or your tax-free. We would situate the clients’ assets within those buckets so they could see what weight they had in tax-deferred investments versus tax-free.

We found that was very effective in person, but it’s also very effective over a Zoom meeting. There are many free resources out there that people can use. There’s one called sketchbook.com, where you can download software that allows you to use a whiteboard that you can share over a Zoom meeting. It allows you to put the buckets up there.

It allows you to draw on the buckets so that you can convey the sense of money flowing from tax-deferred to tax-free, and paying taxes along the way. So, that is a resource that all of our advisors use. And it’s part of every single meeting that they hold with these clients and prospects because it helps them visualize where their money sits and the type of tax liability they could be facing moving forward.

People love the whiteboard. People are very visual. And it’s not enough to just talk to people; you have to show them pictures. And the technology that can be leveraged these days absolutely allows us to show that.

I’ve developed PowerPoints over the years. It’s basically the PowerPoint version of the presentation that I give in my live presentations. I’m going through the PowerPoint, but then the little video of me, the little video box, I’m in the lower left-hand corner so people can see me.

I’m not a huge fan of where you have this nameless, faceless voice narrating in the background. I think people want to be able to see who’s talking to them. So, have that video image of you in the lower left-hand corner as you’re going through the PowerPoint. I think that if you have an engaging style, and you’ve got a great script and a great presentation, it can be very, very effective.

FELDMAN: What do you see as the biggest opportunities in this market?

McKNIGHT: It’s twofold. I think that No. 1, obviously, we have this window of opportunity within which to take advantage of historically low taxes. When that window slams shut, it’s slammed shut forever. We will never, in our lifetime, experience tax rates as low as we will over the course of the next six years.

The other window is to really get your virtual game on. You have the ability to create some of these evergreen webinars that can play perpetually. You can set them up on a Facebook campaign that drives people into that virtual classroom where that webinar is given. You don’t even have to be present.

That webinar can be showing 24/7 and can drive people into a funnel that nurtures them all along the way, so that they only end up speaking to you when they’re good and ready to speak to you. All you have to do is sit back and watch the leads roll in if you have created the right type of a system.

If you can set up an automated campaign that runs on autopilot, you can dramatically increase the efficiency of your practice by creating leads without having to put forth all of the traditional effort that you historically had to put into it.

FELDMAN: You have mentioned Facebook for generating leads. Does that work for you? And what other platforms should people be looking at?

McKNIGHT: Believe it or not, we’ve also had a lot of success with direct mail. A lot of people think direct mail has gone the way of the dodo bird. We love it because, particularly during COVID-19, a lot of businesses were not sending out mail. So people would open up their mailbox, they’d see our mailer, and that was it. We’ve used mailers to drive people to a virtual classroom with great success.

Mailers are great because you can really target surgically the financial profile that you’re looking to get in front of. Facebook is OK, but you can’t target Facebook after Cambridge Analytics. They cracked down a couple years ago, and you lost the ability to really laser-focus their target on who they’re exposing your ads to.

FELDMAN: With direct mail, have you seen response rates double or increase now that there’s so much less competition in the mailbox?

McKNIGHT: It’s hard to get a measuring stick on it. We have a lot of campaigns. And our campaigns are designed to be successful over a long period of time because we might have a mailer that drives someone into our cylinder or our funnel.

Our funnel is a six-to-eight-week process, where we are feeding them content over the course of that six to eight weeks, knowing that we have early adapters, middle adapters and late adapters. So, it’s really hard to tell how successful those mailing campaigns have been, because we have people that are raising their hand at every single point in that process.

FELDMAN: What are you seeing from the people who are most successful and the least successful? What are they doing differently?

McKNIGHT: The most successful ones have systems where they do the same thing just about every time, and they shepherd people through a sales process that’s very predictable, that proceeds along at a certain clip. And they know exactly what they’re going to say at each point in that sales presentation or during that process, that consultative process.

The ones who aren’t as successful are going into it blindly. And they’re saying, “I’m not sure what I’m going to say to this person, but I’m just going to start the Zoom meeting and hope all goes well.” So, I think it’s very similar to the successful people who conduct their meetings in person versus those who aren’t successful.

You must have a system, you must have a sales process, and it must be repeatable. And the people have the sense that you know what you’re doing, and that they’re being shepherded through a process that you’ve been down before.

Paul Feldman started the website InsuranceNewsNet in 1999, followed by InsuranceNewsNet Magazine in 2008. Paul was a third-generation insurance agent before venturing into the media business. Paul won the 2012 Integrated Marketing Award (IMA) for Lead Gen Initiative for his Truth about Agent Recruiting video and was the runner-up for IMA's Marketer of the Year, a competition that includes consumer and B2B publishing companies. Find out more about Paul at www.paulfeldman.com.