The Retirement Risk Trifecta You Need to Know About

David McKnight, in his Power of Zero series, outlines a compelling case for rethinking the way we prepare for retirement. One of his most urgent warnings centers on a trio of risks that have the power to unravel even a well-planned retirement. This “retirement risk trifecta”—tax risk, market risk, and long-term care risk—poses unique challenges that call for deliberate, forward-looking strategies.

At Hanson Wealth Management, we help clients address each of these risks in a coordinated and thoughtful way. Let’s explore how these three threats interact, and how a Power of Zero-informed approach can help you respond proactively.

Risk #1: Potential Changes in Tax Policies May Impact Your Retirement Income

One of the core premises in The Power of Zero is that the U.S. is heading toward higher tax rates. With the growing national debt and expanding entitlement programs, it is possible that future tax burdens may increase for some individuals or groups. This poses a major problem for retirees who have saved primarily in tax-deferred accounts like traditional IRAs and 401(k)s.

Here’s why this matters:

Withdrawals from tax-deferred accounts are fully taxable as income.

Rising tax rates could reduce your net retirement income.

Required Minimum Distributions (RMDs) can push you into higher tax brackets.

The solution? McKnight encourages building a strategy that gradually shifts assets from tax-deferred accounts into tax-free ones—ideally through strategic Roth conversions and other tax-efficient vehicles—while tax rates are still historically low.

By reducing future taxable income, you may be better positioned to achieve a zero percent tax bracket in retirement, meaning you wouldn’t owe federal income tax on distributions from Roth accounts or other qualified tax-free vehicles.

Risk #2: Market Volatility Can Undermine Retirement Predictability

Traditional retirement plans often rely on market-based returns from stocks and bonds to provide growth and income over time. But when market downturns occur—especially early in retirement—they can severely reduce the longevity of your portfolio. This is commonly known as sequence of return risk.

David McKnight refers to this as a hidden danger of the “4% Rule.” If your portfolio experiences negative returns in the first few years of retirement, you may need to withdraw a larger percentage of your assets to meet income needs, increasing the likelihood of running out of money later in life.

To address this risk, McKnight recommends incorporating guaranteed lifetime income strategies, such as fixed indexed annuities with income riders. These tools are often overlooked—or even dismissed—by traditional financial gurus. However, when structured appropriately, they can provide a predictable income stream, regardless of market fluctuations.

Additionally, life insurance-based strategies like Indexed Universal Life (IUL) policies can serve as a volatility shield. You can draw on the cash value during down years instead of tapping into market-exposed accounts, allowing your investments time to recover.

Risk #3: Long-Term Care Expenses Can Derail Your Retirement Plan

According to data cited in The Power of Zero, a long-term care event can be one of the most financially devastating scenarios for retirees. Yet many Americans overlook this risk or assume it won’t apply to them. A prolonged care need could cost hundreds of thousands of dollars, quickly depleting savings and leaving a surviving spouse with limited resources.

Traditional long-term care insurance can be expensive and is often designed as “use-it-or-lose-it.” However, McKnight outlines a different approach: using life insurance policies that offer living benefits. Certain IULs allow policyholders to access a portion of the death benefit tax-free to cover qualifying long-term care expenses.

This approach provides two key advantages:

If care is needed, the policy offers accessible funds.

If care isn’t needed, the policy still provides a death benefit to heirs.

By planning for long-term care proactively, you can help reduce the financial impact on your retirement plan and your family.

Integrating the Power of Zero Approach

Rather than treating each of these risks in isolation, it’s helpful to build an integrated strategy that addresses all three:

Use your taxable bucket to fund gradual Roth conversions.

Reduce reliance on tax-deferred accounts over time.

Allocate a portion of retirement savings to fixed indexed annuities with income riders to mitigate market risk.

Fund Indexed Universal Life policies for long-term care protection and supplemental tax-free income.

This coordinated approach allows you to move toward a retirement strategy that reduces exposure to rising taxes, market downturns, and long-term care costs—all while preserving access to liquidity and flexibility.

Prepare for the Retirement Risk Trifecta

The retirement risk trifecta—tax risk, market risk, and long-term care risk—is real, but it doesn’t have to derail your plans. With careful planning and the right mix of tools, you can build a retirement strategy that is more resilient to future challenges.

If you’re ready to evaluate your plan through the lens of the Power of Zero philosophy, Hanson Wealth Management is here to help. Our approach is designed to help clients think critically, act intentionally, and prepare for retirement on their own terms. If you’d like to learn more, schedule a strategy session with us today.

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