We look forward to the Van Mueller newsletter every month. It's chock-full of sound bites, sales tips, and eye-opening statistics. Here are our favorite parts of the February 2019 edition. We're sharing the full introduction, and 2 of the 7 monthly sales ideas. If you like what you read, we encourage you to click here and become a subscriber.
Reprinted with the author's permission.
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February, 2019 – 7 Ideas and Views Newsletter by Van Mueller
In the last two newsletters I have shared how to use the tax laws to find the money to fund strategies that are much more effective and efficient than leaving the money in deferred income tax vehicles such as IRA’s, 401(k)’s, 403b’s and 457 plans. I would like to add several additional thoughts that I believe will help you to understand how the strategies work and additionally how to easily explain and ask prospects and clients why these strategies wouldn’t be the most appropriate for their situation.
Have you ever wondered why all the experts and analysts advise that you should never buy a non-qualified tax deferred annuity of any kind because of the income tax time bomb you are building, yet have no problem recommending IRA’s and 401(k)’s, etc. even though that recommendation would cause the creation of an income tax nuclear time bomb?
Ask prospects and clients if they are purposefully building a wonderful amount of money that will be fully accessible to the government and the Internal Revenue Service in the future or are they attempting to build a wonderful amount of money for themselves, their families and their businesses?
Ask prospects and clients if they are purposefully building a wonderful amount of money that will be fully accessible to the government and the Internal Revenue Service in the future or are they attempting to build a wonderful amount of money for themselves, their families and their businesses?
If they believe taxes will be higher in the future, why wouldn’t someone pay their taxes now while they are historically low and transfer as much money as possible to the future that the government and the Internal Revenue Service could never get their hands on again? Isn’t it becoming more and more apparent that some income tax planning will be required to have a successful outcome for financial and retirement planning? Aren’t we the only ones who really have access to all the tools necessary to build strategies that reduce or even eliminate income tax liability? And isn’t the one thing that separated us from all the other financial professionals the fact that we ASK questions as well as answer them? The other professionals only answer questions posed to them by their clients. What if, as a client, you don’t know what questions to ask? Couldn’t a number of financial and retirement challenges be left unaddressed? Isn’t that our competitive advantage? Don’t we help prospects and clients identify those challenges? Really, isn’t that vital? Once we have identified those challenges. Isn’t it easier to inspire prospects and clients to take actions?
What if, as a client, you don’t know what questions to ask? Couldn’t a number of financial and retirement challenges be left unaddressed? Isn’t that our competitive advantage? Don’t we help prospects and clients identify those challenges?
I know I am being repetitive, yet I want to be sure I have made it completely clear. You cannot be a successful life insurance and financial professional without a basic and fundamental understanding of income tax law. You must have a foundational understanding of at least these four things.
1. The standard deduction. For 2019, a married couple under age 65 have a standard deduction of $24,400. For a married couple over age 65 filing a joint income tax return, (most do) the standard deduction for 2019 is $27,000. This means for married couples over age 65, they can file a tax return with $27,000 of fully taxable income from any source and the standard deduction will eliminate tax on that amount. If the income is from working or from investing or from interest or from withdrawals from IRA’s, 401(k)’s, 403B’s or 457 plans, that income tax is eliminated on the first $27,000 of taxable income. This is especially important when talking to retirees who for the most part live on their Social Security, a small pension, some interest and maybe a required minimum distribution from their IRA’s. As an example, if the prospect or client has $30,000 of Social Security and $15,000 of taxable income, they would have no income tax liability because none of their Social Security would be taxable and the standard deduction would eliminate income tax on the $15,000. This creates several opportunities to serve that client. Under current tax law, this married couple could withdraw $2,000 of additional income and still not cause any of their Social Security to become taxable. You could then show them how they could put $2,000 per year into a cash value life insurance policy that would have a $50,000 to $100,000 face amount depending on their age, gender and health. That is leveraging their money and creating more money for their families without giving up the use of the money.
I would recommend that you not stop there. Ask them if they are having a romance with someone at the Internal Revenue Service that they are trying to leave a pile of money to. They will probably laugh and ask you what you mean. In the form of a question ask if they understand that they could withdraw an additional $12,000 over and above the $15,000 of taxable income they already receive and that it would only cause them to pay $500 in income tax to eliminate the income tax liability on that additional $12,000. Ask them if that sounds like a smart thing to do. Then explain that you could reallocate that $12,000 into a single premium cash value life insurance policy and make it look like $20,000 to $24,000 of benefit without giving up control of the money or you could reallocate into an annual $12,000 program that would provide $100,000 to $200,000 immediately and you would begin to build a large amount of tax free money that could be used for MANY purposes. Americans don’t know they can do this. You must share this information with them in the form of a question.
I would recommend that you not stop there. Ask them if they are having a romance with someone at the Internal Revenue Service that they are trying to leave a pile of money to.
The standard deduction is an easy way to find money to fund strategies that will allow our prospects and clients to build accessible tax free money; money to provide long term care, money that can never be harmed and finally money that is available to take advantage of investment opportunities in a timely manner.
2. Next, you must understand how to complete the form that the Internal Revenue Service provides that determines how much, if any of your Social Security is income taxable. Understanding this form also allows you to show as a percentage that even if you make the maximum of 85 percent of your Social Security income taxable it is vital to long term financial planning that you don’t think of that in a negative manner but as an opportunity to stay in control of all your long term income tax, financial and retirement outcomes. This can be found on page 33 of the 2018 1040 instructions. I always print and make 10 or 20 copies of the form to have with me so that I can share with prospects and clients the missed opportunities they haven’t identified because they did not understand this vital information concerning the taxation of their Social Security.
3. Finally, you must understand the income tax brackets. They are 10, 12, 22, 24, 32, 35 and 37 percent. They are progressive, which means that at each level of income you pay a higher percent in income tax. So, a married couple under age 65 making $700,000 of taxable income doesn’t pay any tax on the first $24,000 of income they make. They only pay 10 percent on the next $19,050. They only pay 12 percent on the next $58,350. They only pay 22 percent on the next $87,600 and so on. That is what progressive means. So, this couple pays an effective tax rate of 28.34 percent on their entire $700,000 not 37 percent which is the highest tax rate for couples with that taxable income.
Here is a smaller example: If a couple under age 65 makes $101,800 they would pay $8,907 of income tax. If you divide $8,907 by $101,800 that would be an effective tax rate of 8.75 percent on the entire $101,800. If Americans believe that their tax rates would be much higher, even dramatically higher in the future, wouldn’t this be something they would want to be made aware of?
If Americans believe that their tax rates would be much higher, even dramatically higher in the future, wouldn’t this be something they would want to be made aware of?
This brings up another very important consideration. Many agents ask me all the time about this scenario. They have a client aged 45 or 50 or 55 who are still working and have $100,000 to $500,000 in a 401(k). They ask if they should roll that money out of the 401(k) and convert it to a Roth IRA or cash value life insurance. If you understand the tax brackets, this would probably NOT be advisable until after they retire. So, what advice could you give them that would be beneficial to them? Ask them again why they are building this enormous stash of money for the government to come and take in the future? Does that make sense? Won’t you be working hard to build this money more on behalf of the government and the Internal Revenue Service than yourself, your family and your business? Does that seem reasonable? Show them that their effective tax rate is currently low and that instead of taking a deduction now, wouldn’t it be smart to pay the taxes now and put the money into something that would provide many more additional benefits for themselves, their families and their businesses? They could even contribute the exact amount or more than they were contributing to their 401(k) or IRA to a cash value life insurance program that would create safe, income tax free and accessible money that could be used for any reason, including long term care, investment opportunities and income tax free cash flow in retirement.
Again, the entire premise of this strategy is to remain in control of the amount of income tax liability in the future. To illustrate this you must have a foundational understanding of our income tax laws in this country. An additional consideration that doesn’t involve taxes concerns the possibility that we will have an enormous economic catastrophe in the near term. That 401(k) balance could easily be reduced by 30 or 50 or even 70 percent. What if you asked your prospect or client to reallocate their 401(k) in a conservative manner to preserve the gains and then start contributions to the cash value life insurance to build income tax free retirement money. If our prospects and clients are patient they will preserve all the gains they have made and they will also be positioned to take advantage of the next major upturn in the stock market without having to lose back a lot of their gains first. Wouldn’t this be a more successful strategy than losing and getting back to even?
If our prospects and clients are patient they will preserve all the gains they have made and they will also be positioned to take advantage of the next major upturn in the stock market without having to lose back a lot of their gains first.
Another consideration as it pertains to these tax brackets is completely understanding short term and very beneficial long term capital gains income taxation. Understanding this small section of the Internal Revenue tax code will help you to uncover thousands and thousands of dollars that can be reallocated with reduced or even total elimination of income tax liability. The law is very clear: If your taxable income is less than $77,400 your long term capital gains tax rate is zero. If your taxable income is between $77,200 and $480,000 your long term capital gains tax rate is 15 percent. If your taxable income is over $480,000 your long term capital gains tax rate is 20 percent.
To qualify for long term capital gains you must invest in the stock market for longer than 12 months. Other markets included in that category would be real estate, commodities of all kinds including gold, silver, oil, copper, etc., digital currencies such as bitcoin, and even qualified dividends all would qualify as long term capital gains as long as they are held for twelve months or longer.
If any of these assets are held for a shorter time than twelve months when they are sold, their gain is treated as ordinary income and the gain is taxed according to the regular tables used to tax ordinary income.
Why is this information important now, especially with a pretty severe stock market crash expected in the near future? Couldn’t you go to many of your prospects and clients who have made gains during the last ten year bull market and ask them some very important questions?
Couldn’t you go to many of your prospects and clients who have made gains during the last ten year bull market and ask them some very important questions?
What if you could harvest and preserve some of those gains and pay little or no income tax on those gains? What if you could reallocate or reposition that money in a strategy that would guarantee that you would never lose money again? What if you had almost complete access to that money so when the investment opportunity presented itself again, you would be able to access that money? What if while you were waiting for that to happen, you instead went in the nursing home? Wouldn’t there be coverage for that even if you never paid any premiums, especially for that coverage? What if you died too soon? Couldn’t you make a smaller amount of money look like larger amounts of money? The best surprise is this: What if none of that occurs and you get to retirement with a life expectancy of twenty or thirty or yes even forty years? Couldn’t this money be transformed into a tax free retirement income that you couldn’t outlive?
Isn’t it amazing? There is $30 trillion in 401(k)’s, IRA’s, 403B’s and 457 plans just waiting for the government to tap into. What if, because you understand the tax law, you could help prospects and clients take advantage of the favorable current income tax laws and you could help prevent them from being harmed by the income tax laws that are detrimental to asset building and income creation? Wouldn’t your prospects and clients be ridiculously interested in information as beneficial as truly knowing how to use the tax laws to their benefit? I cannot say this strongly enough and I am positive I am being redundant: IN ORDER TO BE AS SUCCESSFUL OF AN INSURANCE AND FINANCIAL ADVISOR AS YOU CAN POSSIBLY BE, YOU MUST HAVE A BASIC AND FUNDAMENTAL UNDERSTANDING OF INCOME TAX LAW. It literally helps you have access to $30 trillion of ineffective and inefficient money that can be turned into effective and efficient dollars. This is the greatest use of money ever conceived of in the mind of a human being.
This is the greatest use of money ever conceived of in the mind of a human being.
We are going to need dollars that can be bought with pennies so we can offset the damage that will be caused by rampant inflation, deflation and losses in all the investment markets. With Americans having less and less discretionary money we will need dollars. Cash value life insurance will help provide money for your family or business or charity if you are not alive to provide that money, and you die too soon. Cash value life insurance can provide income tax free income in retirement that you can’t outlive if you live too long. Cash value life insurance can provide access to money if you have a catastrophic illness such as heart attack, stroke or cancer. These are living benefits that have saved many Americans’ financial futures when they had no where to turn. Cash value life insurance programs can become self-completing if you attach waiver of premium. Even if you can no longer continue to work these plans can keep the promises that were made. Cash value life insurance will provide one of the most vital benefits in the 21st century. The values will be used to provide long term care benefits for the millions of American who will be turning 65 in the next 25 years. It will also be able to provide money to the millions of non-professional caregivers that our country will require with 140 million people turning 65 in the next 25 years. Cash value life insurance is a godsend for the American people and we must ask every single American if they are aware of all the benefits and uses of cash value life insurance. If that’s all there was, people should be buying cash value life insurance faster than we can provide it. That’s not all there is! Our policies do not have to go through probate if a beneficiary is named in the policy. How much money and effort is saved avoiding expensive and probably delayed probate? Our plans are not only incontestable, they are private. Unless fraud can be proven and that is almost impossible. No one can contest the named beneficiary or beneficiaries. Also, the payouts are not public record as is the case with a will. The owner can leave beneficiaries with any division of assets and the beneficiaries themselves will only know how much they received. This can prevent all kinds of distress for families if assets were not divided evenly for some reason.
Our plans can be controlled from the grave. If the owner feels that the beneficiaries do not have a good understanding of the money or are even spendthrifts, they can have the money paid out as an income over any amount of time rather than in a lump sum. I have a client who bought a program based on this one benefit alone. He worried that when he died, his son-in-law would use the money to buy a Lamborghini. When I explained that he could control the money from his grave he was so grateful he set up a plan without ANY consideration for it’s current earnings. He just wanted to be sure that what he worked his whole life for would not be wasted on something he considered trivial and not useful. Remember, people buy for their reasons, not ours. Our plans also have creditor and predator protection. These programs cannot be invaded by people suing us for reasonable or unreasonable reasons. Even if cash value life insurance is the lousiest investment on the planet, in a society where everyone is suing everyone else’s brains out, don’t you think you should own some?
Even if cash value life insurance is the lousiest investment on the planet, in a society where everyone is suing everyone else’s brains out, don’t you think you should own some?
Finally, cash value life insurance is flexible. It can be converted from an asset into an income stream if one of our clients develops Alzheimer’s or dementia and could last for 10 years in the nursing home. Being able to do that provides an opportunity to prevent spending down assets for qualification under Medicaid and title 19.
When you are all done, ask them if they know of any other strategy that can do all that? When they say no, ask them why they are not employing all those benefits on their behalf. They have no idea that cash value life insurance can do all the things we just described. Shouldn’t we make them aware before this upcoming financial catastrophe strikes? Our industry and our people are so important it is impossible to calculate our value to the American people. You should be so proud to be an insurance and financial professional at this crucial time in American and world history. You matter. You are important. You must do what you do to the best of your ability so the American people can be safe. It is your time.
You should be so proud to be an insurance and financial professional at this crucial time in American and world history. You matter. You are important.
Let's get started with this month's sales ideas.
We're passing on two of the newsletter's monthly sales ideas - every issue of the newsletter contains 7 ideas, plus one idea for the Canadian market. Subscribe to get them all.
Idea #5: What reasons are people told not to buy whole life insurance?
The first reason is commission. The article explains beautifully how to counter that ridiculous argument. There is a great line in the article that I would like to quote exactly. “On either side of the coin, cost should only be an objection in the absence of value. Just because one product produces higher commissions does not necessarily make it wrong, just as another product with reduced fees does not make it better.”
The second reason is buy term and invest the difference. Whole life insurance is boring. The stock market is exciting. Very little discussion is given to income tax liability or flexibility of benefits. This article gives you answers.
The third reason is who needs their insurance to be permanent? Well, for flexibility and control, every retiree, tax free income from a cash value life insurance policy can allow our clients to maximize their pensions without causing an income tax nightmare. I have also included an article that shares that the total amount of deferred taxable pension money is now $29.2 trillion. Almost $5 trillion of that is in mutual and target date mutual funds. The government is building an enormous amount of money that will be available when they need it. Only you can stop that transfer.
Fourth, cash value takes a long time to accumulate. The richest people on planet earth lived through the “Great Depression.” They were saving, and they built wealth slowly and carefully. That describes cash value life insurance.
Nobody owns whole life insurance anymore. It is actually that most popular form of life insurance. It accounts for one third of all life insurance sales and even is bought more than term insurance.
Title: Why Whole Life Insurance Stinks
www.thinkadvisor.com (ThinkAdvisor, December 27, 2018)
https://www.thinkadvisor.com/2018/04/20/why-whole-life-insurance-stinks/
Title: Retirement Assets Hit $29.2T: ICI Report
www.thinkadvisor.com (ThinkAdvisor, April 20, 2018)
https://www.thinkadvisor.com/2018/12/27/retirement-assets-hit-29-2t-ici-report/
Idea #7: Who and What Are Nonprofessional Caregivers
This is a spectacular article written by Rob Lowe, the actor where he, in wonderful detail describes the amazing emotional, physical and financial stress ALL non professional caregivers must endure. He offers great advice and reassurance.
This is an article you must get and you must read aloud to prospects and clients. It is short enough to be paid attention to and long enough to provide important information . Please get this article. It will help you to inspire people to take action.
Title: Actor Rob Lowe: I was my sick mother’s caregiver, don’t underestimate the stress caregivers face
www.usatoday.com (USA Today, January 13, 2019)
https://www.usatoday.com/story/opinion/voices/2019/01/13/rob-lowe-caregivers-social-security-self-care-column/2539450002/
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