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 2022 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.
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February 2022 – 7 Ideas and Views Newsletter by Van Mueller
After I distributed the January 2022 newsletter, I received a phone call from a friend who left a voice mail message asking if I could go into more detail about how to inspire people to take action. He felt a little overwhelmed by the numbers. I am sure that is the case for many of you who read the January newsletter. I must show a lot of numbers so I can prove to all of you that the math works.
I have several more points I want to make about all the numbers and then I want to answer my friends query in earnest. I don’t believe you can EVER rise to the ultimate level of production you desire without a basic understanding of income tax law. I believe you must know what the standard deduction is for over and under age 65 prospects and clients. It is a starting off place for all sorts of planning opportunities.
Here’s an example. Because our customers life expectancies are increasing way beyond the “break even” age for Social Security, we are recommending that many of our clients should defer taking Social Security until age 70, which is the maximum age that can be deferred to and still increase Social Security benefits. When our clients hear this recommendation the first question they always ask is what will I use for income if I defer until age 70 before I take my benefit? That’s why the Social Security question of my 40 questions is so valuable. It opens the communication up to so many additional planning opportunities. If you knew the standard deduction for a married couple over age 65 filing a joint return you would know that this couple could take $28,700 of fully taxable money from an IRA, 401(k), 403(b), 457 Plan or the gains on a non-qualified tax deferred annuity and pay zero income tax on that $28,700. Or you would share with your customer that they could take fully taxable money without paying any income tax while allowing their monthly Social Security benefit to grow by six percent per year until their full retirement age and by eight percent per year from their full retirement age until 70.
Our customers that defer from age 62 to age 70 can increase their monthly Social Security benefit by approximately 80 percent. If you would have received $2,000 per month from Social Security at age 62 you would increase the benefit to $3,600 per month by age 70.
Our customers that defer from age 62 to age 70 can increase their monthly Social Security benefit by approximately 80 percent.
If the primary goal in retirement planning is maximizing guaranteed income this should be a conversation that you have with EVERY customer. Even if the client does not live to the break even age the proper recommendation should still be deferral because it also maximizes the benefit for the surviving spouse.
To go even further into this discussion, if you know the tax brackets you would know that the first income tax bracket is ten percent. The ten percent income tax bracket include the next $20,550 of taxable income. If you add the ten percent bracket of $20,550 to the standard deduction of $28,700, they total $49,250. According to Wage Statistics, a source provided by the Social Security Administration, showing how much every American earns, that number would approximate 67 percent of our country’s wage earners. The income tax on that $49,250 would be 10 percent of the $20,550, or $2,055. The first $28,700 has no income tax liability.
The “marginal” tax rate on this $49,250 is 10 percent. It is the tax you pay on the last dollar that you earn. The "effective" tax rate is only 4.1 percent. That number is determined by dividing the income tax $2,055 by the total income of $49,250. That is 4.1 percent.
The conversation would proceed in this manner: If we could eliminate the taxes on fully taxable money on the first $28,700 and have you pay no income tax or on $49,250 and have you pay $2,055 or 4.1 percent, wouldn’t that be amazing? Wouldn’t it also be wonderful if you were increasing your guaranteed income from Social Security by up to 80 percent? That would allow you to dramatically reduce your withdrawal when you start drawing Social Security at age 70.
Wouldn’t it also be wonderful if you were increasing your guaranteed income from Social Security by up to 80 percent?
Now, let’s go a little deeper. For 2022 I made up a rule for couples over age 65. I call it the Van Mueller Rule of 112-12. When one person in the couple is over age 65 and one is under age 65 the Van Mueller Rule becomes 111-12. When both people are under age 65 the rule is the Van Mueller Rule of 109-12.
Why is this so important? You can easily qualify for Top of the Table if you understand just this little bit of information. Those rules will become vital in most conversations you will have with Americans.
Wage Statistics for 2020 shares that 90 percent of Americans make less than $112,000. Yet, there are huge opportunities to help people that most agents walk right past. The difference between $112,250 and $49,250 is $63,000.
If we increased the withdrawal for our customer that is over 65 and married by another $63,000, or the entire 12 percent “marginal” tax bracket, we would pay additional income tax of $7,560. If we add that to the $2,055, we paid using the 10 percent “marginal” tax bracket the total is $9,615. If we divide $9,615 by the $112,000 the effective tax rate is 8.58 percent. Understanding this information is vital.
1. Married Couple Both Over Age 65 Rule of 112-12
2. Married Couple One Over and One Under Age 65 Rule of 111-12
3. Married Couple Both Under Age 65 Rule of 109-12
This information provides enormous sales opportunities. I am going to use the couple over age 65. It is only slightly different for the other two alternatives. Please remember if the couple over the age of 65 makes less than $112,000 of taxable income you have a wonderful opportunity.
Please remember if the couple over the age of 65 makes less than $112,000 of taxable income you have a wonderful opportunity.
Because the stock market is so volatile, our customers are looking for relief. Let’s say our customer lives on $70,000 of annual income and it is all income taxable. By knowing and understanding the rule of 112-12 we can provide relief and make an easy sale. This couple could take out $42,000 of long-term capital gains and pay no income tax on those gains. ($112,000 - $70,000 = $42,000) You could then reallocate that $42,000 to a single premium life insurance policy. In this scenario, please don’t use the word transfer or say you could buy this product. You don’t want it to feel like a sales presentation. When you ask them to reallocate, you share the additional benefits. Many single premium life policies are able to be surrendered in the third or fourth year for more than was contributed to the policy. Because of the new 7702 guidelines for cash value life insurance, there are many policies where you can surrender for more than you put in at the end of the first or second year. You present that feature as liquidity. You have lots of access to the money. Depending on your age, sex and health at issue. Let’s assume that couple can get $65,000 of face amount for a $42,000 single premium. You share that with your customer that the $23,000 of difference between the single deposit and the face amount is inflation protection. You can use that money to maintain your standard of living and still preserve the original $42,000. How many customers know that?
What’s the best time to invest in the stock market? When its high or when its low? What if you could wait for a crash without losing any money and then when the government declares they have to fix the terrible market by printing more money, wouldn’t it be amazing if you could go to the single premium policy you have and temporarily use a good amount of the cash value to put into the stock market to take advantage of the opportunity? Wouldn’t that be awesome? What if you built a large amount of cash value over the years and the money could be used for long term care at home? Wouldn’t that be amazing? If the money used for long term care was in a cash value life insurance policy, wouldn’t the death benefit replenish the cash value used, income tax free, so there would be money available to take care of the person who took care of you? There are just so many benefits to share with our customers.
If the money used for long term care was in a cash value life insurance policy, wouldn’t the death benefit replenish the cash value used, income tax free, so there would be money available to take care of the person who took care of you?
Let’s take a look at the same couple with a different scenario. They have $70,000 of fully taxable income and they have $200,000 or $300,000 or more in qualified money. What if they could withdraw $42,000 annually from their IRA, 401(k), 403(b) or 457 plan and only pay an effective tax rate of 8.58 percent on the whole $112,000. Wouldn’t that be less than the 30 or 40 percent their children and grandchildren would pay to inherit these qualified accounts? Over a ten-year period couldn’t they convert $420,000 of fully taxable money ($42,000 x 10 years = $420,000) in to $420,000 of never ever taxable money? Couldn’t the difference between the death benefit and the cash value be used to offset inflation? If they spent $200,000 of the cash value to maintain their standard of living wouldn’t the death benefit replenish what they used so their heirs could receive all the money they worked for? Ask your customer to imagine that they never met you. Then provide the same scenario. You have to spend $200,000 of your $400,000 IRA or 401(k) to maintain your standard of living while you are alive. Wouldn’t there only be $200,000 of the $400,000 left for your family? Here’s another benefit that cash value life insurance could provide. Couldn’t the $400,000 of converted IRA or 401(k) be used for long term care at home or anywhere? Then wouldn’t the death benefit replenish much of the money that was used? Wouldn’t that be accomplished income tax free? WOW!
The flexibility of cash value life insurance is amazing. Whether it’s a modified endowment contract (MEC) or a real-life insurance policy they allow you to build financial and retirement success while being able to provide protection. If the protection is not needed the customer doesn’t WASTE one cent on the protection. It is the most effective and efficient use of the money you could ever find.
This is vital in your understanding of tax law. You use the difference of the customers income and the minimum availability of money at the 8.58 percent effective tax rate.
This is vital in your understanding of tax law. You use the difference of the customers income and the minimum availability of money at the 8.58 percent effective tax rate.
If the standard deduction is $28,700 and they live on $25,000 you have $3,700 per year that can be taken from a fully taxable investment and reallocated into a cash value life insurance policy every year for the rest of their life, without taxes. That can buy enough face amount to pay almost all the tax on qualified money transfers to non-spouse beneficiaries.
If the standard deduction and the entire 10 percent bracket add up to $49,250 ($28,700 + $20,550) and the customer is living on anything less than $49,250, ask them why they are not eliminating the income tax forever on the difference. If the client is living on $40,000 you could withdraw $9,250 per year and only pay an effective tax rate of 4.1 percent. I hope you are getting the idea.
If the standard deduction and the entire 10 percent bracket and the entire 12 percent bracket add up to $112,000 ($28,700 + $20,550 + $63,000) hence the rule 112-12. Your marginal tax rate on the one hundred and twelfth thousand dollar is 12 percent. The effective tax rate on the entire $112,250 is 8.58 percent. ($9,615 ÷ 112,250). If our customer is living on anything less than $112,250, shouldn’t we recommend taking out the difference of $112,250 and what they are living on? Here’s a chart.
| Living on | Difference to be invested and taxed at only 8.58% |
|---|---|
| $50,000 | $62,250 |
| $60,000 | $52,250 |
| $70,000 | $42,250 |
| $80,000 | $32,250 |
| $90,000 | $22,250 |
| $100,000 | $12,250 |
Please examine the chart.
At the largest level a customer could eliminate the income tax liability on $622,500 over a 10-year period and it would only cost them $53,411. Just think what they could do with that reallocated tax free $622,500 with a leveraged death benefit of one million dollars or more. Wouldn’t that death benefit reimburse the family for the $53,411 the customer paid over those 10 years? Doesn’t that mean our customer got the entire $622,500 out of a fully taxable IRA or 401(k) and didn’t pay one cent of the income tax out of their own pocket? Isn’t that a truly amazing strategy that would reallocate dollars to be used more effectively and efficiently?
Let’s look at the smallest level on that chart. That is still $12,250 annually. If you did that for 10 years, you would eliminate the taxes on that $122,250 over ten years and it would only cost 8.58 percent or $10,489. The death benefit would reimburse the family for the $10,489 the customer paid while alive. So, this customer could eliminate income taxes on $122,250 and not pay one cent of the tax out of their own pocket. Now the money can be used for investing, income, critical illness and long-term care and almost completely replenish all the money even if the customer uses most of the cash value while alive.
These are amazing strategies that have endless applications. This can all be accomplished with a basic understanding of income tax law.
These are amazing strategies that have endless applications. This can all be accomplished with a basic understanding of income tax law.
One final thing, if you go back and read my January 2022 newsletter you can use this strategy up to the 32 percent tax bracket. That is the marginal tax rate. The effective tax rate is 19.43 percent. That strategy would allow you to withdraw $400,800 of fully taxable money and only pay $77,889 in taxes. It is the same conversation with wealthy people. If you can eliminate the taxes forever on fully taxable money while you are alive for less than 20 percent and then reallocate to a cash value life insurance policy to build an income tax free pile of money, you can completely eliminate the income tax liability on millions of dollars of IRA’s, 401(k)’s, 403(b)’s and 457 plans and the gains on non-qualified deferred annuities without paying one cent of the tax out of your own pocket. This is an amazing strategy.
Here’s an additional conversation we should have with our customers about taxes. The government is currently tricking the American people concerning RMD’s for IRA’s and 401(k)’s. For Americans who do not understand the deception, the cost to our customers will be exceptional and catastrophic. It doesn’t have to happen if we get to our customer first.
Here is how the deception plays out. The current law extends the age when required minimum distributions must be taken from age 70 ½ to age 72. Legislation proposed by the current administration wants to extend that age to 75. There are many on both sides of the isle and at the U.S. Treasury that would be willing to eliminate required minimum distributions completely.
Let me expand on this. Idea #1 will show that the required minimum distribution tables have been made more lenient. The divisor at age 70 was 27.4. It is now 29.1. That means you are required to withdraw LESS money. Now you use the 27.4 divisor at age 72.
Finally, best interest rules will now be applied to non-qualified transfers. There will be tremendous scrutiny moving money out of IRA’s and 401(k)’s. If you are not securities licensed, you will not be able to do that kind of a transfer anymore. There will be a much stricter determination about whether a movement out of their 401(k) or IRA is beneficial. You will have to have considered and beneficial reasons to make the transfer or it will be rejected.
Why? The government is perpetuating a deception to access more revenue in the future. That is why I started this month’s newsletter the way I did. Will the government be able to collect all the revenue they need if most of the revenue is taxed at effective tax rates of zero to 8.58 percent? Even wealthy married couples can access up to $400,800 of income and only pay 19.43 percent. The government doesn’t want husbands and wives to use this money while they are alive. The government wants to preserve the money so that when non-spouse beneficiaries inherit the money, they will pay 30 or 40 or even 50 percent. Non-spouse beneficiaries are children and grandchildren. Here’s the conversation. Grandma and grandpa, promise you won’t laugh, when the children inherit this money will they use the 10-year stretch opportunity to reduce the income taxes on the transfer or will they take the money in a lump sum regardless of the larger income tax liability. They do laugh. They will reply that the children will not be able to wait to get their hands on the money. Everyone who wins the lottery takes a lump sum. The government is depending on this happening. Ask this question. If you could reduce or eliminate the income taxes while you were alive without giving up control of the money while you were alive, and the adjustments would be beneficial for you, would you want to find out how to do it. These conversations will open up many cases for you. You can do them out in public to inspire people to have an appointment with you. I believe this information will change your career.
Idea #2: Easy Read about Income Taxes
This is an easy-to-read article that explains the difference between marginal tax rates and effective tax rates. It shares which states do not have income taxes. It shows tax rates for singles and married couples.
This article explains the difference between W-2’s and 1099’s and what important information can be found on both. The article explains the difference between tax credits and tax deductions, and which is better. The article goes through a list of tax breaks and tax credits. For how short of an article that it is, it shares a great overview of tax law. This would be a good starting point to learn about taxes.
Title: Income tax guide for tax season 2022
https://www.zdnet.com/ (ZD Net, January 12, 2022)
https://www.zdnet.com/article/the-income-tax-guide-for-2022/
Idea #5: Life Insurance in Retirement Planning
Very seldom can you find an article that speaks favorably about the use of cash value life insurance in retirement planning. This article, written by highly respected Wade D. Pfau shares very favorable information about the use of cash value life insurance in retirement planning. It provides great reasons why it should be used and also verifies that one of the great dangers of retirement planning is longevity. I carry this article everywhere to show that cash value life insurance is recommended by experts and scholars.
Title: Wade D. Pfau, Ph.D., CFA, RICP® Shares Insights on Retirement Risks and Life Insurance
https://insurancenewsnet.com/ (Insurance news net, January 21, 2022)
https://insurancenewsnet.com/oarticle/wade-d-pfau-ph-d-cfa-ricp-shares-insights-on-retirement-risks-and-life-insurance
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