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 January 2023 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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January 2023 – 7 Ideas and Views Newsletter by Van Mueller
In the January of 2022 newsletter we shared that the year 2022 would be a transition year in the history of the world. What did we mean by that? How we live, how we celebrate, how we shop, how we work and even how and what we eat have begun to change. Healthcare will continue to see global shortages. Serious ones! Most of the people on the planet Earth will become renters, rather than owners, even in the United States. That will increase the separation between those who have wealth and those who do not have wealth. Retirement will become an unattainable goal for most because of what is happening and what is about to happen in our country and our world. Many of the government programs we depend on will have to be adapted to meet increasing need and lessening funding.
Our current programs like Social Security and Medicare are providing benefits in greater amounts and for longer periods than they were fiscally designed to provide. That does not mean they are in danger. It does mean they will need to be adjusted to meet future funding and benefit requirements.
We believe government will continue to reflect the varying beliefs of the American people, with vast disagreements between the left and the right, but with a gradual return to a more respectful discussion of those disagreements. The government will have to be able to accomplish this as they will have to arrive at beneficial solutions for war, poverty, aging, climate change, energy issues, supply chain issues, crime, pollution, food supply, privacy and internet issues. Immigration will be a major issue. There are just too many issues to illustrate here.
We believe government will continue to reflect the varying beliefs of the American people, with vast disagreements between the left and the right, but with a gradual return to a more respectful discussion of those disagreements.
I haven’t even gotten to taxes and inflation and the most important consideration of all. How do we prevent our retirees from outliving their money?
All of these issues and many more not listed currently in this month’s newsletter will require new and dramatically different thinking. We must understand that even though I believe government will return to more dignified negotiations, we must understand that government is NOT THE ANSWER. The more I study and the more I become aware, I have come to understand that government was INTENTIONALLY designed to move slowly. All the checks and balances were designed to make sure that no one would become too powerful and that our government wouldn’t make any major mistakes by moving too quickly. Because Americans do not recognize all the safeguards in our government, they feel that government moves too slowly to effectively deal with all the important issues, we as a country are currently facing. Remember, everything in our society currently moves at the rate of milliseconds. Speed is increasing and attention spans of Americans are decreasing. The American and Canadian people are so overwhelmed with information that it is now truly impossible for them to choose the wisest path to deal with all the considerations that must be analyzed.
Having said all of that, there is no bad news and there is no good news. There is ONLY news. How we prepare for these enormous amounts of information determines whether we win or we lose.
There is no bad news and there is no good news. There is ONLY news. How we prepare for these enormous amounts of information determines whether we win or we lose.
To know how to proceed with our customers we must finally understand that there are only six things that we and our government can do to deal with all of these economic discrepancies.
I will list them and explain why only one of them will work even though government will attempt all the methods that won’t work.
Isn’t our number one goal to simplify these increasingly complex issues so our prospects and clients feel more confident making a reasonably beneficial decision?
Economics is no longer a trustworthy science. The math is manipulated, ignored, and influenced. We are even using experimental methodologies such as Modern Monetary Theory without any true understanding of what the final outcome will be. There is literally no one, anywhere, any place who can tell the people what is going to happen to national and global economies except in very broad strokes, such as “we know the economy will eventually recover.” So, shouldn’t we know what the government will attempt to do to reduce the oncoming damage to our economy so we can be of maximum value?
Let’s address a simplified discussion you can have with your customers to inspire them to take action.
Here is the truth: There are only six ways that our government and ourselves can deal with repairing, controlling, or trying to control what is going to be the only methods to deal with all the shortfalls our country will experience. Here is how to begin the conversation.
There are only six ways that our government and ourselves can deal with repairing, controlling, or trying to control what is going to be the only methods to deal with all the shortfalls our country will experience.
Mr. & Mrs. Customer, if you think about it, aren’t there really only six things our government, all the other governments and ourselves will be able to repair or try to repair what is happening in our country and the world? Don’t you feel this is something you should think about? If you knew what those things were, wouldn’t that help you develop strategies that would first, prevent you from being harmed by what happens. Second, and even better, wouldn’t that put you in perfect position to take advantage of these issues for the rest of your life? Do you believe we will deal with these issues for as long as we live? If that is true, wouldn’t it be wonderful to be in control of what happened to you, your family and your business rather than be controlled by these unfavorable programs and issues? If we asked you questions that would help you clarify, in your own mind, how to do that, wouldn’t that be worth a few minutes of your time? Wouldn’t you like to know this information before anymore issues arise?
THIS IS ACTUALLY AN ADDITIONAL WAY TO START A MEANINFUL CONVERSATION WITH A PROSPECT OR CLIENT.
Again, here are the six options.
1. The first one is fairly obvious. Aren’t governments, at every level, going to have to raise taxes of ALL kinds? Isn’t that the quickest and easiest way to raise the additional revenue they will need to provide the benefits and services governments provide? Do you remember that the current tax law expires automatically on December 31, 2025? That means, without any additional legislation, won’t our taxes increase? Because of the governments dire need for revenue could they change tax law even sooner? What impact would the increase in taxes have on your current standard of living? Could those increased taxes make it more difficult to achieve financial and retirement security? Shouldn’t we ask everyone, if at a gut level, will our governments require more revenue in the future? EVERYONE answers yes.
2. Could the government lower benefits as a second option? There are dissertations every week now about the financial health of Social Security and Medicare. Will they change full retirement age to 70 for future recipients? Could they lower benefits without additional funding? Will Medicare deductibles continue to increase causing Medicare Supplements and Medicare Advantage costs to increase? We could actually discuss all the ways governments are reducing benefits and services for hours, couldn’t we? There are volumes of ways that governments at every level are already reducing benefits or limiting services.
3. The third way is the one primarily promoted by politicians from ALL political parties. The third way will strengthen our economy and our pensions being provided by the government. This third way is even offered as a way to reduce our debt. What is the third way? Don’t they always tell us that we will GROW our way out of these challenges? Aren’t we averaging two percent growth or less for the last 15 years with a recession on the way, which is defined as negative growth? Aren’t they exaggerating a little bit? Is it possible they are exaggerating a lot? If you incorporate inflation into the equation, haven’t we had 15 years of negative growth? Inflation being higher than our growth rate equals negative growth. Will we ever see real growth again? What happens to all that the government provides if they have little or no growth in our economy? Let me ask again, what happens?
4. Doesn’t that leave printing enormous amounts of money? In the year 2000 when America’s population was 300 million people, the M2 money supply was $4.9 trillion. In 2022, with the population increasing to 330 million, which is a 10 percent increase, the money supply increased to $21.4 trillion. That is a 435 percent increase even though our population only increased by 10 percent. The U.S. Debt clock https://www.usdebtclock.org predicts the M2 money supply will increase to $23.1 trillion by 2026 with little or no increase in our population. That will be a 470 percent increase since the year 2000. Essentially, the government is inflating the money supply. The Federal Reserve will print whatever amount of money they need to provide their promised and unpromised benefits. That, plus supply chain issues are causing dramatic inflation. Even though we are being told that inflation is improving, (it isn’t) 7 percent inflation reduces the purchasing power of money in 10 years by 50 percent. At 6 percent inflation it takes 12 years to reduce the purchasing power by 50 percent. At 5 percent inflation, it would take around 14 years. That means a lower standard of living for everyone. Please don’t be misled. When we are in the full throes of the predicted recession, the government will bail out and reduce rather than raise interest rates and they will print more money.
The government is not opposed to inflation because it means they are able to pay back debt using much cheaper dollars. It is the American people who are mostly hurt by inflation.
5. Now, I would like to share with you the solution government will use to deal with all of these challenges. Won’t they use a combination of all these choices? And won’t the heaviest emphasis be placed on increased taxes of all kinds and the printing or inflating of our money?
So, to review, there are really only 5 options for our governments:
- Increased Taxes of All Kinds
- Lower Benefits And Services
- Grow Our Way Out of Debt
- Inflate The Money – Print As Much As You Can
- A Combination of All of The Above
Wait! Didn’t I say there were six alternatives? This is the most important one. It involves all of us individuals.
6. What is so great about our countries is that we have the ability to create strategies that DO NOT depend on the government. In fact, we can create and design strategies that will allow us as individuals to take advantage of any blunders made by government, Wall Street or the banks. In America and Canada, you still have freedom to create strategies that are successful under ANY circumstance. That is why, now is the greatest time ever to be an insurance and financial professional. Professional advice’s value has just increased dramatically. You are needed more than you’ve ever been needed. There is so much information to wade through. We help our customers organize the information and make the most beneficial choices for themselves, their families and their businesses. You are, and always have been, the SOLUTION.
You are, and always have been, the SOLUTION.
Every year, in the January newsletter I try to take you through a process of calculating effective tax rates. This year we are seeing dramatic change because of the massive inflation increases to Social Security and the income tax numbers such as the Standard Deduction and individual and married tax brackets. Social Security saw an 8.7 percent increase for 2023. So, the average Social Security for a married couple over age 65 increased from $32,000 to $35,000. The average Social Security for a single person increased from $19,000 to $21,000. I wanted to be sure you knew where we derived the numbers for the calculations.
Also, as you become more comfortable with numbers like the standard deduction and the 10, 12, 22, and 24 percent tax brackets you will find it easier to explain the Rules of 53-10, 120-12, 221-22 and 395-24. Understanding the numbers, I am about to provide, and the above stated rules will help you to be a much more interesting conversationalist. That will lead to many more appointments and many more sales.
I am providing basic examples to you. They will only become valuable to you if you determine the myriad of ways this information can be used to “find the money.” This information frees up trillions of dollars to be used to provide additional benefits besides retirement. Now, with the same dollar you are providing long term care and critical illness benefits and the leverage a death benefit can provide to be used to offset the extreme damage inflation provides. Let’s get started with this year’s information.
Before I begin, a caveat: These are a few examples to be used as a guide. There are many permutations of the information being provided. For example, these cases do not include state income taxes. Some states do not tax Social Security. I use all the examples with Social Security so you can easily explain why even having 85 percent of your Social Security is preferable to waiting and having 40 or 50 percent of your 401(k), IRA, 403(b) or 457 plans taxable after you have built it into a large amount of money.
Having 85 percent of your Social Security is preferable to waiting and having 40 or 50 percent of your 401(k), IRA, 403(b) or 457 plans taxable after you have built it into a large amount of money.
There are unlimited examples of how to use this information. These examples try to cover as many bases as possible to expand your creativity when it comes to providing quality answers for all the challenges our prospects and client’s will face in the future. This information in my newsletter shows you how to use the “progressive” nature of our tax laws to turn marginal tax rates into lower “effective” tax rates. Even if the rates increase in the future, the law will most likely remain a progressive tax law. This is how you build a foundation for the rest of your career.
Let’s get started with the 2023 presentation.
Married Couple Over Age 65
(Assumes $35,000 of Annual Social Security:
This is the New Average Social Security)
1. Social Security: $35,000
Standard Deduction in 2023: $30,700
Total Income: $65,700
How Much is Taxable of the $65,700? $8,100
A married couple could withdraw $30,700 of fully taxable money in addition to their $35,000 of Social Security and only pay taxes on $8,100, which would be $810.
This is the taxable Social Security $8,100 = $810
Total = $810
This couple could withdraw $65,700 of Social Security and fully taxable money every year for 10 years for a total of $657,000 or $65,700 every year for 20 years for a total of $1,314,000 and pay only $8,100 in taxes in 10 years or $16,200 in 20 years in federal income taxes. That is about a one percent effective tax rate.
Ask your customer if this strategy would be beneficial for them and their family or business!
Additionally, the average life expectancy for a couple over age 65 is 20 years. Many live 25 or 30 years. Wouldn’t elimination of the future income tax liability make their money last longer without adding additional risk?
You will probably use the example in number one the most. Let’s discuss the opportunities!
The number you should be paying attention to in this example is $65,700. Simply stated, if any of your customers have less than $65,700 of gross income that included their Social Security, they could be withdrawing the difference and pay the income taxes now at THEIR effective tax rate. If a client has $50,000 of income including their Social Security, wouldn’t it be beneficial to withdraw another $15,700 of fully taxable income if it would only cost them $810 in taxes to eliminate the taxes on that money forever? In 10 years removing the income tax liability on 10 years of $15,700 or $157,000 would be $8,100. In 20 years, it would cost them $16,200 to eliminate the tax liability on $314,000 of fully taxable money. Ask your customer, why wouldn’t everyone do that?
Now let’s say we have a retired couple living on $35,000 of Social Security receiving a required minimum distribution of $11,000. That would be the approximate RMD on $300,000 of qualified money on a 72-year-old. Shouldn’t you ask them why they aren’t taking another $19,700 from their qualified money if it would only cost them $810 to eliminate the income tax liability on the money forever? If you reallocated that $19,700 every year into a cash value life insurance policy, after 10 years wouldn’t you have converted $197,000 of forever taxed money into $197,000 of never taxed money? Wouldn’t that $197,000 of never taxed, (cash value) provide a leveraged death benefit of $300,000 or $400,000 and the ability to cover long term care without wasting any premiums or offsetting inflation, without harming the intended inheritance? Ask your customer if they understand how brilliant they are. Haven’t they figured out a way to eliminate taxes on $197,000 for only $8,100 and when they die, doesn’t the death benefit reimburse their family the $8,100 and then some? So, they got all the fully taxable money out of their 401(k) or IRA without paying one cent of the tax out of their own pocket. Isn’t that an amazing strategy Mr. & Mrs. Customer?
Ask your customer to imagine that they have never met you. Then assume one of them requires long term care for the last two years of their life. Did you notice I didn’t say nursing home? Ask your customer if there are really any good nursing homes. Would you put someone you really love in a nursing home if you didn’t have to? Wouldn’t you prefer to be cared for in your own home if it was possible? If the care at home cost $80,000 annually there is literally nothing left of the $197,000 in an IRA or 401(k) after two years of care. If there is $197,000 of cash value in a cash value life insurance policy that has only a $300,000 face amount, couldn’t our customer use $150,000 of the cash value over the two years of care and then have the asset replenished at death by the life insurance face amount? Ask them if they know anything else in the world that can do what you just described. Then say, I have a surprise for you. If you don’t need the cash value while you are alive, then you didn’t waste one cent of premium on long term care coverage that you didn’t use. Your family, business or charity will receive $300,000 income tax free. The exact same scenario applies to inflation. If the customer needs to use $150,000 of the cash value to maintain their standard of living, the original amount is replenished by the leveraged death benefit. Ask them again: Do you know anything in the world that can do what I just described?
Remember, if they live on their Social Security using the average of $35,000, couldn’t they withdraw $30,700 per year of fully taxable income and ONLY pay $810 in taxes? If they live on $55,000 per year, they could use the $10,700 difference between the $65,700 and the $55,000 to buy life insurance which would help offset any income tax liability on qualified money. The total income tax liability in example number one is $810. Shouldn’t every one of our customers know this information?
2. Social Security: $35,000
Standard Deduction in 2023: $30,700
10% tax bracket: $22,000
Total Income: $87,700
How Much is Taxable of the $87,700? $80,970
A married couple could withdraw $52,700 of fully taxable money in addition to their $35,000 of Social Security and only pay taxes on $80,970, which would be $5,080.
$30,700 = $0
$22,000 = $2,200
$24,000 = $2,880
Total = $5,080
This couple can withdraw $87,700 of Social Security and fully taxable money every year for 10 years for a total of $877,000 and only pay $50,800 in income taxes. They could take out $87,700 per year for 20 years for a total of $1,754,000 and only pay $101,600 ($5,080 x 20 years) in federal income taxes over 20 years. That is a 5.8 percent effective tax rate.
Number 2 is just an extension of idea number 1; however, I have added the entire 10 percent tax bracket to the withdrawal. The 10 percent tax bracket for 2023 is $22,000. If you add the $35,000 of Social Security and the $30,700 standard deduction and the entire 10 percent tax bracket, they add up to $87,700. Using the Social Security chart in the 1020 instructions, we can calculate that only $28,270 of the Social Security is income taxable in this example. So, even though we have a gross income of $87,700, only $80,970 is subject to income tax. That liability is $5,080.
If we divide $5,080 by the $87,700 gross income, we find the effective tax rate is 5.8 percent. Ask your customer this question: If they could eliminate the income tax liability forever on an additional $22,050 of fully taxable money for less than 6 percent per year, would they do it? The vast majority of your customers will in a heartbeat, if they knew about it. The reallocated money can be used for financial success and things like long term care and out of pocket healthcare expenses. It can also provide tax free supplemental income later in life. The money can be used as an inflation hedge coupled with cash value life insurance. Isn’t that a more effective use of the money rather than leaving it in an IRA or 401(k)?
3. Social Security: $35,000
Standard Deduction in 2023: $30,700
10% tax bracket: $22,000
12% tax bracket: $64,450
Total Income: $155,150
How Much is Taxable of the $155,150? $149,900
A married couple could withdraw $120,150 of fully taxable money in addition to their $35,000 of Social Security and only pay taxes on $149,900, which would be $16,839.
$30,700 = $0
$22,000 = $2,200
$67,450 = $8,094
$29,750 = $6,545
Total = $16,839
This couple could withdraw $155,150 of Social Security and fully taxable money every year for 10 years for a total of $1,551,500 and pay only $168,390 in federal income taxes. If they withdrew $155,150 for 20 years, they could withdraw a total of $3,103,000. They would only pay $336,760 ($16,839 x 20 years) in federal income taxes over 20 years. That is an effective tax rate of 10.85 percent.
Using the information in number 3 is how you begin to write really large cases. That is why I share so much information in the newsletters about how much revenue the government will require in the future. The government is setting up non-spouse beneficiaries to pay huge taxes when they inherit these accounts. Using that information, ask your customer if they are building a legacy for the government and the Internal Revenue Service or for their family? Applying these STRATEGIES helps to begin a process of income tax reduction and reallocation of those funds to a more effective and efficient use. In example 3 we are using the entire standard deduction. We are also using the entire 10 and 12 percent income tax brackets. That amount with Social Security of $35,000 added equals $155,150. Because only 85 percent of Social Security can be taxable only $149,900 of the $155,150 is income taxable.
Think of this. A couple requires $70,000 to live comfortably in retirement. They could withdraw a total of $155,150. The income tax is $16,839. Add that to the $70,000 they need to live on and subtract it from the $155,150. That would leave $68,311 that could be allocated to a cash value life insurance policy or an annuity if they are uninsurable. The effective tax rate is 10.85 percent. Ask this question: If you could eliminate the income tax liability on $155,150 for less than 11 percent while you were alive, would you do it? Or, if you wait until you and your spouse die, would you prefer that your children pay 30, 40 or even 50 percent tax to inherit your IRA, 401(k), 403(b) or 457 plans? These examples can be very valuable for someone with $300,000 to $1,000,000 in qualified money.
4. Social Security: $35,000
Standard Deduction in 2023: $30,700
10% tax bracket: $22,000
12% tax bracket: $67,450
22% tax bracket: $101,300
Total Income: $256,450
How Much is Taxable of the $256,450? $251,200
A married couple could withdraw $221,450 of fully taxable money in addition to their $35,000 of Social Security and only pay taxes on $251,200, which would be $39,720.
$30,700 = $0
$22,000 = $2,200
$67,450 = $8,094
$101,300 = $22,286
$29,750 = $7,140
Total = $39,720
This couple can withdraw $256,450 of Social Security and fully taxable money every year for 10 years for a total of $2,564,500 and pay only $397,200 of federal income tax. Over a 20-year period this couple could withdraw $5,129,000 and pay only $794,400 (39,720 x 20 years) in federal income taxes over 20 years. That is an effective tax rate of 15.49 percent.
If you understand example 4 and example 5 coming up, you can have amazing conversations with customers who make large incomes and have huge amounts of qualified money. Essentially, the conversation stays the same. We are converting marginal tax rates into palatable effective tax rates. Now we are using the entire 22 percent income tax bracket, which is another $101,300. If you add Social Security, the standard deduction and the 10, 12 and 22 percent income tax brackets, you could withdraw $256,450. Only $251,200 would be income taxable because 15 percent of your Social Security is not taxable. The total federal income tax is $39,720. If we divide $39,720 by the gross income of $256,450 the effective tax rate is 15,49 percent.
If my customer needs $100,000 to live on and pays $39,720 in federal income tax, that $139,720 subtracted from the gross income of $256,450 leaves $116,730 that can be reallocated to something more effective and efficient while permanently eliminating the tax on that $116,730 forever. The cost was only 15.49 percent. Instead of waiting until the husband and wife die and having the children pay 30, 40 or even 50 percent to inherit this money, why wouldn't everyone use the strategy I stated above? Why aren't we having conversations like these with EVERYONE who has qualified money? Are you beginning to realize that even people who have money do not understand math and do not understand or recognize the opportunity? Shouldn't we ask them?
5. Social Security: $35,000
Standard Deduction in 2023: $30,700
10% tax bracket: $22,000
12% tax bracket: $67,450
22% tax bracket: $101,300
24% tax bracket: $173,450
Total Income: $429,900
How Much is Taxable of the $429,900? $424,650
A married couple could withdraw $394,900 of fully taxable money in addition to their $35,000 of Social Security and only pay taxes on $424,650, which would be $83,729.
$30,700 = $0
$22,000 = $2,200
$67,450 = $8,094
$101,300 = $22,286
$174,450 = $41,628
$29,750 = $9,520
Total = $83,728
This couple can withdraw $429,900 of Social Security and fully taxable income every year for 10 years for a total of $4,299.000 and pay only $837,280 in federal income tax. If they withdrew $429,900 for 20 years, they would withdraw $8,598,000. They would only pay $1,674,560 (83,728 x 20 years) in federal income taxes over 20 years. That is a 19.48 percent effective tax rate.
Example 5 uses the entire 24 percent income tax bracket. That bracket taxes $173,450 of income taxed at 24 percent. The MARGINAL tax rate for this transaction would be 24 percent.
If we withdrew the $35,000 of Social Security, the standard deduction and the 10, 12, 22 and 24 percent income tax brackets we would withdraw $429,900. The income tax on that withdrawal is $83,728. If our customer needs $150,000 per year to live on and we add the $83,728 of taxes that must be paid, it leaves $196,172 from the $429,900 that can be reallocated at the effective tax rate of 19.48 percent. Think about this; if you reallocate that $186,172 annually to a cash value life insurance policy and the death benefit is more than the $1,674,560, they paid in taxes while alive, they have effectively paid all the income taxes without one cent of the money coming out of their own pocket. What a brilliant strategy they are undertaking. Tell your customers how brilliant they are. Ask your customers if it would be worthwhile to eliminate, forever, taxes on millions of dollars at less than 20 percent or should they wait until they die and let the government take 30 to 50 percent of the money from their children? Most of our customers are astonished to discover something like this is possible.
Why do I stop at 24 percent? For me, the answer is that the effective tax rate remains under 20 percent. It minimizes the rate below anything they thought they would ever pay.
Additionally, I always ask grandmas and grandpas what their children and grandchildren will do when they inherit the money. Will they take advantage of the 10 year stretch provision to reduce the income tax on their inheritance or will they take the money as quickly as possible without regard for the income tax liability even if they lose 40 or 50 percent to taxes? Grandma and grandpa ALWAYS say their children would take the money. Ask grandma and grandpa; what if you could reduce or eliminate the income tax liability while you are alive, without giving up control of the money, in order to preserve the majority of this money for your family, would you do it? More often than not they are interested. They don't wish to see what they have worked their whole life for being decimated by income taxes after they die.
Numbers 6, 7, 8, 9 and 10 are a summary of the information I have shared with you thus far. Learning to effectively use this information will become a real game changer for your career. Americans are astonished to discover they still have an opportunity to manage their income tax liability on qualified money and gains from other investments such as non-qualified annuities. What do you think they think about on agent or advisor who brings them these strategies? WOW!
6.
#1. Pay only $16,200 to eliminate taxes on $1,314,000 over 20 years. The effective tax rate is around one percent.
#2. Pay only $101,600 to eliminate taxes on $1,754,000 over 20 years. The effective tax rate is 5.8 percent.
#3. Pay only $336,760 to eliminate taxes on $3,103,000 over 20 years. The effective tax rate is 10.85 percent.
#4. Pay only $794,400 to eliminate taxes on $5,129,000 over 20 years. The effective tax rate is 15.49 percent.
#5. Pay only $1,674,560 to eliminate taxes on $8,598,000 over 20 years. The effective tax rate is 19.48 percent.
7. The magic of the progressive tax law is that the client can control their income tax liability during a period of historically low tax rates. If our customers wait until they die, non-spouse beneficiary’s income tax liability could easily increase to 30 to 50 percent. Why? Because you have transferred the power of control over to the Internal Revenue Service.
8. At each of the above income levels you can reallocate “forever taxed” money into “never taxed” products like annual premium cash value life insurance, modified endowment contracts (MECs) or preferentially taxed products like annuities if our customer is uninsurable. Also, if uninsurable, the money can be converted to Roth IRA’s. You are reallocating the money after it has been withdrawn and the taxes have been paid on the withdrawals.
9. This strategy is used to reduce or eliminate taxes on IRA, 401(k), 403(b) and 457 withdrawals. This can also be used to eliminate deferred gains on existing non-qualified annuities. It can be used to eliminate capital gains taxes for people in the 0%, 10% and 12% tax brackets. Please remember The Rule of 120-12. If a married couple over age 65 have less than $120,250 of taxable income they are in the 12 percent ordinary income tax bracket. That puts them in the 0 percent long term capital gains tax bracket. This is a real opportunity to access capital gains in stocks, bonds, mutual funds and real estate. We are nearing the end of a bull market. Wouldn’t your customers be interested in the rule of 120-12?
10. Life Insurance and Annuities Also Feature These Benefits:
A. No Probate (with named beneficiaries)
B. Incontestable and Private
C. Control from the grave
D. Creditor and predator protection
E. Medicaid versatility
Here is the same information, however my customer is single. This is an opportunity to move large amounts of inefficient and ineffective qualified money to better allocations with the taxes reduced or eliminated.
Single Over Age 65
(Assumes $21,000 of Annual Social Security:
This is the Average Social Security paid)
1. Social Security: $21,000
Standard Deduction in 2023: $15,350
Total Income: $36,350
How Much is Taxable of the $36,350? $450
A single person couple could withdraw $15,350 of fully taxable money in addition to their $21,000 of Social Security and pay $450 in taxes. $450 of this person’s Social Security would be taxable in this example. This person could withdraw $36,350 of Social Security and fully taxable money every year for 20 years for a total of $727,000 and pay $900 tax: Only $900!
Let’s say the client lives on $34,340 per year. You could show them that they could withdraw another $2,000 per year of fully taxable money and pay only $45.00 income tax. What could you do with that additional $2,000 per year? Of course, a cash value life insurance program.
2. Social Security: $21,000
Standard Deduction in 2023: $15,350
10% tax bracket: $11,000
Total Income: $47,350
How Much is Taxable of the $47,350? $34,323
A person could withdraw $26,350 of fully taxable money in addition to their $21,000 of Social Security and only pay taxes on $34,243, which would be $2,054.
$15,370 = $0
$11,000 = $1,100
$7,953 = $954
Total = $2,054
This person could withdraw $47,350 of Social Security and fully taxable money every year for 20 years for a total of $947,000 and only pay $41,080 ($2,054 x 20 years) in federal income taxes over 20 years. That is 4.3 percent effective tax rate.
3. Social Security: $21,000
Standard Deduction in 2023: $15,350
10% tax bracket: $11,000
12% tax bracket: $33,725
Total Income: $81,075
How Much is Taxable of the $81,075? $77,925
This person could withdraw $60,075 of fully taxable money in addition to their $21,000 of Social Security and only pay taxes on $77,925, which would be $9,074.
$15,350 = $0
$11,000 = $1,100
$33,725 = $4,047
$17,850 = $3,927
Total = $9,074
This person could withdraw $81,075 of Social Security and fully taxable money every year for 20 years for a total of $1,624,500 and only pay $181,480 ($9,074 x 20 years) in federal income taxes over 20 years. That is an 11.2 percent effective tax rate.
4. Social Security: $21,000
Standard Deduction in 2023: $15,350
10% tax bracket: $11,000
12% tax bracket: $33,725
22% tax bracket: $50,650
Total Income: $131,725
How Much is Taxable of the $131,725? $128,575
This person could withdraw $110,725 of fully taxable money in addition to their $21,000 of Social Security and only pay taxes on $128,575, which would be $20,574.
$15,350 = $0
$11,000 = $1,100
$33,725 = $4,047
$50,605 = $11,143
$17,850 = $4,284
Total = $20,574
This person could withdraw $131,725 of Social Security and fully taxable money every year for 20 years for a total of $2,634,500. They would only pay $411,800 ($20,574 x 20 years) in federal income taxes over 20 years. That is a 15.62 effective tax rate.
5. Social Security: $21,000
Standard Deduction in 2023: $15,350
10% tax bracket: $11,000
12% tax bracket: $33,725
22% tax bracket: $50,650
24% tax bracket: $86,725
Total Income: $218,450
How Much is Taxable of the $218,450? $215,300
This person could withdraw $197,450 of fully taxable money in addition to their $21,000 of Social Security and only pay taxes on $215,300, which would be $42,816.
$15,350 = $0
$11,000 = $1,100
$33,725 = $4,047
$50,650 = $11,143
$86,725 = $20,814
$17,850 = $5,712
Total = $42,816
This person could withdraw $218,450 of Social Security and fully taxable money every year for 20 years for a total of $4,369,000. They would only pay $856,320 ($42,816 x 20 years) in federal income taxes over 20 years. That is a 19.6 percent effective tax rate.
Ask every one of your customers this question: “If you could eliminate taxes on huge amounts of money for tax rates of 20 percent or less, WOULD YOU? Do you want to be in control of the taxes you pay, or do you want to leave the control to the Internal Revenue Service and the government?” Americans need to be made aware that opportunities and strategies like these are available to them.
The secret to learning is repetition. When you read information like this it is important that you read it out loud, so your mind doesn’t wander as easily as when you read it silently. Also, I would have separate pen and paper handy to take notes. Think very carefully about what I am about to write: Isn’t the ultimate goal to be able to use this information in a conversational way so it looks to the customer like you have discussed this information a million times? Helping the customer learn about this by asking questions makes the customer feel like they have discovered something no one else knows. They ask you to help them put this information into practice.
It doesn’t take that long to learn. It only takes practice. If you practice a lot, it takes a short time to learn. If you practice only a small amount it will take a long time to be comfortable.
These last few newsletters can be the foundation of a wonderful career. Learning the 5-question sales presentation and the narratives for all the questions we share will provide you with the skills to qualify for the Million Dollar Round Table easily, for the rest of your life. This Is Important! THESE ARE LEARNED SKILLS! They require no natural ability. Everyone can learn these skills and have amazing successful careers. You can employ these skills in a month, six months, a year, or ten years; it just depends on how willing you are to practice. I LEARNED THESE SKILLS. I have no natural ability. On January 23, 2023, I will have been an insurance and financial professional for 50 years. I did not practice for the first 16 years I was an agent. I started to practice and qualified for MDRT in my 17th year in the business. I practiced more and qualified for Court of the Table in my 18th year. I practice a lot and have now qualified for Top of the Table for 32 years in a row. If I can do this, anyone can. This is the first day of the rest of your career. What path will you choose to take? Use this information. It will change your career dramatically because it will help you to “find the money.”
Let’s get started with the sales ideas.
Idea #2: Should You Withdraw More Than Your Required Minimum Distribution?
According to Ed Slott and JP Morgan Chase, if you only take the RMD you are missing out on a tremendous opportunity. To quote a line from Ed’s article, “Using a “minimum” mindset takes control out of your clients’ hands and turns it over to the government’s schedule.”
That is what this month’s newsletter is about. How to turn ineffective and inefficient money into money that has no additional income tax liability and now those dollars can be used for multiple purposes without destroying the asset, and if you don’t require those benefits or services you haven’t wasted one penny of money on premiums for those benefits.
I would recommend that you carry these two articles with you and show them to all your retirees. This is very important information for your practice.
Title: Why Advisors Should Rethink the ‘M’ in RMD
https://www.thinkadvisor.com/ (Think Advisor, December 14, 2022)
https://www.thinkadvisor.com/2022/12/14/why-advisors-should-rethink-the-m-in-rmd/
Title: 84% of Retirees Are Making This RMD Mistake
https://www.yahoo.com/ (Yahoo, December 21, 2022)
https://www.yahoo.com/entertainment/84-retirees-rmd-mistake-130022029.html#:~:text=A%20whopping%2084%25%20of%20retirees,a%20JPMorgan%20Chase%20study%20found
Idea #7: Split Dollar Life Insurance
When I can find an article about a life insurance or annuity technique, I try to share it with you. This is a wonderful article about the effective use of split dollar life insurance. It is important to add an additional tool with all the challenges our customers will deal with in the future. This would be another tool. This is an advisor website. Also watch the video.
Title: Split Dollar Plan Utilizing Life Insurance [2022 Update]
https://blog.advisors-resource.com/ (Advisor's Resource Company)
https://blog.advisors-resource.com/blog/split-dollar-utilizing-life-insurance
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