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 July 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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July 2022 – 7 Ideas and Views Newsletter by Van Mueller
Since last month’s newsletter I have attended three conventions that I have been honored to speak at. I have also seen several hundred prospects and clients since last month’s newsletter. At all three conventions and while visiting with these several hundred prospects and clients, I posed an important question and no one, not one person got the answer correct.
I would like to share that question with all of you now. I start by asking, “Did you see that the Federal Reserve at their meeting in June raised the interest rates by .75 basis points or three quarters of a percent?” Then I ask the difficult question, “Do you know what they raised the interest rate to?” I have not had one person give me a correct answer yet. I don’t tell them the answer right away because it is very important that they understand what is happening. When they understand it will inspire them to take action. I explain the 10-year Treasury’s are paying around 3.2 percent and that 30-year fixed interest mortgage rates have risen to 6 percent. I ask them to guess again. I try to make it fun and interesting. I explain that I am not trying to embarrass them. I just want to have a little fun with them and that it will really help them to get an understanding of what is really happening in our economy. I ask them to please, guess again. They almost all guess somewhere between 4 percent and 8 percent. I then say, I know you won’t believe me, so I just show them an article I am going to provide for you in idea #1 in this month’s newsletter. The article shows that the Federal Reserve raised interest rates by .75 basis points or three-quarters of a percent from between three quarters of a percent and one percent to 1.5 percent and 1.75 percent. Most of my customers and most of the agents are stunned. They can’t believe it. Why are the other interest rates so high if the Federal Reserve’s interest rates are so low? Isn’t that a wonderful question and doesn’t it deserve an answer?
Why are the other interest rates so high if the Federal Reserve’s interest rates are so low? Isn’t that a wonderful question and doesn’t it deserve an answer?
The Federal Reserve rate is first of all a short-term interest rate. Additionally, it is the rate that the Federal Reserve charges banks to borrow money from it. The increase in the long-term interest rates is caused by several issues. First, at higher interest rates the banks have increased costs that they must recover. Second, and more importantly emotional considerations are at the heart of the interest rate increases to borrow money via credit cards, product loans and mortgages. If the Federal Reserve can get the rates to increase using the threat of an increase rather than an actual increase, that is beneficial to the Federal Reserve. Why? Because than the Federal Reserve cannot be blamed for the resulting negative effects of a rate increase. They can blame other entities.
From this moment on isn’t it true that the Federal Reserve now has only two strategies that it can employ. Neither strategy will be beneficial to the American people. THE ONLY PEOPLE WHO WILL BE OKAY WHEN THE RESULTS OF THESE STRATEGIES OCCUR WILL BE THE AMERICANS WHO ALREADY HAVE A STRATEGY IN PLACE. THE STRATEGY WILL PREVENT THEM FROM BEING HARMED. THE STRATEGY WILL POSITION THEM TO TAKE ADVANTAGE OF WHATEVER BAD THING HAPPENS.
HERE ARE THE FEDERAL RESERVE’S CHOICES:
1. They will continue to raise interest rates at every meeting that they have until they get inflation under control. Trying to combat inflation with rate hikes is not only ridiculous, but it also creates market risk disaster because our debt is much higher than our GDP. Fighting inflation requires neutral level rates or said a different way, rates that are higher than inflation. If current inflation is 8.6 percent that would require interest rate increases to at least 9 percent. When Paul Volcker was the Federal Reserve Chairman in 1980, he raised the Federal Reserve rate to 20 percent. Our debt at the time was $900 billion. Currently, our debt is almost $31 trillion. There is no way the Federal Reserve can raise interest rates to the necessary level required to calm inflation. They will probably continue to try, however. If they do, they will push our economy into recession and probably a severe recession. That means all the markets inflated by easy money will deflate and some rapidly. That is why this is called the “everything bubble.”
That means all the markets inflated by easy money will deflate and some rapidly. That is why this is called the “everything bubble.”
2.Their second choice would be to discontinue interest rates at the next meeting and resume printing money. That would prevent a recession; however, it would easily move our inflation numbers into double digits. Inflation would increase to 11 or 12 percent or even more. Why would the Federal Reserve do that? One consideration would be to prevent a recession. We have a mid-term election coming in November and it seems like the party currently in power is in trouble. With markets continuing to expand, that party could sell the idea that they are the party that is good for the economy. This might allow them to stay in power.
Now comes the fun part. Ask your customer if they realize there are two additional questions that must be given their consideration. Here are two questions. First, which is easier to fix? Is a recession easier or is inflation easier to fix? The answer is a recession. Why? You can repair a recession by lowering interest rates and printing more money. That is called a loosened monetary policy. They can also apply fiscal policy to fix a recession. The government can create work programs such as building highways or repairing bridges. The government can ease income tax law. They can ease rules on businesses.
Inflation is much harder to fix. It requires a fair amount of pain and suffering by the American people before you can even begin to get inflation under control.
A recession will cause you to lose your money. The positive choices are to build a strategy where you don’t lose money or if you do lose money, you can make it all back and then some when the government stimulates the economy.
The positive choices are to build a strategy where you don’t lose money or if you do lose money, you can make it all back and then some when the government stimulates the economy.
Inflation destroys the purchasing power of your money forever. Inflation is ridiculously difficult to get under control once you’ve lost control of it. That’s why they are making such a big deal of the fact that it has been 41 years since we’ve seen this kind of inflation. Here’s the really bad news. Inflation will get worse before it gets better. The last time we dealt with inflation as dangerous as this, it took 13 years for our country to get inflation under control. Inflation raged from 1978 to 1990. It was horrific. We do not have as many tools to fix inflation this time. I am repeating, but in order to get inflation under control, we would have to raise short term interest rates above 9 percent. That is almost inconceivable with $31 trillion of debt now and almost $45 trillion of debt by 2030. If the annual budget of our current government is around $5 trillion, 60 percent of the budget would be necessary just to pay interest on the debt. Inflation is a way for the government to impose a “stealth tax” on the American people. This tax is imposed on EVERYONE. Rich, poor and middle-class people pay this stealth tax that the government imposes because they cannot live within their means. You will also notice I have not offered up many solutions. Getting inflation under control will be one of the most difficult things our government and the Federal Reserve will have to deal with going forward. There is no easy solution and inflation will cause great damage. Most Americans will see a lower standard of living in the future because of inflation.
So, that brings up the second question. Which is more dangerous to the American people? They both are. They are both occurring at the same time. You are seeing the value of your assets decrease dramatically. And then, what remains, has dramatically reduced purchasing power. Many Americans will never recover from what is currently happening and that number will increase when the recession takes hold and inflation solidifies itself in the American economy. I cannot stress this enough; this is a very dangerous time for the American people.
There are two concepts you must understand concerning our current economic situation. The first concept is “sequence of returns.” Tom Hegna has explained to our industry many times that the most dangerous years in retirement are the five years before you retire and the 5 years after you retire. If big losses occur at the beginning of your retirement that puts the longevity of the retirement plan in danger. If you then add the lost purchasing power caused by inflation you now have a real dilemma for most of the current and about to be retirees.
Tom Hegna has explained to our industry many times that the most dangerous years in retirement are the five years before you retire and the 5 years after you retire.
The second concept is the rule of 72. If you divide the inflation rate into 72, it will tell you how long it will be before you must increase your income to maintain your standard of living. Then you ask the 5 questions.
1. Will Taxes Be Higher In The Future?
2. Will Benefits Be Lower?
3. Will We Have Inflation?
4. Will Volatility Increase?
5. Will It Be Possible To Outlive Your Money?
Those 5 questions bring into focus the issues that Americans must have answers for if they wish to successfully survive what is happening and what will be happening in the future.
I would like to share a short sales presentation that you can use in many, many situations that won’t require you to cover a ton of information to inspire your customer to take action. The conversation leading up to this presentation should include a conversation about recessions and inflation and what considerations they require. Then the customer should be asked the 5 questions to help them clarify the issues that must be dealt with, and which issues are of the utmost importance to them. Don’t ever believe any of your customers are aware of these issues and how they will impact them and their financial futures and retirements. They have heard the words. They have never discussed the impact or learned ways to take advantage of these occurrences. They only believe they are bad. They do not realize they offer opportunity.
I want to share a presentation with you that I call the left pocket, right pocket presentation. I use this presentation in any location. I use it for small cases, medium cases, and yes even large cases. Why? Because in a very short explanation I am able to inspire my prospects or customer to take a look at ideas that will put them in control rather than being controlled by circumstances created by government, Wall Street and the banks. The presentation works because the customer doesn’t feel like they are transferring anything, it makes them feel like they are using a more beneficial pocket in the same pair of pants they already own. It doesn’t seem like such an overwhelming move. It allows our customer to not have to feel like you are recommending a drastic move. All you are doing is putting the money in a safer and more effective and efficient pocket. Customers really attach themselves to this concept. Finally, before I share this idea with you, it must be understood that this is one example of thousands of examples of how this could be used. You must experiment with different numbers and different permutations using this idea in order to maximize its usefulness.
All you are doing is putting the money in a safer and more effective and efficient pocket. Customers really attach themselves to this concept.
Left Pocket, Right Pocket Presentation From Van Mueller, LUTCF, LACP
Left Pocket
Our customer has $200,000 in a CD, Savings Account, Money Market, Checking or Short-Term Bond Fund. We know this because the Federal Reserve currently reports that there is over $21 trillion in those accounts, and they are sure to increase with the drop in the stock market.
The account currently earns two-tenths of one percent (.2) interest or $400 per year.
If a critical illness or long-term care require our customer to spend some or most or their principal to cover expense or they use a large amount of their principal to maintain their standard of living because of inflation, it will leave much less or even nothing for surviving heirs.
In addition, this money could be probatable, contestable, creditor accessible and subject to Medicaid recovery.
Right Pocket
Customer reallocates their $200,000 from their left pocket into their right pocket in their same pair of pants. The right pocket is much safer and provides many additional benefits. The right pocket is a single premium life insurance policy.
1. In most single premium life policies today, the surrender value, equals the cash value in one to five years depending on the design of the policy. Once the surrender charge is equal to or greater than the initial contribution the contract will almost certainly grow at a faster rate than all the other safe money alternatives.
2. The initial death benefit for a man aged 65, who is a non-smoker standard would be $316,611 and could grow to $340,147 in 10 years with the dividends reinvested. The initial death benefit for a woman aged 65 who is a non-smoker standard would be $337,308 and could grow to $362,380 in 10 years with the dividends reinvested.
3. Even though the cash value would grow reasonably well every year as a safe money investment, let’s assume there is no growth at all, and the cash value remains at the $200,000 contribution level. Our customer would still have almost complete access to their $200,000 of cash value if needed. If the death benefit is $116,611 more than the contribution from that 65-year-old man or $137,308 more than the $200,000 contribution for a woman aged 65, that means they can use that amount of the cash value for all the above-mentioned things and still leave their family the $200,000 they started with. That money can be used for critical illness, long term care or to maintain standard of living harmed by inflation.
When they die, the withdrawn money would be subtracted not from the cash value, but the death benefit. That would help to replenish most, if not all, of the principal. In many cases you could use 60 to 70 percent of your principal while you were alive for your benefit and replenish the principal income tax free when you die. This would preserve their LEGACY for their family.
4. This is a wonderful pocket. It avoids probate with named beneficiaries. The right pocket would be incontestable by beneficiaries, except for fraud. The money could actually be controlled from the grave to preserve assets for irresponsible beneficiaries. The right pocket would have creditor and predator protection. Finally, the right pocket would have Medicaid versatility. That could prevent complete spenddown to qualify for benefits. This is how you would finish the presentation.
WHICH POCKET DO YOU BELIEVE IS THE MOST BENEFICIAL POCKET FOR YOU AND YOUR FAMILY?
The presentation is as simple as that. It allows you to move millions of dollars of ineffective and inefficient money to much better alternatives. You are able to use the same dollars for leverage to provide critical illness, long term care and inflation solutions and still be able to take advantage of investment opportunities. The right pocket turns mediocre dollars into spectacular, multiple use, dollars. Share this vital information with everyone you can.
Let’s get started with this month’s newsletter.
Idea #1: Federal Reserve Hikes Interest Rates .75. To What?
As I said earlier in the newsletter, I am including this article because I have met no one who knows what the rate was raised to. This article gives you some background information about inflation and how difficult it is to get under control. Dealing with inflation will be with us for a long time. Also, the article will share that we have had negative interest rates since 2009. It also states that we continue to have negative interest rates. If the Federal Reserve rate is 1.50 to 1.75 percent and inflation is 8.6 percent, we have negative interest rates. How can an economy grow with negative interest rates. Learn the information in this article.
Title: Fed hikes rates by 0.75 percentage point, biggest increase since 1994
https://nypost.com/ (New York Post, June 15, 2022)
https://nypost.com/2022/06/15/fed-hikes-rates-by-0-75-percentage-point-biggest-increase-since-1994/
Idea #6: 61% of US Consumers Living Paycheck to Paycheck
36 percent of Americans earning more than $250,000 per year are living paycheck to paycheck. 42 percent making $100,000 per year are living paycheck to paycheck. If the median household income is $67,000 per year, what do you believe is happening to those families?
Why do I want you to have this article? Because of inflation, discretionary money for families is decreasing drastically. What if you could show American families how to use qualified money more effectively and efficiently. Wouldn’t you be a hero to that family? This will only get worse. The longer inflation hangs around the less discretionary money will be available to families. Talk to them about how to use their money in a more efficient manner.
Title: Many high-income Americans are living paycheck to paycheck
https://www.fastcompany.com/ (Fast Company, June 3, 2022)
https://www.fastcompany.com/90757629/why-are-so-many-high-income-americans-living-paycheck-to-paycheck
Title: More wealthy Americans are living paycheck to paycheck
https://www.cnbc.com/ (CNBC, June 3, 2022)
https://www.cnbc.com/2022/06/03/wealthier-americans-live-paycheck-to-paycheck-after-inflation-spike.html
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