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June 2022 – 7 Ideas and Views Newsletter by Van Mueller
At the beginning of this year I shared, in this newsletter, that I believed 2022 would be a transformative year for our industry, for our country and for the world. In retrospect I absolutely understated my premise.
Everything has and will change dramatically, and those changes have begun in 2022. In that context it is important to understand EXACTLY what you do and what the industry and your career are about. We do not sell life insurance, annuities, mutual funds, long term care, critical illness, health insurance, car insurance, homeowners or business insurance, etc. If that is what you believe you do, you will have a long and difficult road ahead of you. Competition from social media and artificial intelligence will replace you faster than anything you could ever contemplate. We do not sell products. We do not sell data and information. We do sell strategies. We do sell knowledge and wisdom. We help our prospects and clients organize their thinking so they can make beneficial decisions for themselves, their families and their businesses. Why must we help our customers organize their thinking? Our customers are being deceived by entities such as government, Wall Street and the banks using social media and artificial intelligence techniques such as “spaced repetition” to direct our customers to do things that are beneficial to the entities and not our customers. Think of spaced repetition in this manner. If you hear a lie a thousand times, doesn’t it become the truth? How can we as agents and financial professionals overcome these inaccuracies? We certainly can’t overcome this information by telling. Would you believe what you heard once or twice or hundreds of times?
If you hear a lie a thousand times, doesn’t it become the truth? How can we as agents and financial professionals overcome these inaccuracies?
Asking questions helps our customers to reason out whether the information they have heard hundreds of times is beneficial for their situation. I CANNOT STRESS ENOUGH HOW IMPORTANT ASKING QUESTIONS IS TO THE SUCCESS OF OUR CUSTOMERS AND OURSELVES IN THE ENVIRONMENT WE CURRENTLY FIND OURSELVES IN.
Please go back and practice the questions I have provided including, but not limited to the “5 Questions” presentation.
1. Will Taxes Be Higher In The Future?
2. Will Benefits Be Lower In The Future?
3. Will We Continue To Deal With Serious Inflation?
4. Will Volatility Continue To Increase?
5. And Longevity, Will We Outlive Our Money?
In our country’s current environment can we only settle on being insurance and financial professionals? Shouldn’t our goals that we strive for not only be about success? Shouldn’t we understand that what we do is significant? We save people’s lives. We preserve families and businesses. We provide Independence, Dignity and Legacy.
Where did I get those words? I would recommend that you read Joe Jordan’s book Living a Life of Significance as soon as possible. When you read his book, you will become energized by the vital and important role you play in the successful lives Americans and Canadians strive for. Most, if not all of these customers will not reach their intended goals without your input. They must have your knowledge and wisdom if they are to successfully make the transformations that the year 2022 is thrusting upon us.
These customers must have your knowledge and wisdom if they are to successfully make the transformations that the year 2022 is thrusting upon us.
What are some of these transformations? Insurance and financial products will never again be sold the way they were in the past. Best interest and fiduciary rules require a different mindset both for us as agents and financial professionals and a different mindset from our customers about what they need and how they wish to be treated.
Our competition will be from our own companies using the internet, social media, and artificial intelligence against us. They will disclose that they can do what we do for little or no commission. We must learn that we are not a cost. We provide value by asking questions that social media would never ask. We provide reassurance when it looks like plans are not working. We provide comfort when people are dealing with the worst events they will ever face in their lives. Death, disability, catastrophic illness, financial loss, etc. are when our customers require human contact the most. By the way, the internet and 800 numbers are beginning to see supply chain issues affect the service they hope to provide. The supply chain of people willing to work at these kinds of jobs is broken.
Speaking of supply chain issues. We are years, maybe even a decade away from solving supply chain issues. Ask your customers about baby formula and other products that have become hard to find. What will happen to the food supply chain when 40 percent of the world’s wheat and other grain products are NOT harvested in the Ukraine? Try to buy an appliance or furniture or clothes or anything without a wait or even a long wait. Because of the scarcity, the cost has increased dramatically.
We are years, maybe even a decade away from solving supply chain issues.
Look at travel. I am writing this on Memorial Day weekend where 5,000 flights have been cancelled by the airlines. Very few of the cancellations were caused by weather. Most were caused by the airlines’ inability to have enough people to do the work. Rent a car; it’s difficult and expensive.
COVID will never go away. We will have to learn to live with this virus, mask or no mask, vaccine, or no vaccine. We have become so polarized as a country that both answers could be right and both answers could be wrong. If you tell people things you could touch upon the one thing where they don’t agree with you, and you could lose the opportunity to be of service to this customer. The only opinion that matters is theirs. Your opinion doesn’t matter when they ask for your opinion. Please provide choices. Ask if doing this would be more beneficial or would doing this be how you’d like to proceed.
Law and justice are changing in our country. We lose a little more freedom ever day. I feel like many Americans, including myself, struggle with insecurity, depression, addiction of all kinds: I am positive I have a food addiction. Think of the enormous stress our customers are living under. If you can relieve that stress even a little, you are a godsend.
Think of the enormous stress our customers are living under. If you can relieve that stress even a little, you are a godsend.
Because of COVID, healthcare costs are increasing, and healthcare is being delivered in an entirely different way.
There are so many transformations occurring this year. I am only touching on a few. However, I saved the big one for last. What is about to happen will change our country and our world, forever!
We are about to have the biggest economic disaster in the history of our country and maybe in the history of the world. The governments of the world, led by our government, have artificially interfered with global economics. Negative interest rates, astounding printing of money, debt beyond any person’s comprehension and other fiscal and monetary policies have put the world’s economies on the edge of the cliff. Jokingly, we have called what is happening the everything bubble.
It is now predicted that stocks and bonds and digital currency will crash even further than they already have. It is also predicted that housing and commodities will cool dramatically.
While this is happening, taxes will increase dramatically, inflation, the “stealth tax” is increasing at an astonishing rate. We are venturing toward stagflation, which is inflation, with no growth to offset the dramatically reduced purchasing power of our money.
We are venturing toward stagflation, which is inflation, with no growth to offset the dramatically reduced purchasing power of our money.
The government and the Federal Reserve really only have two choices. They can crash the stock and bond market by dramatically raising interest rates to battle inflation. That will cause a recession. Or they can maintain or reduce interest rates, so the stock and bond markets don’t crash, preventing a recession. However, we would have to deal with runaway inflation. If we have 8 percent inflation, every nine years, we will need twice as much money as we have now to maintain our standard of living or said a different way, in 9 years your money will only purchase 50 percent of what it can purchase now.
Neither one is a good choice. Either one creates really difficult wealth and retirement issues for our customers. Believe it or not, OUR CUSTOMERS DON’T UNDERSTAND THIS! They are in great danger. They will either see a dramatic decrease in their assets or they will see a dramatic reduction in the purchasing power of those assets. It’s not the end of the world, however it does mean most Americans will have a dramatically reduced standard of living.
That is where we come in. We have a SIGNIFICANT role to play in the welfare of this country and therefore the American people.
Take the time and sit and write down all the transformative things happening in our country and our world. There are many more things that I haven’t addressed. Education, marriage, caregiving, entertainment, fitness, communication, and jobs, just to name a few. How will Americans work in the future and where will they work in the future and because of that, what will happen to our cities? Climate will become a vital issue. I even believe government is about to change. It no longer serves the American people. Americans will demand change.
How will Americans work in the future and where will they work in the future and because of that, what will happen to our cities?
I hope you found the rules of 49-10 and 112-12 useful. Now, let’s look at the rules of 207-22 and 369-24.
Last month’s newsletter shared that the rule of 49-10 comprises the standard deduction and the 10 percent income tax bracket for a couple filing a joint income tax return where both people are over age 65.
The rule of 112-12 comprises the standard deduction and the 10 percent income tax bracket and the 12 percent tax bracket for a couple filing a joint income tax return and both are over the age of 65.
The second number of all these rules is called the marginal tax rate. So, 10, 12, 22 and 24 percent are the tax you would pay on the last dollar you earned in each of those brackets.
What the rules help us do is explain how and why the effective tax rate is lower and why it is important to take advantage of the opportunity that is provided when our customers understand how to use effective tax rates to their advantage. You can make big sales and create enormous opportunity for people you would otherwise not believe were good prospects using the Rules of 49-10 and 112-12.
Now, let’s discover how to uncover unbelievable opportunities for our customers using the Rules of 207-22 and 369-24.
Let’s discuss the Rule of 207-22 for a married couple filing a joint income tax return where both of the people are over the age of 65. How do we arrive at the Rule of 207-22?
The Standard Deduction: $28,700
The Entire 10 percent Income Tax Bracket: $20,550
The Entire 12 Percent Income: $63,000
The Entire 22 Percent Income: $94,600
Total: $206,850
The income tax on $206,850 is $30,427. We determine the effective tax rate by dividing $30,427 by $206,850. The effective tax rate is 14.71 percent. Think about that. The marginal tax rate is 22 percent. The effective tax rate is 14.71 percent.
Now let’s assume you are having a meeting with a couple that has $200,000 to a $1,000,000 of IRA, 401(k), taxable gains on annuities or capital gains on stocks, bonds, mutual funds or real estate.
Here’s your first example. Always ask what their children or grandchildren will do when they inherit this money. Will they take the money in a tax preferred way over a 10-year period, or will they most likely take the money in a lump sum? Remember, keep it lighthearted. Ask them not to laugh. What do you think their children and grandchildren will choose?
You will almost always get the answer you are looking for. Don’t oversell the concept. If the children and grandchildren take the money in a lump sum won’t the Internal Revenue Service receive 30 or 40 percent of the value? Ask them if that is their goal for this money. Don’t Assume They Know or Understand. Ask them if they are taking advantage of the Rule of 207-22 to control how much the Internal Revenue Service receives if any. Ask them why they are not using this Rule that so many people in their income and asset category are using to prevent the Internal Revenue Service from being the primary beneficiary of these funds rather than your family or business?
Ask them why they are not using this Rule that so many people in their income and asset category are using to prevent the Internal Revenue Service from being the primary beneficiary of these funds rather than your family or business.
Here are a few examples of how to use this information. Let’s say you meet a couple over age 65 with $500,000 in IRA’s. They are currently living on $150,000 per year and are actually stressing out about taking Required Minimum Distributions of $20,000 each year. Ask them if they understand how to use the rule of 207-22 to their benefit rather than the government’s. If their RMD is $20,000 and their effective tax rate is 14.71 percent, aren’t they paying less than $3,000 in income tax to save that money? What if you withdrew the difference between the $207,000 and the $150,000, you’re living on which would be $57,000 annually and after 10 years you would have converted over $500,000 of forever taxed money into over $500,000 of never taxed money? What if it only cost you $83,847 in additional taxes while you were alive and prevented you family from paying anywhere from $150,000 to $200,000 in income taxes after they die? Then ask them, what if we could leverage the $500,000 transfer to buy $750,000 to $1,000,000 in cash value life insurance? Wouldn’t the death benefit reimburse the $83,847 the parents paid while they were alive? Doesn’t that mean the family inherited all the money without paying one cent of taxes out of their own pocket? Doesn’t that leverage of the death benefit allow the parents to use their cash values to offset inflation or long-term care costs with the death benefit replenishing the value used, so that when you die your family still inherits all the money you wanted to leave them? Do you know anything else that can do what we are talking about here?
Other examples literally run the gamut. Any difference between $207,000 and the customers taxable income can be used to eliminate income tax liability using effective tax rates.
Here’s another example most agents would walk past. Let’s say our couple is living on $200,000 per year. There is still a $7,000 per year difference that could be used to buy life insurance that would pay the $150,000 or $200,000 of taxes when their children inherit the $500,000. The effective tax on that $7,000 withdrawal would be $1,029.70. Ask your customer, would you pay $10,000 over 10 years to eliminate the income taxes your family pays to inherit your $500,000 IRA?
Please remember, any difference between $207,000 and their current income is found money. You are using ineffective and inefficient money to fund multiple valuable benefits that especially control the customers income tax liability. WOW!
You are using ineffective and inefficient money to fund multiple valuable benefits that especially control the customers income tax liability. WOW!
Finally, let’s discuss the Rule of 369-24 for a married couple filing a joint income tax return where both the people are over age 65. How do we arrive at the Rule of 369-24?
The Standard Deduction: $28,700
The Entire 10 percent Income Tax Bracket: $20,550
The Entire 12 Percent Income: $63,000
The Entire 22 Percent Income: $94,600
The Entire 24 Percent Income: $161,950
Total: $368,800
The income tax on $368,800 is $69,295. We determine the effective tax rate by dividing $69,295 by $368,800, the effective tax rate is 18.79 percent. The marginal tax rate is 24 percent. The effective tax rate is 18.79 percent.
This is where the enormous strategies are developed. This is the rule you use to talk to prospects and clients with millions in their IRAs or 401(k)s. If you subtract the tax of $69,295 from the $368,800 marginal 24 percent tax bracket it leaves around $300,000 to play with.
Here’s a huge example. A 65-year-old couple needs 200,000 per year to live comfortably. They have a $4 million dollar IRA. If you took the extra $169,000 from this couple’s IRA every year for 24 years you would remove $4 million from their IRA.
If you paid the $69,000 of income tax out of the $169,000 withdrawal that would leave the couple $200,000 per year to live on and $100,000 per year to put into a cash value life insurance. If this couple did this for 24 years, they would have around $3 million in cash value. This $3 million is now never taxed and completely available to the couple if they need it. The original death benefit would probably be around 2 million. They would pay $1,656,000 to eliminate the tax liability on that $4 million IRA, the death benefit would reimburse the family for the $1,656,000 they paid in income tax while they were alive. Again, ask the customer if they realize how brilliant they are. They got their whole $4 million out of their IRAs, and they didn’t pay one cent of the income tax out of their own pocket. Amazing!
There are so many ways this money can be used to eliminate taxes on the family to offset the reduced purchasing power of their money caused by inflation and providing long term care benefits that can be used anywhere and then replenished so the person that did the caregiving can be cared for. Experiment with these numbers. You will see that you can use this found money to provide additional benefits at little or no additional cost. Let’s get started with this month’s ideas.
Idea #2: Americans Skipping Healthcare Because of Cost
I believe the next pandemic will be all the Americans who did not discover cancer, heart disease and diabetes early. These are illnesses that are treatable if they are discovered early.
These articles verify that 44 percent of Americans avoided receiving healthcare because of the cost.
Again, this article can be used as inspiration for grandma and grandpa to take action on behalf of their children and grandchildren. We must give out customers quality reasons to take action.
Title: 44% skipped healthcare over cost uncertainty, survey says
https://www.beckershospitalreview.com/ (Becker's Hospital CFO Report, May 25, 2022)
https://www.beckershospitalreview.com/finance/44-skipped-healthcare-over-cost-uncertainty-survey-says.html
Idea #7: Medicaid Planning
With what is about to happen in our country it is vital that we understand all the options available to our customers. Dealing with issues like Medicaid could be important to the welfare of our customers. This article provides a basic understanding that will be useful when discussing Medicaid with prospects and clients. This allows you to be a resource for your customers. I would create a file with information like this.
Title: Consumers Guide to Medicaid Planning
https://recentlyheard.com/ (Recently Heard, May 15, 2022)
https://recentlyheard.com/2022/05/15/consumers-guide-to-medicaid-planning/
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