Pinney Presents: Van Mueller Newsletter for November 2017
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 November 2017 edition. We're sharing the full introduction, and 2 of the 7 monthly sales ideas. If you like what you read, we encourage you to click here and become a subscriber.

Reprinted with the author's permission.

November, 2017 – 7 Ideas and Views Newsletter by Van Mueller

Van Mueller

In this month's opening instead of having one theme, I will cover a number of issues that need to be addressed but are not large enough to encompass the entire opening of this newsletter.

The first important information to review is 2018's tax information. For Americans filing as single and under age 65, the new standard deduction will be $6,500 up from $6,350. For married couples under age 65 filing a joint return their standard deduction increases from $12,700 to $13,000. For a couple filing jointly over age 65 their standard deduction increases from $15,200 to $15,600.

The personal exemption for everyone rises to $4,150 per person from $4,100 per person.

Couples under 65 filing a joint return can make $21,300 before they have to pay any income tax. ($13,000 standard deduction and two personal exemptions of $4,150 add up to $21,300.)

Couples over 65 can make $23,900 in addition to their Social Security and pay little or no income tax. This is derived from the over 65 standard deduction of $15,600 and two personal exemptions of $4,150 each.

The reason I have to say little or no income tax is dependent on how much Social Security they receive. Let me give you one example. If our over 65 couple has $30,000 annually of Social Security and they withdraw the fully taxable $23,900 of standard deduction and personal exemption, a small amount of their Social Security would be taxable. You can learn how to determine that by going to page 30 of the current 1040 instructions and you will find a form you can use to determine how much of your Social Security will become taxable if you withdraw out the standard deduction and personal exemption of $23,900 from any fully taxable account.

In the above example: $3,450 of their Social Security would become taxable if they withdrew the entire $23,900. 10% tax on $3,450 is $345.00.

Please think of this example. Your married clients over 65 who live twenty years in retirement could withdraw $478,000 (23,900 x 20 years) of fully taxable money and only pay $6,900 in income tax. That is 1.44 percent. Don't you believe your prospects and clients would be interested in this information? Couldn't that $478,000 of Fully Taxable money be converted to $478,000 of NEVER taxable money?

Don't you believe your prospects and clients would be interested in this information? Couldn't that $478,000 of Fully Taxable money be converted to $478,000 of NEVER taxable money?

Don't our prospects and clients deserve to know this information? Let's assume they need half of this money to support their living requirements. Wouldn't that still leave $239,000 of money that could be repositioned and leveraged to buy $300,000 or $400,000 of death benefit that would also supply long term care benefits? Wouldn't that be a more efficient use of the money?

WAIT! It gets better. Because out income tax laws are progressive, you can use the 10 percent, 15 percent and even 25 percent income tax brackets to dramatically reduce your prospects' and clients' income tax exposure.

Please let me share an example using the aforementioned couple. The new 10 percent tax bracket for 2018 would be the next $19,050. If we add $30,000 of Social Security plus $23,900 of standard deduction and personal exemption plus the 10 percent tax bracket of $19,050, our couple would have a gross income of $72,950.

How much would be taxable? First, we have to determine how much of their Social Security is taxable. Again, using the form on page 30 of the current 1040 instructions we would determine that $17,857.50 of their Social Security would be taxable. Add that to the income withdrawal from fully taxable investments of $42,950 (standard deduction + personal exemption + 10 percent income tax bracket) you will find that you would have $60,807.50 that is taxable from the gross income of $72,950. What is the tax on that $60,807.50?

The first $23,900 is not taxable because the standard deduction and personal exemption eliminate tax on that income. That leaves $36,907.50 taxable. (60,807.50 minus $23,900) $19,050 of that $36,907.50 is taxed at 10 percent leaving $17,854.50 taxed at 15 percent for a total income tax liability of $4,583.63 on a gross income of $72,950.

If we subtract the $30,000 of Social Security we are withdrawing $42,950 of fully taxable money. We are paying $4,583.63 per year in taxes to do that. That is 10.67 percent. Ask your prospect or client this question. If you could eliminate taxes on $859,000 over 20 years and it would only cost you $91,672.60 over those 20 years, would you do it? Ask them why they are not taking advantage of this opportunity.

If you could eliminate taxes on $859,000 over 20 years and it would only cost you $91,672.60 over those 20 years, would you do it? Ask them why they are not taking advantage of this opportunity.

If this couple waits until they both die their children could pay 30 or 40 or even 50 percent of the $859,000 instead of only $91,672.60. 30 percent is $257.700. 40 percent is $343,600 and 50 percent is $429,500.

Doing this for the family would be major; however there is a selfish reason for doing this. If this couple lives 30 or even 40 years what would be a safe way to make their money last longer? Wouldn't it be eliminating the tax liability on that money?

Don't you see? You could use any of all of that $859,000 to reposition money into never taxable again vehicles. That money could also be leveraged in life insurance. Those life insurance policies could provide badly needed long term care benefits without the clients worrying that they might never use long term care benefits and the premiums would be wasted. In a cash value life insurance policy someone or something will receive the benefits of that policy.

I could continue on using the 15 percent and 25 percent income tax brackets. They would also produce reduced income tax liability for our clients because the tax brackets are progressive. I don't have the space in this month's newsletter but I will continue this explanation in future newsletters.

One other important tax idea: I have always called it the Van Mueller rule of 99-15. In 2018 it changes to the Van Mueller rule of 102-15. Let me explain. That means a couple over the age of 65 can make $102,000 of taxable income and be in the 15 percent tax bracket. Why is that important? If the client has capital gains and is in the 0, 10 or 15 percent ordinary income tax bracket they pay zero percent on capital gains. With a crash about to happen, shouldn't our prospects and clients know that they can harvest some capitals gains and pay zero tax on those gains?

Here's a quick example. Let's say a couple has $50,000 of taxable income and have made $50,000 of gains in their mutual funds. They could take out their mutual fund gains, declare them and pay no income tax because they are in the 15 percent bracket. $50,000 plus $50,000 is less than $102,000. Therefore, no taxes on the $50,000 mutual fund gain. Wouldn't prospects and clients be interested in this information? Wouldn't it be a spectacular door opener right now?

Reduction and elimination of tax is a solid reason for anyone to meet with you.

Reduction and elimination of tax is a solid reason for anyone to meet with you.

Finally, there are new tax laws being proposed. Tax brackets would be reduced from the current seven to only three. Those would be 12, 25 and 35 percent. The really rich make out like bandits. The upper middle class, middle class, and poor get nothing or very little.

Let's say you are ultra wealthy and make $20 million per year. Under current law the top tax bracket is 39.6 percent and could rise to 42 percent with the Medicare surcharge.

Under the new law the maximum tax bracket would be 35 percent. The difference is 7 percent. What is 7 percent of $20 million? That's correct, $1.4 million dollars. That's quite a reduction.

Now let's take my over 65 couple I used earlier in this newsletter. Instead of a $15,600 standard deduction they would receive an increased $24,000 standard deduction. There are no personal exemptions under the new proposals. So that couple would receive $100 more of a deduction that the $23,900 standard deduction and personal exemption they claim now. What is 10 percent of $100? Our couple would save $10 in taxes WOW!

It's even worse for a middle class family with children. Their current standard deduction is $13,000. If they have children they would have four personal exemptions of $4,150: One each for the father and mother and the two children. The exemptions add up to $16,600. If you add the $13,000 standard deduction you have a total of $29,600 before you pay any taxes. Now, under the proposed laws, you would only have a $24,000 standard deduction. There are no more exemptions. This couple would pay more income taxes. Double WOW!

Who should we share this information with? Everyone: but especially every grandma and grandpa in America. Ask them how their children and grandchildren will afford access to quality healthcare? How will they ever be able to save for retirement? Then ask this question. “If I could show you a way to stay in complete control of your money until you are done using it, but instead of giving that money to the government, a nursing home or a hospital, you could keep that money in the family for generations to come, would you talk to me about it? They always say yes.

Showing them how to stay in control of their tax liability helps to free up money that can be leveraged for the family or leveraged to provide long term care benefits for themselves.

Showing them how to stay in control of their tax liability helps to free up money that can be leveraged for the family or leveraged to provide long term care benefits for themselves.

The information provided above is information that is NOT used by 97 percent of the agents in America. This is information that will set you apart from all other agents and advisors.

Just a few more things before we start with this month's seven sales ideas.

I find many agents and advisors do not understand many of the economic terms that are used and therefore miss out on opportunities for great discussions with prospects and clients about those very issues which many times would lead to sales. I thought I would go through a few of them this month. I believe this information will be very useful.

The first concept we should understand is income tax diversification. We should ask prospects and clients if they have ever thought of diversifying their income tax liability if they have most or all of their money in tax deferred investments like an IRA, 401k, 403b or 457 plans.

Aren't they building an enormous amount of assets that could be taxed at any rate by the government in later years? Ask them if that seems wise in light of all the revenue our government will need in the future for Social Security, Medicare, Medicaid, the Unaffordable Care Act, Homeland Security, Defense, Interest on the Debt, Infrastructure, Hurricane Harvey, Irma and Marie, California forest fires and all the other assorted natural disasters that will come in the future?

Shouldn't they diversify their income tax liability into tax deferred principle and interest like annuities and tax free vehicles like cash value life insurance, Roth IRAs and Roth 401ks?

Understanding tax diversification is a great conversation starter with prospects and clients.

Understanding tax diversification is a great conversation starter with prospects and clients.

Staying in line with what we have been discussing brings up two additional income tax terms we should become very familiar with.

First is the Marginal Tax Rate. This is the tax on the last dollar you earn in a year. If your income is $100,001, what was the tax rate on that last dollar? If you are under 65 the rate currently would be 25 percent.

For that to be useful information you need to understand your Effective Tax Rate. This is obtained by dividing the total taxes you paid by your total taxable income. So, on $100,001 dollars of income that couple would pay approximately $10,000. So, $10,000 of tax divided by $100,001 of income is approximately 10 percent.

So, on that last dollar of income they make, they pay 25 percent income tax. However, their effective tax rate is only 10 percent on their entire income. This allows you to reposition money because tax rates are progressive. If this couple waits until they die to deal with the tax liability of the money that income is added to the heirs' current income and would be taxed at marginal tax rates. If they begin the process of reducing or eliminating the income tax liability while they are alive they only pay the effective income tax rates.

How many prospects and clients do you believe understand this? Very few: You will bring to their attention information that I believe they will feel is vitally important. You will become valuable as an advisor and agent.

Here are a couple of additional phrases that will be bandied about in the months and years ahead.

They are Monetary Policy and Fiscal Policy.

Monetary Policy is controlled by The Central Banks on planet Earth. The Federal Reserve, The European Central Bank, The Bank of China and the Bank of Japan exert Monetary Policy on their countries and the world for that matter, by raising and lowering interest rates. They use strategies like negative interest rates and quantitative easing and literally the creation of money to stimulate the economies and job growth of the world.

While Monetary Policy has worked to increase asset prices it has not stimulated growth or increased incomes for the people in these countries.

If we have another crash, we will have very few options using Monetary Policy to deal with an economic disaster. It is felt that these Central Banks have painted themselves into a corner they will not be able to extricate themselves from. We will soon see.

Finally, there is Fiscal Policy. These are the tax and spending policies that the governments of the world employ to stimulate growth and job creation and income growth. Every country on Earth is spending more money than they have. The tax policies they employ are not generating the revenue they need to match spending. Our world is now over $300 trillion in debt.

Essentially what that means is that we can't service that debt much longer. We will pay a serious price for this Fiscal Policy that all our countries are employing.

That is enough for this month. I will continue to try to explain some of these terms in future newsletters.

Let's get started with idea #1.


We're passing on two of the newsletter's monthly sales ideas - every issue of the newsletter contains 7 ideas, plus one idea for the Canadian market. Subscribe to get them all.

Idea #2: The Cost and Impact of Medicaid

This is an article that explains the enormous impact and cost of Medicaid in our country. We must understand these costs because the government will require more revenue to provide these benefits and they can only get this revenue from people who have money.

We must also understand how many Americans are impacted by Medicaid and if there are going to be reductions of benefits in the future, what will the impact be?

This is a very important issue for insurance and financial advisors.

Here are a few facts. Very soon one out of every four people in our country will be on Medicaid. That is approximately 80 million men, women and children.

Almost 40 percent of the children in our country are covered by Medicaid. Medicaid pays for 45 percent of all the births in our country. The program pays for 25 percent of all mental health services. Finally, Medicaid covers 62 percent of all nursing home residents.

Any and all changes will have serious repercussions whether those changes impact benefits or costs.

This is a conversation starter.

Title: 9 Things to know about Medicaid (Becker's ASC Review, October 10, 2017)

Idea #6: Stock Market Is More Luck than Skill

This is an amazing article. It's math explains why it is very important to have a strategy that protects you from downturns while allowing you to take advantage of upturns.

I am going to quote two paragraphs. They are self explanatory. Here they are:

“Only 4 percent of all publicly traded stocks account for all of the net wealth earned by investors in the stock market since 1926, he has found. A mere 30 stocks account for 30 percent of the net wealth generated by stocks in that long period, and 50 stocks account for 40 percent of the net wealth.

Let that sink in a moment: Only one in 25 companies are responsible for all stock market gains. The other 24 of 25 stocks -- that's 96 percent -- are essentially worthless ballast.”

Could it be any clearer? Most Americans are about to get creamed in the stock market. You must have a strategy that allows you to be in control rather than controlled.

Can you say life insurance cash value? Get and read this article.

Title: So Few Market Winners, So Much Dead Weight (Think Advisor, September 26, 2017)

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Did any of these ideas resonate with you? Have you used any of them in talks with clients? Tell us in the comments!