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November 2021 – 7 Ideas and Views Newsletter by Van Mueller
Great agents do not sell products. We provide certainty in an uncertain world. We help clients achieve and maintain financial, emotional, and physical independence. We provide guarantees.
Before that can happen, we must inspire people to share their feelings and opinions with us. As always, you can start by asking interesting questions like, “How do you plan to stay in control of your life in retirement?” We must have real conversations with prospects and clients about what kind of retirement THEY want, what concerns THEY have, and what retirement issues THEY do not understand or have not considered.
My clients have astonishingly different emotional reactions to the thought of retirement. Some are excited and energized, because they are ready to begin the next phase of their lives and are not worried about income. Others are terrified because they feel like they are being put out to pasture. I actually have clients who believe they will die sooner because they are being forced to retire by a variety of different events. Finally, I have some people who are uncertain whether they will ever be able to retire. The only thing they all have in common is the need for guaranteed income they cannot outlive. Isn’t the difference between an old man and an elderly gentleman, money, and income? Surveys reveal that Baby Boomers are more afraid of running out of money in retirement that they are of dying.
Surveys reveal that Baby Boomers are more afraid of running out of money in retirement that they are of dying.
Rather than scaring them, I have found that encouraging my clients is more likely to inspire them to take action. Here is an easy strategy to show that they are closer to retirement success than they realize. This strategy helps our customers to determine and pinpoint an approximate income goal for their retirement; and it’s easy to understand. I usually have this conversation with everyone between the ages of 40 and 60.
First, we get started by asking for their tax returns for the last three years. From those returns I determine and write their gross income at the top of a blank page. We do it for three years, so the customer gets a clear sense of their income and expenses. From the returns, I subtract the Federal and State taxes they pay from the gross amount at the top of the page. I cannot determine that amount from the W-2’s or 1099’s because our customers either get refunds or they owe more taxes. From the W-2’s I determine how much Social Security and Medicare tax they pay. I subtract those numbers from the gross amount. Next, I determine how much contributions they make to 401(k)’s, IRA’s, Roth IRA’s and investments. I subtract those numbers from the gross amount.
Gross incomes of $80,000 to $120,000 usually net approximately $50,000 to $80,000 after those deductions. I then ask, “Are you able to live comfortably on your ‘take home’ pay now, in retirement”. Could you live wonderfully on that income in retirement if you didn’t work? The answer is frequently yes.
Couples that are in the income categories of $80,000 to $120,000 receive between $30,000 and $50,000 annually in Social Security benefits. Then we apply a low interest rate to the value of their savings, 401(k)’s, IRA’s, Roth IRA’s and investments. For example, $300,000 would provide $9,000 per year of income at 3 percent interest without invading the principal. I am now able to show my customer they are closer to retirement success than they realize. If the couple with net $50,000 gets $30,000 or $35,000 annually from Social Security and can earn $9,000 annually from the above investments without touching their principal I am able to show them they are very close to achieving their retirement goal. They are able to reason out for themselves that if they just do a little more, they can achieve their retirement goals. It inspires them to take the necessary steps with me to finish the journey. Instead of feeling like it’s impossible to achieve a successful retirement they are shown they are closer than they could have imagined. This strategy is simple and powerful.
Instead of feeling like it’s impossible to achieve a successful retirement they are shown they are closer than they could have imagined.
Let’s talk about building guaranteed retirement accounts for our clients. One of my favorite movies is The Karate Kid. The story is about a boy named Daniel who moves to a new town and is bullied by the kids in his new school. He is befriended by an elderly man, Mr. Miyagi, who becomes his mentor. Mr. Miyagi teaches Daniel karate. At first, Daniel wants to use his new karate skills to be the aggressor. Mr. Miyagi explains to Daniel that Karate is not about offense; instead, Mr. Miyagi teaches Daniel that karate is about defense.
Our profession is actually a lot like karate. It is never about offense. It should always be about defense. Please remember, we do not make people rich. We can, however, use guaranteed income, longevity credits and leverage to prevent our customers from ever being poor.
Ask your prospects and clients a few strategic questions and you will have more appointments than ever.
First, ask how your customers plan to build a quality retirement if interest rates remain near zero for another decade. How will your clients achieve retirement success if the stock market has no growth or even losses for the next decade?
How will your clients achieve retirement success if the stock market has no growth or even losses for the next decade?
The United States and China’s stock markets are in great jeopardy. Japan, the third largest economy on the planet has no positive interest rates, only negative interest rates. Japan even pays negative interest rates on their sovereign bonds. Currently, including Japan, 23 percent of the countries on planet Earth are paying negative interest rates on their government bonds.
Meanwhile, global debt has increased from $137 trillion in 2008 to almost $300 trillion in debt by the end of this year. Most of the world’s economies are struggling with deflation, inflation and stagflation. Dramatically increasing debt is a time bomb that can do enormous harm to both economies and markets.
Next, ask your customers why they think they have to lose money in order to make money? The time value of money shows that money available NOW is worth more than the same amount of money in the future due to its potential earning capacity. If we put it another way, it is difficult to make back losses. Growth is easier and becomes more powerful if you do not start with losses.
Finally, ask your clients and prospects if they would be interested in learning a way to build a quality retirement using only guarantees? Asset growth would not be required to provide a significant increase in retirement income over any safe money strategy they could find. Here’s an example. If my customer invested $200,000 in safe money non-qualified or qualified vehicles such as CD’s, etc., she would earn annual income currently around $400 per year and it would be fully taxable. We can do much better. We can provide more retirement income and we can do it with guarantees. Any insurance company in America would pay an annual income around $6,000 annually, guaranteed for as long as the customer lived at age 65. Using only $100,000 of the $200,000. That is 15 times the income they are currently receiving, and it is guaranteed. The taxes on the $6,000 would be similar to the taxes on the $400 because Annuities are taxed as return of principal and interest.
Then my customer could use the remaining $100,000 to buy a single premium life insurance policy with a face amount of $200,000. Or they can pay $10,000 of annual premium and put the other $90,000 in a nine-year period certain annuity that would send $10,000 per year to the customer to pay the premium for the remaining nine years. Either way works. Just choose the method that best fits your customer. The life insurance provides the flexibility to take advantage of investment opportunities in the future. If the customer lived for 30 years, she would receive $180,000 back for the $100,000 she invested in a zero-interest rate environment. The life insurance would surely grow over those 30 years. Let’s be conservative. The face amount grows to $300,000. So, in a zero-interest rate environment your customer gives you $200,000. You give them back $180,000 in income with almost no taxes and their heirs receive $300,000 or more income tax free.
If the customer lived for 30 years, she would receive $180,000 back for the $100,000 she invested in a zero-interest rate environment.
The important thing to understand is that I can accomplish all of this using only guarantees. I do not even have to make them gains to provide much higher retirement income.
Do you see? We are all Mr. Miyagi in this industry and our customers are all like Daniel. Use questions to help them understand the power that comes from defense, so they will have confidence and peace of mind that comes from knowing they can withstand any attempt to “sweep the leg” out from under them. That is why this continues to be a wonderful time to be an insurance and financial professional.
Finally, I would like to talk about the challenges of healthcare in retirement. I sometimes joke that the two greatest obstacles to a successful retirement are the enormous cost of healthcare before retirement and the enormous cost of healthcare after retirement.
Let’s start by talking about healthcare costs at a national level. The United States spends $3.4 trillion on healthcare. That is $10,000 per year for every man, woman and child. That is one sixth of the GDP of our country, and it is equal to the GDP of Germany which is the fourth largest economy on planet Earth. Our government now spends more on Medicare, Medicaid and the Affordable Care Act than any other expenditure.
Our government now spends more on Medicare, Medicaid and the Affordable Care Act than any other expenditure.
The Congressional Budget Office says that those costs will continue to increase by 6 percent per year. In other words, healthcare costs will double in just 12 years. That information does not include that impact of COVID-19 on healthcare costs in the future. Currently, our economy grows at an average of three percent. This means our economy only doubles every 24 years. Healthcare costs will overwhelm our economy unless something is done – and soon!
Now, let’s talk about healthcare costs on a personal level. According to the well-respected actuarial firm, Milliman Medical Index, the average cost of healthcare for a family of four is almost $30,000 per year. If increases continue at their current rate, those costs could rise to $40,000 per year by 2026 and $75,000 per year by 2035. This will be a serious issue for Baby Boomer retirees. How can they save for the cost of healthcare after retirement when the cost of healthcare before retirement continues to rise at this amazing rate?
How can they save for the cost of healthcare after retirement when the cost of healthcare before retirement continues to rise at this amazing rate?
This is especially true because healthcare costs will continue to dominate expenditures after retirement. Studies by Fidelity, the Employee Benefit Research Institute and Healthview Services all find that a couple will require between $300,000 and $500,000 just to meet their healthcare costs in retirement. That number Does Not include the costs of long-term care. The numbers for healthcare are increasing dramatically, as people live longer and spend more time in retirement than ever before. At the same time, studies have found that 90 percent of Americans have less than $240,000 in savings. What will happen to the quality of life for all our retirees in the years ahead?
Money must be set aside or created to maintain access to quality healthcare in retirement. It will be difficult to create funds, but not impossible. We will have to use all the tools at our disposal.
Start by asking people about Health Savings Accounts (HSA’s). Many of our customers are funding these accounts BEFORE retirement to build money to pay for healthcare costs AFTER retirement. They can save in these accounts in addition to 401(k)’s, IRA’s and the other tax-deductible savings plans. They do not use their HSA’s until after they retire to pay out of pocket healthcare costs. Tax deferral helps to build an account to pay for ever-increasing healthcare costs.
Another way to provide money for the healthcare costs Baby Boomers will face in retirement will be to leverage their parents’ assets. Seventy percent of the wealth of our country is concentrated in the hands of people over age 65. If we show those people that we can turn $100,000 into $200,000 or more of tax-free money for their children and grandchildren without having them give up control of that money, many grandmas and grandpas would be interested in finding out how to accomplish that. Candidly, that may be the only way we can help families continue to have access to quality healthcare. Families are going to have to work together to create money where none existed previously, and they must develop strategies to keep the money in the family. Strategies must be developed that prevent the Internal Revenue Service, Wall Street, the banks, hospitals and nursing homes from taking your money.
We are the only financial professionals who can deliver this opportunity. It is an opportunity that will be missed unless you ask every prospect and client if they understand how important it is to use the wonderful tools of guaranteed income that cannot be outlived and longevity credits and the biggest benefit of all, leverage. Pennies that buy dollars and one dollar that can do the work of many dollars. Please don’t ever forget that we are not the problem. We are the solution.
Please don’t ever forget that we are not the problem. We are the solution.
I just received the new information provided by the chief actuary of Social Security called “Wage Statistics” for 2020. Next month we will spend some time getting to thoroughly know and understand the information provided by this tool to inspire our prospects to take action.
Let’s get started with this month’s sales ideas.
Idea #3: Social Security Planning
Many Americans decide how to take their Social Security based on quite a bit of misinformation. They are told to take their benefit at age 62 because Social Security might not be there in the future. There are 140 million Baby Boomers and Generation Xers who would argue that they will not let politicians harm any of their benefits.
They are also not taught that the break-even age for Social Security is around 80 years old. So, if you take your benefit at age 62 or at age 70, if you live to the break-even age of around 80, you will receive the exact same amount of money. Here’s an example. If your Social Security benefit was $2,000 per month at age 62 you would receive $432,000 in benefits by age 80. If you defer until age 70, you would receive $3,600 per month. $3,600 per month until age 80, is $432,000 in benefits. That $1,600 per month difference comes into play if you live longer than age 80. Many Americans do. Men who make it to age 65 now have a life expectancy of age 86. Women who make it to age 65 have a life expectancy of age 89. If a married couple makes it to age 65 there is a 50 percent chance that one of them will live until age 95.
So, if you break even at age 80 and you live past age 80, it will cost a lot of money if you didn’t defer until age 70.
Live to age 85: Lose $96,000
Live to age 90: Lose $192,000
Live to age 95: Lose $288,000
Live to age 100: Lose $384,000
The above does not include cost of living increases. This is serious money, and the customer should be made aware of how important a decision they are making when they decide when to take Social Security. Sharing this information will get you a lot of appointments
Title: Managing Social Security Expectations
https://www.investmentnews.com/ (Investment News, October 25, 2021)
Idea #5: Inflation at Disney World
I wanted this to be a stand-alone article about inflation at Disney World. I have been to Disney World 46 times. What used to be a reasonably priced vacation is now out of reach for many Americans.
A cost that was $3.50 for admission in 1971 is now $109 to $159 for a single day. If inflation had occurred at Disney World equivalent to the Consumer Price Index the cost would be $24 today. Disney World’s costs have far outpaced inflation. Costs increased once you get beyond the gates. One day at Disney World, with hotel and food and everything, costs either as much or more than 80 percent of American households spend on vacations in any given year.
Please look at the page that compares costs for parking, hotel rooms, a bottle of Coca Cola and dinner in the Magic Kingdom. They compare 1971 to 2021. The difference is shocking. This article helps people relate to the increasing costs that are driven by inflation. It is familiar. Use it to inspire your customers to also plan for inflation.
Title: In 50 years, Walt Disney World went from $3.50 a ticket to a ‘luxury-priced destination’
https://www.marketwatch.com/ (Market Watch, October 1, 2021)
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