Blog Archives

What Particulars to Look For When Buying a Condo?

6/30/2018

Q. I am buying a condo, I know I need to review board's meeting minutes and other documents. What specifics should I look for?

A. When you buy a condo, make sure check the following -

There are detailed, well-kept minutes of the regularly held board meetings
Any plan for big infrastructure projects, and how the projects will be funded
How much is the reserve fund and is it invested conservatively
Has the condo fee been stable or has it risen drastically, can you handle the condo fee if it will rise 5% per year for 10 years?
are majority of units owner occupied or not

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Getting Married and Both Have a House, Which One to Keep?

6/29/2018

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Q. We are getting married and both of us own a house in the same city. Which one should we keep?

A. There is a saying - you can remodel your home, but you can't remodel the neighborhood.

The answer should be keeping the home with the more desirable neighborhood - convenient to shopping, close to restaurants, a library or a park is nearby, etc. You can remodel this home with profits from selling the other house.

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Buy or Rent When Retire Early and Move to a New Place?

6/28/2018

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Q. I will retire early and move to a new place. Should I buy or rent at the new place?

A. If you buy, you might be able to build equity in your new house. However, if you rent, you could invest your profit from selling your current house. Furthermore, when you move to a new place, it typically takes a while (at least 1 year) to determine if you really love or hate the new place, so rent could give you that flexibility to move again, if needed.

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Insurance Strategies for Small Business Owners - Part B

6/27/2018

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In our last blog post, we compared different insurance strategies for small business owners. The following table shows how life insurance can be effective options for various business needs -

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Insurance Strategies for Small Business Owners - Part A

6/27/2018

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Q. I own a small business, what insurance needs should I consider?

A. Below is a table that summarizes the insurance strategies for small business owners.

In our next blog post, we will show how insurance can be used to serve various business needs.

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Do I Need Life Insurance If I Am Over Age 50?

6/26/2018

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Q. I am over age 50, do I still need life insurance?

A. Today, people in their 50s and beyond face a variety of circumstances and have different reasons for buying life insurance. So ask yourself, if you were to suddenly die, what do you want your life insurance to do for your loved ones? Do you want it to:

Replace your income for the next 10, 15, or 20 years?
Provide protection for your family just until you would begin taking your Social Security?
Cover outstanding debts such as your mortgage?
Leave a legacy for your children and/or grandchildren?

Estate planning
Life insurance can be an ideal way to cover estate taxes and other needs upon your death.

Leaving a legacy
Leave an organization, charity, or an individual a cash gift so that they can continue their good work long after you are gone.

Caring for a special needs adult child/grandchild
A life insurance policy can be the ideal way to help ensure that a special needs child or grandchild will continue to afford the quality care that they need.

Business continuation
Keep your business in the family by providing your loved ones with the money they'll need to cover any outstanding business obligations and expenses.

The important thing about buying a life insurance policy in your 50s is to match your coverage with your needs. For example, if you have little or no debt and a healthy savings account, you may only need income replacement until you retire - for the short term. For some, that could mean a 10 or 15-year term policy. On the other hand, if you don't see yourself retiring in the foreseeable future and are still paying on your mortgage, then something more long term may be a better way to go. In this case, you may need a more permanent life insurance solution such as whole or universal life.

Still not sure? Contact us so we can help you figure out the best solution for your needs.

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North American Builder Plus IUL With Accelerated Living Benefits

6/25/2018

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Builder Plus IUL Announcement - sfgmembers

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Video - How the Tax Changes Affect Retirees and Pre-Retirees

6/24/2018

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DJ Industrial Average Down Days and Recovery Times 1900-2015

6/23/2018

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Q. What are the stats about market down days and how soon the market recovered?

A. Here are some stats that show Dow Jones Industrial Average market downturns happened frequently between 1900 and 2015, but such downturns didn’t last forever –

Declines of 5% or more occrued about 3 times a year and lasted 46 days on average.
Declines of 10% or more occured about once per year and lasted 115 days on average.
Declines of 15% or more occured about once every 2 years and lasted 216 days on average.
Declines of 20% or more occured about once every 3.5 years and lasted 338 days on average

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4 Ways to Seek Help If You Face High Medical Cost

6/22/2018

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Q. I am a senior and face serious medical cost. What kind of help I could seek?

A. If you face serious medical costs, here are 4 ways you could seek for potential help -

1. Find a social worker
Your local social worker could offer guidance on what are possible helps out there for you.

2. Find prescription discounts
Many big drug companies provide some charity for people in need. Call the drugmaker directly and speak to the customer assistance team.

3. Find charitable grants
CancerCare is one such charity that can help, along with many others. You need to fill out applications and see if you could get the grant. YouCancer.netr hospital may offer guidance.

4. Find coverage for life and travel epxenes
Cancer.net is a good place to find services that offer coverage for life and travel expense coverage.

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5 Steps to Freeze Your Credit Data on All 3 Credit Bureaus

6/21/2018

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It's pretty easy to protect your credit information, just follow the 5 steps below to freeze your credit data -

Step 1. Gather key information
This includes past addresses, recent borrowings, etc. as you may be asked about them to verify your identity.

Step 2. Create a file folder
Create a file folder to store information you generated in this credit freeze process as you will need it in case you want to unfreeze your credit.

Step 3. Visit all 3 credit bureaus' websites

Equifax www.freeze.equifax.com 800-685-1111
Experian www.experian.com/freeze/center.html 888-397-3742
TransUnion www.transunion.com/securityfreeze 888-909-8872

Step 4. Keep all user information
You will receive or create a personal ID, add it to your folder, along with the account holder's name, username, password. you will need all this to unfreeze your account.

It's done!

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How Much 30-somethings Should Have Saved for Retirement

6/20/2018

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Q. How much should I have saved by age 35?

A. If you agree to advice from this MarketWatch article which offers basic guidance on how much 30-somethings should have saved for retirement: by age 35, you need to have saved twice of your salary!
Apparently there is a Twitter firestorm swirling around this topic, with many people outraged by this advice.

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3 Strategies to Manage Big Capital Gains

6/19/2018

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Q. I have accumulated a large amount of capital gains, what's the best way to manage such a large capital gain?

A. It's common for many long term investors who believe in buy and hold and find themselves in a position where they have amassed a large amount of capital gain. Based on an article from Michael Kitces, there are 3 strategies one could consider to manage big capital gains -

1. Set a capital gains budget
For example, set the maximum amount of gains the investor is either willing to absorb and pay the taxes on, and/or the amount of capital gains that can be triggered and absorbed in the current capital gains tax bracket without increasing them above the next threshold. In practice, those thresholds would be from the 15% rate into the 3.8% Medicare surtax, or from the combined 18.8% rate into the 23.8% bracket once the underlying capital gains rate lifts up to 20%.

2. Staged selling
For example, by agreeing in advance to the decision to sell at certain thresholds — and securing a pre-commitment from the investor to do so — it will be easier to sell at those stages when the time comes. You’re no longer making a real-time investment decision about whether to sell or hold, you’re simply executing a pre-determined plan to sell..

3. Donate and replace
The basic idea, as the name implies, is to donate appreciated investments to a charity or, more commonly, a donor-advised fund, and then replace the investments by buying them back with outside dollars — i.e., those that would have been used for charitable giving anyway.

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9 Topics Every Retirement Plan Should Cover

6/18/2018

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Q. How can I develop a comprehensive retirement plan?

A. To be ready for retirement, your retirement plan should cover the following 9 topics:

What are the best options for social security?
What are the best pension options?
When should you start taking your IRA/401K?
What plan do you have in place for long-term care, home health care, or assisted living?
What are you doing to reduce income taxes today and in the future? Go through your top tax areas in your tax return to develop a plan and possibly reduce income taxes.
How to budget in retirement, which is different from budgeting when working?
What is the estate plan?
Who should be the beneficiaries of various assets?
What is the income plan with inflation?

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7 Steps to Secure Retirement

6/17/2018

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Step 1. Have a plan
Ask yourself two question:

What do you need your retirement income to do?
What do you want your retirement income to do?

Develop your plan that reflects your answers.

Step 2. Maximize social security benefits
Lifetime social security benefits could be up to $500,000 for singles and up to $1 million for couples. Fully understand social security can help you better your retirement.

Step 3. Consider a hybrid retirement
A hybrid retirement could mean increased earnings, savings, and social security benefits.

Step 4. Protect your savings from inflation
If ignored, inflation could make a huge difference in retirement income.

Step 5. Secure more guaranteed income
Three are 3 sources of guaranteed income during retirement: social security, pension, and annuities.

Step 6. Plan for long term medical costs
72% of people will need some forms of long term care. If prepared for, you could still live the life you want without worrying about what is to come.

Step 7. Use your home equity wisely
There are 3 ways to access home equity:

Sell the home and downsize
Take a loan against the equity
A reverse mortgage

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Online Personal Finance Calculators

6/16/2018

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This website has a nice collection of online personal finance calculators, it covers a wide range of topics, such as:

Mortgage and loan
Savings and investment
Retirement
Personal finance
Insurance
Business

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Social Security Claiming Tips

6/15/2018

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This brochure from Fidelity gives away some tips about claiming social security benefits -

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9 Things To Do If You Lose Your Job

6/14/2018

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Q. What to do if I lose my job, other than looking for a job?

A. Below are 9 things you should do immediately after losing your job.

1. File for Unemployment Benefits
Unemployment insurance benefits are paid to eligible employees who, through no fault of their own, lose their jobs. Each state sets its own benefit amounts, eligibility requirements, and benefit length.

To apply, contact an office of your state unemployment agency. It generally takes two weeks for benefit payments to begin, the first being a "waiting week," which is not reimbursed, and the second being the time lag between eligibility for the program and the first benefit actually being paid.

Feeling ashamed about taking government welfare? Good for you — glad to see you're uncomfortable with taking handouts. Your attitude will help you return to gainful employment soon. And in the meantime, recognize that you've been paying into that system, precisely so the government can provide you with income while you're out of work.

2. Examine Your Finances
Identify your sources of income, including severance, unemployment benefits, and cash reserves. Find out if you can generate income from your (non-retirement) investments to reduce any gaps between your income and your expenses. And you don't need me to tell you to reduce spending, right?

3. Evaluate Your Health Insurance Coverage
Find out how long your former employer will maintain your coverage. See if your spouse has a plan you can join, and explore buying an individual policy.

If you worked for a company with 20 or more employees and were let go through no fault of your own, you're eligible for COBRA, a law that ensures you can continue coverage for 18 months. The only problem is that you must pay for it, and it's expensive.

4. Transfer the Money in Your Employer's Retirement Plan to an IRA
If your employer is experiencing financial trouble, get your money out of its retirement plan.

5. Follow Up on Employer Termination Benefits, Including References
Losing your job is traumatic, and you may not have paid much attention when you were told about all the benefits available to you if you were laid off. Go back to your employer for a complete list, which might include career counseling, job placement assistance, and references.

6. Realize That Your New Job Is to Get a New Job
No matter how generous your severance package, it is finite. That means you must start looking for work immediately.

Update your resume. Tell everyone you know that you are looking for employment. (Don't be embarrassed that you lost your job.) Your search might take time, so use the eight hours of free time you now have each day to search for your new job.

Be willing to relocate and undergo new training to broaden your skills. Both ideas can improve your ability to find a new job.

7. Consider a New Career
Losing a job is an opportunity to transition to the career you've always wanted. Go beyond your field and consider jobs that can exploit your skills.

Talk with friends and family about the possibilities — they know your strengths — and write a resume targeting those fields. Create different versions of your resume targeting each job you're seeking. Consider hiring a career coach to help you.

8. Know When to Lower Your Expectations
If you're not having luck with your search, you may need to compromise. Create a series of deadlines for yourself: one for when you will settle for less than your dream job; a date for when you will lower your salary expectations; and a date for when you will accept any position so you don't run out of money.

It probably won't come to that, but you'll feel a little better knowing you have a plan.

9. Enjoy Your Time Off
Consider yourself on a forced vacation. You have a guilt-free opportunity to spend more time with your family, recharge your batteries, and support the community through volunteering. When an interviewer asks you what you've been doing since you lost your job, they'll be impressed with your outlook and positive attitude.

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5 Questions Help You Determine Buy or Rent a House

6/13/2018

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Q. How do I determine whether to buy or rent a house?

A. Fidelity has an article that outlines 5 questions one should answer in order to determine whether it's better to buy or rent a house, it's worth checking it out and answer them yourself if you are trying to determine whether to buy or rent.

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12 Steps to Take If You Want to Get the Lowest Rate Mortgage

6/12/2018

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Q. What's the best way to get the lowest rate mortgage refinance?

A. Follow the 12 steps below and you will get the lowest rate mortgage rates!

No. 1: Raise your credit score
Typically, a credit score of 740 or higher puts you in the best tier for a conventional loan program. Most lenders require a minimum credit score of 620 to 640, but you'll pay a higher mortgage rate for conventional loans unless your score is 740 or above. However, some portfolio lenders set their own guidelines.

No. 2: Lower your debt
A good rule of thumb is to make sure your debt-to-income ratio is no more than 36%, and even lower is better. Even if you have a high credit score, you may be denied a refinance altogether or subjected to higher interest rates if your DTI ratio is too high.

No. 3: Increase your home equity
Your credit scores and the loan-to-value ratio of your property could have a much bigger impact on your refinance rate than a slight shift in average mortgage rates. Both a lower-than-average credit score and a high loan-to-value can lead to a more expensive interest rate.

If you are underwater on your mortgage, a Home Affordable Refinance Program (HARP) loan may be your best option.

No. 4: Organize your financial documentation
You should get your credit reports from all three bureaus to make sure there are no mistakes that need correcting before you apply for a refinance.

A refinance application typically requires two years of tax returns with W2s, two recent pay stubs, and your two most recent bank and investment statements.

Gathering these materials ahead of time can expedite the loan process and prevent you from paying extra for an extension of your rate lock.

No. 5: Save cash for closing costs
Closing costs average about 2% of the loan amount. You can pay cash for the closing costs or, if you have enough equity, you can roll these costs into your new loan. Another option that some lenders offer is to pay a higher interest rate for a lender credit to cover those costs.

Shop smart for your refinance
Once your preparations are complete, you can begin to shop around for the refinance that works best for you.

No. 6: Start online
Start online with a refinance calculator that estimates your monthly payments at various loan terms.

A shorter term loan will have a lower interest rate than a 30-year fixed-rate loan, but the payment will be higher because you're paying it off faster. It's important to decide what payment you're comfortable making before you see a lender, because that payment could be much less than the payment you qualify for.

No. 7: Decide on a loan term
The loan term you choose needs to be made in the context of your other financial obligations and plans. If you have $30,000 in credit card debt and no savings for college, you may want to go for a 30-year loan to keep the payments as low as possible. Someone else may want a shorter term to build equity faster while another borrower might want a longer loan so they can keep their tax deduction as long as possible.

No. 8: Talk to multiple lenders
Once you've decided on your loan term, it's time to research loan products available from a credit union, a regional or community bank, a direct lender and a national bank to find out what special programs they offer.

Many lenders offer "portfolio loans" - ones they keep in-house instead of selling on the secondary market. They can be more flexible with those loans and offer special promotions.

Instead of choosing a lender solely based on current mortgage rates, you need to find a lender you can trust.

No. 9: Review all your loan options
Lenders can discuss various loan products when you interview them. There's a broad product mix of conventional financing, government-backed programs like FHA loans and special refinancing programs through the Making Home Affordable program. A good lender can present the pros and cons of each of these programs in the context of your individual finances.

No. 10: Decide how you will finance your refinance
You'll also need to decide how to pay for your refinance. Closing costs and lender fees can be paid at closing, wrapped into your loan balance or you can opt for a "no-cost" refinance. A no-cost refinance means that your lender will pay the fees and you'll pay a slightly higher interest rate of one-eighth to one-fourth percent.

HSH.com's "Tri-Refi" refinance calculator can help you decide the best way to finance your refinance.

No. 11: Compare mortgage rates and fees
Advertised mortgage rates are sometimes based on paying points, so you need to make sure you compare loans with zero points or the same number of points.

It's important to shop for the same loan on the same day to get a true comparison of mortgage rates, because mortgage rates change every day. You need to explain to each loan officer all the criteria for your refinance, not just ask 'what's today's rate on a $200,000 loan? You should also ask about loan processing times.

Shopping by APR can be confusing, since different lender fees and policies can affect the outcome. It is possible for two loans to have identical rates and fees and different APRs. Conversely, two loans could have the same APR but different interest rates. Because of this, it is usually better for you to focus instead on the two most important components of APR: interest rate and fees.

The most important component of your refinance will generally be the interest rate, so you'll of course want to pay attention to that. Fees and closing costs matter, but whether you want or need to pay them will depend upon your situation. There are times when paying costs to obtain the lowest possible rate can make sense and times when it does not.

No. 12: Know when to lock in your rate
Once you've finalized your loan decision you should consult your lender about when to lock in your rate.

Processing times for different lenders can range from 30 to 45 days to more than 90 days. Typically, lenders will do a 30- or 45-day rate lock, so you should be consulting with your lender to determine the appropriate day to lock your loan. If you have to extend the lock or relock your loan, that will likely cost you more money.

While shopping around for a refinance may take a little longer than refinancing with your current lender, the rewards can last as long as your loan.

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Home Budget & Savings Calculator

6/11/2018

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Q. What's the best online monthly budgeting tool?

A. There are many online monthly family budgeting tools, the Home Budget and Savings Calculator from Voya is one of the best, as it is very detailed, flexible, and in the end gives you a report to review. Check it out.

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What Are Buffer Annuities?

6/10/2018

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Q. What are buffer annuities?

A. Buffer annuities are also called variable indexed annuities, they are between variable annuities and indexed annuities. Here's a quick rundown of the differences among them:

A variable annuity offers investment options for your premiums in one or more subaccounts. Those investments are usually stocks, bonds, or mutual funds. You are not taxed on the gains your investments make until you begin withdrawing funds; however, if your subaccounts perform poorly, you could lose money.
An indexed annuity offers a percentage of interest on your principal that’s tied to the growth in the S&P 500, ranging from a capped percentage of the index’s gain (often 5% or 6%) to a low of 0% if the index experiences a loss.
A buffer (variable indexed) annuity offers a percentage of growth or loss that’s tied to the growth or loss of an investment such as options contracts, REIT indexes, precious metals, emerging markets, and more. Growth is capped at a higher percentage than an indexed annuity, usually 8% or 9%. The account may also experience a loss. That loss is calculated by subtracting a certain percentage (the “buffer”) from the overall percentage loss of the index. There may also be a stated “floor” that caps losses during a downturn.

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A Book for Seasoned Investors - 7Twelve

6/9/2018

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Q. I have some investment experience, but still not sure what's the best way to invest my money. Do you have a book to recommend for people like me?

A. For anyone who feels they have a good sense of the basics of investing but aren't quite sure they have a philosophy of their own, 7Twelve is a great book to read - it describes a balanced investment philosophy and is easy to read.

The title 7Twelve refers to a strategy that calls for dividing your portfolio equally into 12 mutual funds or ETFs covering 7 key investment categories that provide full diversification. Those asset classes are U.S. stocks, foreign equities, real estate, natural resources, U.S. bonds, foreign bonds, and cash.

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How to Lower Your Taxes - Examples and Strategies (Part C)

6/8/2018

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Continuing from our last blogpost, this blogpost below will show you all of the examples used Van Mueller to illustrate the various tax saving strategies.

==========================================================================================
Married Couple Over Age 65
(Assumes $30,000 of Annual Social Security:
This is Slightly Higher Than The Average Social Security)

1.
Social Security: $30,000
Standard Deduction in 2018: $26,600
Total Income: $56,600

How Much is Taxable of the $56,600? $4,800

This happens because $4,800 of this couples’ $30,000 of Social Security becomes taxable. That $4,800 is taxes at 10 percent. So, even if you cause some of the Social Security to become taxable, this is still a dramatically worthwhile endeavor for our prospects and clients.

A married couple could withdraw $26,600 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $4,800, which would be $480.
$26,000 = $0
This is the taxable Social Security $4,800 = $480
Total = $480

This couple could withdraw $56,600 of Social Security and fully taxable money every year for 20 years for a total of $1,132,000 and only pay $9,600 in federal income taxes over 20 years. That is less than 1 percent tax.

ASK THEM IF THEY SHOULD DO THIS!

20 years is the average life expectancy for couples over age 65.

Let me give you a smaller example of how to use the benefits of this information to provide tax relief for our prospects and clients.

Let’s say that this retired couple needs $50,000 per year of income to live. I am using that number because Social Security says 73 percent of Americans live on $50,000 per year or less. Let’s also assume our client has $200,000 in an IRA or 401K and that they have two children. With it becoming highly more probable that the government will eliminate the “stretch provisions” in the years ahead on these accounts, the children would have to add this additional income on top of their current earned incomes. This means that money could be taxed at a higher rate between 20 and 40 percent.

Using the above information this couple that lives on $50,000 per year could withdraw an additional $6,600 per year under current tax law and only cause $4,800 of their Social Security to be taxable and at 10 percent that would be $480 per year. Over 20 years they could withdraw $132,000 of fully taxable money and only pay $9,600 in income taxes. That would be around 7.25 percent of guaranteed income tax liability versus 20 to 40 percent future income tax liability when the children inherit the money.

2.
Social Security: $30,000
Standard Deduction in 2018: $26,600
10 percent tax bracket: $19,050
Total Income: $75,650

How Much is Taxable of the $75,650? $65,803

A married couple could withdraw $46,650 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $65,803, which would be $4,323.
$26,000 = $0
$19,050 = $1,905
$20,150 = $2,418
Total = $4,323

This couple can withdraw $75,650 of Social Security and fully taxable money every year for 20 years for a total of $1,513,000 and only pay $86,460 ($4,323 x 20 years) in federal income taxes over 20 years. That is 5.7 percent effective tax rate.

This withdrawal has caused $16,753 of the $30,000 Social Security to become taxable. Taxed at 12 percent, that is $2,010. What I am working hard to show you is that even causing our clients to have their Social Security become taxable IS NOT a deterrent to employing this strategy, compared to waiting and paying much higher taxes in the future.

Again, you are providing the opportunity to reallocate money at historically low-income tax rates and providing benefits for themselves and their families that they probably could not have afford otherwise. Ask prospects and clients as often as possible if there is someone at the Internal Revenue Service that they are so madly in love with that they want to leave them a large amount of money. Ask them if they really are okay with the Internal Revenue Service inheriting more money from you that than any of your children. Then ask if they would like to change that outcome.

By withdrawing this additional money from their IRA or 401K you now have around $25,000 that can be reallocated every year to the benefit of your prospect or client. $25,000 per year for 20 years is $500,000 of fully taxable money. If you could eliminate taxes on $500,000 over 20 years by paying $84,460 over 20 years or 17.3 percent per year, would they do it? Of course they would.

Can you even imagine all the spectacular benefits you could provide by repositioning $25,000 per year from forever taxed money to never taxed money?

3.
Social Security: $30,000
Standard Deduction in 2018: $26,600
10 percent tax bracket: $19,050
12 percent tax bracket: $58,350
Total Income: $134,000

How Much is Taxable of the $134,000? $129,500

A married couple could withdraw $104,000 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $129,500, which would be $14,517.

This withdrawal will cause $25,000 of the $30,000 Social Security to be income taxable. That is 85 percent of the Social Security benefit. That is the maximum amount of Social Security that can be taxed. 85 percent. For examples 4 and 5 $25,500 of the Social Security will be taxable as well because only 85 percent of Social Security is the maximum percentage that can be taxed.
$26,000 = $0
$19,050 = $1,905
$58,350 = $7,002
$25,500 = $5,610
Total = $14,517

This couple could withdraw $134,000 of Social Security and fully taxable money every year for 20 years for a total of $2,680,000. They would only pay $290,340 ($14,517 x 20 years) in federal income taxes over 20 years. That is 10.83 effective tax rate.

Please think of this in several ways. If this retired couple making $50,000 per year wants to, they can reposition $84,000 per year or $1,680,000 over 20 years at a cost of $14, 517 per year in taxes which over 20 years would be $290,340 or 17.28 percent. Again, ask your prospects and clients if they should pay their taxes now when they are historically low at 17.28 percent or wait until the future when they or their children could pay much higher income tax rates.

A couple with any income less than $134,000 could use any part of this income to be reallocated to different never taxable investments. There is enormous flexibility and enormous opportunity.
Please use the same questions from the previous examples.

4.
Social Security: $30,000
Standard Deduction in 2018: $26,600
10 percent tax bracket: $19,050
12 percent tax bracket: $58,350
22 percent tax bracket: $87,000
Total Income: $221,000

How Much is Taxable of the $221,000? $216,500

Remember, only $25,50 of the $30,000 Social Security is Taxable.

A married couple could withdraw $191,000 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $216,500, which would be $34,167.
$26,000 = $0
$19,050 = $1,905
$58,350 = $7,002
$87,000 = $19,140
$25,500 = $6.120
Total = $34,167

This couple can withdraw $221,000 of Social Security and fully taxable money every year for 20 years for a total of $4,420,000. They would only pay $683,340 ($34,167 x 20 years) in federal income taxes over 20 years. That is 15.5 effective tax rate.

In this example they are using all of the money so the effective tax rate is lower. If they keep some of the money to live on, the effective tax rate on the remainder of the money being reallocated goes up a little. Why? Because you are using the whole amount. That information actually applies to all the income tax levels.

Here’s an example: In number 4, if you withdraw $221,000 annually which includes $30,000 of Social Security, your effective tax rate on the whole amount is 15.5 percent. That rate is given in the examples. Let’s say they live on $121,000 and only invest $100,000 or reallocate that amount. If you divide $11,789, which is the tax you would pay if you only took out the $121,000 the effective tax rate is 9.74 percent. To withdraw that additional income only increases the percentage by a small amount.

If people believe tax rates will be higher in the future, EVERYONE should be doing this.

5.
Social Security: $30,000
Standard Deduction in 2018: $26,600
10 percent tax bracket: $19,050
12 percent tax bracket: $58,350
22 percent tax bracket: $87,000
24 percent tax bracket: $150,000
Total Income: $371,000

How Much is Taxable of the $371,000? $366,500

A married couple could withdraw $341,000 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $366,500, which would be $72,207.
$26,000 = $0
$19,050 = $1,905
$58,350 = $7,002
$87,000 = $19,140
$150,000 = $36,000
$25,500 = $6.120
Total = $72,207

This couple can withdraw $371,000 of Social Security and fully taxable money every year for 20 years for a total of $7,420,000. They would only pay $1,444,140 ($72,207 x 20 years) in federal income taxes over 20 years. That is 19.5 effective tax rate.

One final thing about the standard deduction. For couples under age 65 the standard deduction is $24,000. Married couples over age 65 get an additional $1,300 for the husband and $1,300 for the wife bringing the total standard deduction for a couple over age 65 to $26,600.

A single person under age 65 receives a $12,000 standard deduction. A person over age 65 filing as a single person gets and additional $1,600 standard deduction bringing their total to $13,600.
Knowing this information will open an enormous number of cases for you. Learn and practice this information. It will literally change your career once you understand its impact.
Here’s a review of 6, 7, 8, 9 and 10

6.
#1 Pay only $9,600 to eliminate taxes on $1,132,000 over 20 years. The effective tax rate is less than one percent.
#2. Pay only $86,460 to eliminate taxes on $1,513,000 over 20 years. The effective tax rate is 5.7 percent.
#3. Pay only $290,340 to eliminate taxes on $2,680,000 over 20 years. The effective tax rate is 10.83 percent.
#4. Pay only $683,340 to eliminate taxes on $4,420,000 over 20 years. The effective tax rate is 15.5 percent.
#5. Pay only $1,444,140 to eliminate taxes on $7,420,000 over 20 years. The effective tax rate is 19.5 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 they wait until they die the tax liability could easily increase to 30 or 40 or even 50 percent because it is now controlled by 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 life insurance, modified endowment contracts (MECs) or preferentially taxed products like annuities if the prospects or clients are uninsurable. You can reallocate 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 and 401k withdrawals. This can also be used to eliminate deferred gains on existing annuities. It can be used to eliminate capital gains taxes for people in the 0%, 10% and 12% tax brackets. Remember The Rule of 104-12. If a married couple over age 65 make less than $104,000 they are in the 12 percent ordinary income tax bracket.

That puts them in the 0% capital gains tax bracket. This is a great opportunity to access capital gains in stocks, bonds, mutual funds and real estate.

10. Life Insurance and Annuities Also Feature These Benefits:

No Probate (With named beneficiaries)
Incontestable and Private
Control from the grave
Creditor and predator protection
Medicaid versatility

For Singles over age 65, the percentages are approximately the same. The amounts are reduced by approximately half. This means you can even do reallocation up to $186,000 with reduced effective tax rates for their prospects and clients.

I am including the Single Over Age 65 numbers again.

Single Over Age 65
(Assumes $15,000 of Annual Social Security:
This is the Average Social Security paid)

1.
Social Security: $15,000
Standard Deduction in 2018: $13,600
Total Income: $28,600

How Much is Taxable of the $28,600? $0

A single person couple could withdraw $13,600 of fully taxable money in addition to their $15,000 of Social Security and only pay no taxes. None of this person’s Social Security would be taxable in this example.

This person could withdraw $28,600 of Social Security and fully taxable money every year for 20 years for a total of $572,000 and pay no federal tax: None!

Let’s say the client lives on $26,600 per year. You could show them that they could withdraw another $2,000 per year of fully taxable money and pay no income tax. What could you do with that additional $2,000 per year? Of course, a cash value life insurance program.

2.
Social Security: $15,000
Standard Deduction in 2018: $13,600
10 percent tax bracket: $9,525
Total Income: $38,125

How Much is Taxable of the $38,125? $25,938

A person could withdraw $23,125 of fully taxable money in addition to their $15,000 of Social Security and only pay taxes on $25,938, which would be $1,291.
$13,600 = $ 0
$9,050 = $953
$2,813 = $338
Total = $1,291

This person could withdraw $38,125 of Social Security and fully taxable money every year for 20 years for a total of $762,500 and only pay $25,820 ($1,291 x 20 years) in federal income taxes over 20 years. That is 3.38 percent effective tax rate.

3.
Social Security: $15,000
Standard Deduction in 2018: $13,600
10 percent tax bracket: $9,525
12 percent tax bracket: $29,175
Total Income: $67,300

How much is Taxable of the $67,290? $65,040

In examples 3,4 and 5, 85 percent, or $12,750 of the Social Security is taxable.
This person could withdraw $52,290 of fully taxable money in addition to their $15,000 of Social Security and only pay taxes on $65,040, which would be $7,257.
$23,600 = $ 0
$9,525 = $953
$29,175 = $3,501
$12,740 = $2,803
Total = $7,257

This person could withdraw $67,300 of Social Security and fully taxable money every year for 20 years for a total of $1,346,000 and only pay $145,140 ($7,257 x 20 years) in federal income taxes over 20 years. That is a 10.8 percent effective tax rate.

4.
Social Security: $15,000
Standard Deduction in 2018: $13,600
10 percent tax bracket: $9,525
12 percent tax bracket: $29,175
22 percent tax bracket: $43,800
Total Income: $111,000

How much is Taxable of the $111,000? $108,850

This person could withdraw $96,000 of fully taxable money in addition to their $15,000 of Social Security and only pay taxes on $108,850, which would be $17,150.
$13,600 = $ 0
$9,525 = $953
$29,175 = $3,501
$43,800 = $9,636
$12,750 = $3,060
Total = $17,150

This person could withdraw $111,000 of Social Security and fully taxable money every year for 20 years for a total of $2,220,000. They would only pay $343,000 ($17,150 x 20 years) in federal income taxes over 20 years. That is a 15.5 effective tax rate.

5.
Social Security: $15,000
Standard Deduction in 2018: $13,600
10 percent tax bracket: $9,525
12 percent tax bracket: $29,175
22 percent tax bracket: $43,800
24 percent tax bracket: $75,000
Total Income: $186,000

How much is Taxable of the $186,000? $183,750

This person could withdraw $171,000 of fully taxable money in addition to their $15,000 of Social Security and only pay taxes on $183,750, which would be $36,138.
$13,600 = $ 0
$9,525 = $953
$29,175 = $3,501
$43,800 = $9,636
$75,000 = $18,000
$12,650 = $4,048
Total = $36,138

This person could withdraw $186,000 of Social Security and fully taxable money every year for 20 years for a total of $3,720,000. They would only pay $722,760 ($36,138 x 20 years) in federal income taxes over 20 years. That is a 19.4 effective tax rate.

Ask all of these people, “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 understand this is available to them.

Please, I implore you. Take the time to learn this information. GOOGLE, 2018 income tax rates and learn and practice the information they provide. Then use that information to apply the ideas in this newsletter.

A number of things will happen. You will get more appointments because you will be asking the right questions. You will become more confident because you will get more appointments. YOU WILL NOT SELL EVERYONE. However, you will peak the interest of everyone you talk to and that will make you more interesting and more confident. Becoming successful is a momentum thing. Ask as many people as you can about this information. Go back to existing customers. Return to people you presented to but haven’t sold yet. Share it as “new” information. Ask neighbors, relatives, people you do business with, literally everyone. It will not be long until you see the improvement that will inspire the success you desire.

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How to Lower Your Taxes - Examples and Strategies (Part B)

6/7/2018

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We will continue from last post Van Mueller's great tax saving examples and strategies below -

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Let’s begin by talking about prospects and clients under age 65. Then we will review the over age 65 information I provided in the last two newsletters.

The standard deduction for a single person under age 65 is now $12,000. A married couple filing jointly now receives a $24,000 standard deduction. That means the first $24,000 of taxable income is not taxable because the standard deduction offsets that amount of taxable income.

For married couples the next $19,050 is taxed at 10 percent. So, if a married couple had $43,050 of taxable income their effective tax rate would be 4.4 percent. That is $1,905 divided by the $43,050 of total income.
Continuing, the next $58,350 of taxable income is now taxed at 12 percent which is $7,002. Last year the rate would have been 15 percent. So, if a married couple has taxable income of $101,400 their effective tax rate under the new law is 8.8 percent. That is $8,907 divided by $101,400.

Let’s stop here before we move on to the 22 and 24 percent tax rate. Many of you ask if clients should start moving money from 401Ks and IRAs before retirement. Many ask me what should be explained about making contributions to 401Ka, IRAs, 403Bs and 457 plans while you are working.

Here are a few examples for you to consider. Let’s say you have a couple with a $70,000 per year taxable income. You could advise them to withdraw $30,000 from their taxable accounts every year. They would remain in the 12 percent tax bracket with an 8.8 percent effective income tax rate. Ask them this question: Would you like to pay a guaranteed effective tax rate on that money of 8.8 percent now or do you want you or your family to pay a much higher rate on that money later when you retire or die?

You then simply reposition the money every year into vehicles that have lower or no future income tax liability depending on health and the client’s inclination.

When they ask if they should contribute to anything but a life insurance cash value policy, a Roth IRA or a Roth 401K, ask them if it is better to get an effective tax deduction of 8.8 percent or less or would it be smarter to pay the taxes now and never pay the income taxes ever again on that money? When they reason it out for themselves, the answer comes easily. That is why it is so important to have a foundational understanding of income taxes. The benefits become even more impressive in the new 22 and 24 percent income tax brackets.

The next $87,600 for a married couple is taxed at 22 percent, which is $19,272. So, if a married couple has a taxable income of $189,000 their effective tax rate is 14.9 percent. That is $28,179 divided by $189,000.

The next $150,000 of taxable income for a married couple is taxed at 24 percent, which is $36,000. So, if a married couple has a taxable income of $339,000 their effective tax rate is 18.9 percent. That is $64,179 divided by $339,000.

The questions remain the same for high income earners. Do you think taxes will be higher or lower in the future? Do you believe they could be way higher? Do you want to pay them? If you could pay only 18.9 percent guaranteed effective tax rate now and permanently eliminate the income tax liability on that money forever, would you? Again, they will usually reason it out for themselves.

Instead of contributing and getting a tax deduction now when taxes are historically low, wouldn’t it be smarter to pay the taxes now and turn forever taxed money into never taxed money?

Don’t you see what an amazing opportunity this is to help the American people?

For single taxpayers under ager 65 the effective tax rates remain the same on approximately half the income. Our clients are NOT AWARE what a spectacular opportunity this is unless you ask them.

Now, let’s return to last month’s over age 65 married couples and singles. I will add some explanation for each step.
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In next blogpost, we will show you the many examples Van Mueller uses to illustrate the tax saving strategies.

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