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The Vanishing Middle Class: Understanding the Economic Shift and Protecting Your Clients’ Financial Future

This month, I would like to share some observations from the Social Security report “Wage Statistics For 2022.” This is a report that the chief Actuary of Social Security provides every October. They have been providing this information since 1990.

You need to understand these facts and how they impact your clients.

  1. 56 million people, which is around 33 percent of all wage earners make less than $25,000 annually.

  2. 101 million Americans, which is 59 percent of all wage earners make less than $50,000 annually.

  3. 131 million Americans, which is 76 percent of all wage earners make less than $75,000 annually.

  4. 147 million Americans, which is 85 percent of all wage earners make less than $100,000 annually.

  5. 155 million Americans, which is 90 percent of all wage earners make less than $125,000 annually.

The information shows that 68 percent of Americans make less than $61,000 annually, and 50 percent make less than $41,000.

If your clients are married with two children and making $75,000 per year, are they rich or living paycheck to paycheck?

Wage statistics show that wealthy Americans are becoming fewer and fewer as a percentage. America’s economic strength came from an enormous middle class. That middle class is being decimated. We are dramatically becoming a country of haves and have-nots. The have-nots are increasing exponentially. This pace of change is expected to increase with the increased implementation of AI and other technologies.

For example, it has been projected that when (not if) autonomous semi-trailers are adopted, 8 million jobs will be lost (more than were lost in 2008).

How about your wealthy clients?

Almost half of people with incomes of $150,000 live paycheck to paycheck. Can you imagine the financial and economic stress that Americans who live on less or even far less income face daily?

Who exactly is a wealthy American? For the purpose of this article, I am talking about people with incomes more than $150,000. Why am I using that number? There are several reasons.

Now, here is something I know you won’t believe. Please do the math: Americans over 65 filing joint returns and making $150,000 of income are in the 22 percent marginal income tax bracket in 2024. Their effective tax rate is only 10.69 percent. Here is the math.

In 2024 Tax

Standard Deduction $32,000 $0

10 Percent Bracket $23,000 $2,320

12 Percent Bracket $71,000 $8,532

22 Percent Bracket $23,500 $5,170

Total $150,000 $16,022

Effective Tax Rate $16,072 ÷ $150,000 = 10.69 percent.

Do you realize that only 7 percent of Americans pay an effective tax rate above 10.69 percent? That’s what Wage Statistics shares.

If we tax everyone in America who makes over $100,000 at 100 percent, our revenue will still be short of our government spending by one trillion dollars. Will Americans support income taxes of more than 50 percent? If we did, why would anyone work? If we only tax at 50 percent, we will have a $3.5 trillion shortfall.

And this does not even include the US debt.

Since 93 percent of Americans only pay an effective tax rate of 10.69 percent or less, won’t the government try to increase that number if they need more revenue in the future? What if you could prevent that from happening? At the very least, even if you didn’t do anything, wouldn’t you want to know how to do that?

So why is this information essential for you to have to serve your clients better?

Most clients seeking estate planning or other legal services have played by the rules. They have been good stewards of their money. They have lived within their needs and did not take on too much debt. They took care to plan for their future. They did not buy that bigger house or more expensive car or take that costly vacation to put as much money as possible into tax-deferred vehicles like 401ks and IRAs, 457 plans, and 403 bs?

They did what the government asked.

Do you think it’s unfair that now the government wants to come and take their money to care for the people who weren’t willing to do what they did? Those people lived way beyond their means, built enormous debt, bought a new car every year or every other year, and now don’t have the money they need for a dignified retirement and quality health care.

So, the government will punish your clients for doing what they asked to reward those who didn’t do what they asked by taking a lot of their tax-deferred money. Are you okay with that? Are you going to leave it like that? You can help them avoid that outcome.

What if you still could help them control how much the Internal Revenue Service and government took from them and their families? When would you want to get started? Before or after, they take away the ability to do that?

Customers become very emotional about these issues. They already believe income taxes are unfair, and you just helped them realize that the government punishing them for playing by the rules is incredibly unfair. The balances in their retirement accounts reflect their years of work and sacrifice, and it is at risk. Years of their saving can be taken away with the stroke of a pen.

If you can show them how to protect their families from this risk, wouldn’t that deepen your relationship with that family?

That is what a financial advocate should do.

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