Schwab Announcement

Schwab Announcement

Walkner Condon Financial Advisors Announces the Addition of Schwab as a Custodian

Walkner Condon Financial Advisors is proud to announce the addition of Charles Schwab as a custodian. This will bring our number of available custodians for our clients up to four, with TD Ameritrade and Interactive Brokers acting as the two highest assets under management custodians offered to our clients. Primarily, TD Ameritrade functions as our domestic custodian while Interactive Brokers offers a global offering for our U.S. expat clients.

Why Schwab?

Simply put, with the Schwab/TD Ameritrade merger, we anticipate their offerings to be one of the most complete in the industry. Schwab offers commission-free equity and ETF trading, along with a myriad of fixed income, options, and banking choices for clients that require those services. As a team, we discussed what we thought was the best way to hit the ground running when the merger occurs, and that was to familiarize ourselves with the platform prior to the transition. Additionally, it will offer us the ability to help clients with Schwab accounts that they would like us to manage without having to transfer assets over to another custodian. Moreover, many 401k plans offer a self-directed option with Schwab, so this may also open up investment opportunities for our clients without being required to use their preselected investment lineup.

What is Happening with Existing Clients?

Not much at all. We are not anticipating moving any clients from TD to Schwab proactively, instead allowing the transfer process to play out naturally. It will take years before the merger is truly complete, which will allow us ample time to vet out the new combined entity.

Should there be clients with Schwab accounts currently that would like us to incorporate those into their current investment lineup through our management, please contact us. We will also reach out to those clients that we think will directly benefit from this new offering.

Please let us know if you have any additional questions. We are excited to offer more choice to our clients, as we strive to achieve confidence and clarity in their financial futures.


Clint, Nate, Jon, Mitch, Keith, and Hannah

Mortgage Refinance Triggers

Mortgage Refinance Triggers

We’ve had an uptick in the number of mortgage refinance-related conversations in our client meetings recently. The discussion always seems to center around a simple question: When is the right time to consider refinancing my existing mortgage or mortgages?While the question appears to be somewhat obvious, in actuality, it’s more complicated than simply comparing your existing rate to the current rates. Reducing your mortgage rate from the mid 4% range to the mid 3% range isn’t always a no-brainer. 

As a former real estate agent and mortgage loan officer, I’m familiar with the garden variety rules of thumb regarding when to refi. They usually consist of “if you drop your rate by more than 1%, it’s a no brainer” to “if you recoup the closing costs within 12 months, it’s a no brainer,” and so on. We at Walkner Condon tend to shy away from rules of thumb, as the details of each situation and the viewpoint of each client tend to vary greatly. It’s our contention that the specific details of each situation and only the specific details, is the surefire way to know if a refinance makes sense. 

With that said, here are a few of the variables we take into consideration when we are posed the mortgage questions:

  • How long do you plan to stay in the house?
  • What is your current mortgage rate and loan-to-value percentage? 
  • How long have you had your existing mortgage and what is the mortgage term?
  • Does your current mortgage payment comfortably fit into your monthly budget?
  • What are the closing costs and potential points to close the loan?

These questions, along with a few others, give us a great place to start in answering the question. I know it appears to be overkill. However, simply focusing on rate reduction or closing costs will not give you enough information to make a sound decision. For example, let’s say that you are able to drop your rate by 1% and the refinance would save you $100 per month on your payment. This would seem like a great decision. However, let’s say the refinance will cost you $2,000 in cost and you plan to move within the next 2-3 years. Now the decision gets a little harder. In my scenario, you will break even in 20 months, but will potentially sell the home in 24 months. Therefore, the benefit was reduced to a total of $400 of savings. Even this analysis isn’t enough to make the final decision, but it is a way to illustrate that looking at just closing costs or just at rate reduction doesn’t give you enough information. 

Another common example that appears to be simple but requires a fair amount of analysis is a client who has paid their principal down to half or two thirds of the starting amount by making extra payments. For example, a borrower whose mortgage started at $300,000 with $100,000 left to pay and would like to take advantage of a lower rate environment. This scenario is challenging because we need to determine exactly how many payments are left on the existing mortgage and whether the lower rate will have a large enough impact. We also need to be careful that we don’t inadvertently stretch out the existing balance into a longer term without realizing it. A lower rate might make the borrower feel like they’ve made progress, but actually cost them more interest with a longer term. 

As a last example, consider a client who receives a windfall of money and would like to make a large principal payment. Say the borrower decided to make a one-time $50,000 payment on their $200,000 mortgage with the anticipation that their monthly payments would be reduced. In this case, the mortgage would be reduced from $200,000 to $150,000, however, the rate and payment would be exactly the same the following month. To achieve a lower payment, the borrower may be able to recast their mortgage. The net effect of a recast is a lower monthly payment and potentially different terms, while not a full refinance. 

We like to work in conjunction with our clients and prospective clients, their mortgage loan officer, and possibly their accountant to see if today’s refinance market presents an opportunity. If so, our analysis will help determine the correct course of action. Feel free to use us as a resource, as we are happy to run an analysis on your specific situation. Remember that making a quick decision because of a fast-moving rate environment or an overeager loan officer could end up causing more harm than good and cost you money in the end. 

Nate Condon

Social Security and Optional Working

Social Security and Optional Working

At Walkner Condon, one of the common phrases in our conversations with clients is that of the “work optional lifestyle.” There are two parts to this idea: the first is that we want our clients to be in a position to be able to make a decision to stop working, rather than be required to work.  More importantly, we want our clients to feel liberated to keep working in the ways that are important to them: we know that many of our clients find their work stimulating or continue to be experts in their field and know that they can continue to share that information through consulting projects, short-term contracts, speaking engagements, etc. While these are beneficial options, they do change some of the calculus for retirees and their finances particularly in regards to social security.  

There are two key ways that earnings from employment can affect your social security benefits: benefit reduction and taxes. Benefit reduction takes place if you return to the workforce before reaching your full retirement age (FRA, see here to determine your FRA) and are already collecting Social Security (income from investments or pensions will not reduce your benefits).  If you are below FRA and it is neither your first year of retirement nor are you reaching full retirement age that year, the Social Security Administration has an income limit of $17,640 and will reduce your benefits by one dollar for every two dollars over that limit you earn. For example, if you are collecting $1,000 in monthly benefits and earn $27,640, your benefits exceed the limit by $10,000 which means they will be reduced by $5,000 annually or $416.66/month. If you earn all of that money before you begin collecting social security, your benefits won’t be reduced. Moreover, if you are reaching Full Retirement Age that year, the maximum goes up to $46,920 for those months before Full Retirement Age and 1 dollar is reduced from every 3 dollars exceeding the limit. 

Note that these reductions will be returned to you once you hit Full Retirement Age (though not as a lump sum).

The other case whereby working can affect your benefits is in terms of taxation.

Social security is taxed as follows (if you earn income below these amounts, social security is not taxed):

  • single filers with a combined income (including pensions and investments) of $25,000 to $34,000 pay income taxes on up to 50% of their Social Security benefits; above $34,000, you pay taxes on 85% of your benefits

  •  married couples filing jointly pay taxes on up to 50% of Social Security income if you have a combined income of $32,000 to $44,000 (including pensions and investment); above $44,000,  85% of your Social Security benefits are taxed

These are not marginal tax rate increases, so the net effect on your taxes paid could be more substantial– to the point that Investopedia has called it a “tax trap.” 

There are a couple of options for adjusting Social Security, if you are thinking about returning to work, but only in limited situations: 

  • If you have returned to a job that you think you’ll be keeping for several years and have been retired for less than a year, you may elect to pay back your benefits and basically “reset” your social security.

  • If you have reached full retirement age (this is not an available option), the other option is to “suspend” your social security benefits.  This can be useful if you don’t need your social security to live on, especially as a suspension of benefits means that everyone drawing benefits from your account (spouse or children) will see their benefits suspended as well.  However, suspending between FRA and age 70 will mean that your benefits will increase by about 8% per year.  

Once you’ve hit age 70, you’re sort of stuck, however, as you can’t increase your benefits anymore… 

If you are presented with a “work optional” option and are collecting social security, it is a good idea to check in with your financial advisor to make sure that you are most efficiently handling your benefits.

Be Careful Buying the Name

Be Careful Buying the Name

People purchase goods and services from companies they like and continue to make repeat purchases from the same companies. This makes sense as we are, of course, creatures of habit. Our brand loyalty is on display every time we step into a grocery store, shopping center, or log onto an online retailer. We tend to purchase the same brand of paper towel or saltine crackers if for no other reason than it’s what we have always done. When purchasing everyday items, there is nothing wrong with frequenting the same merchants and haberdasheries. We gain confidence in their service and get to know the quality and construction of their products.  

The problem lies with people using that same logic when purchasing stock in companies. I love Under Armour’s golf clothing, so why wouldn’t I purchase their stock? I ship all of my packages with UPS and always receive great customer service, so clearly purchasing their stock would be a great investment for my retirement account. As crazy as these two statements seem, it is the determining factor in far too many misinformed investment decisions. Determining the correct stock to purchase for your investment account should be based on the fundamentals of the company, an in-depth review of their balance sheet and income statement, an intimate knowledge of their growth potential and competitors as well as many other factors. The end product that is produced or service provided gives us absolutely no information on the current financial state of the company or their P/E ratio.

It is also a mistake to purchase companies due to geography. It is all too common for investors to feel like they know a company because it is headquartered in their hometown, know someone who works there, or is potentially their employer.  We call this “familiarity bias”. We can convince ourselves that we have more knowledge about the company or their growth potential simply because we drive by their office every day and see a lot of cars in their parking lot.  

Investing in individual stocks involves risk, and, in some cases, large amounts of risk. If you are planning to use individual stocks as the main facet of your investment strategy, be very careful to center your decisions around sound research and not flawed biases.  Or, better yet in our opinion, use diversified investments with the assistance of trained professionals. For a more in-depth conversation about this topic, check out our recent podcast, “My Stock is Better Than Your Stock”.

Nate Condon

Walkner Condon Financial Advisors