March 14, 2011Vol 4, Issue 3
DFW Financial Planning

Jean KeenerGood morning!


February was another strong month in the stock market with the S&P 500 up 3.2% and U.S. small caps up more than 5%.  We've given some of that back in the first couple weeks of March, but the S&P 500 is still up 3.4% year to date.  International markets are basically flat year to date (as measured by Vanguard Total International Index).  The bond market (as measured by Vanguard Total Bond Market Index) has recovered since last month and is also now flat so far this year.


In spite of the continued strong market performance, there's still a lot of uncertainty with investing right now.  We don't know what the long-term economic effects of the turmoil in the Middle East or earthquakes in Japan will be. Focusing on your long-term investing goals can help you maintain your investment discipline and avoid the need to react to market news. 


In this month's newsletter, we have information on using discretionary spending cuts to build your cash reserve, a guest column from attorney Rania Combs on the special importance for individuals with blended families of having a will, social security survivors benefits, and more. As always, feel free to e-mail me at [email protected] with requests for newsletter topics you'd like to see covered or to discuss concerns or questions on anything in the financial world.  Thanks, and Live Well.

In This Issue
Focus on Discretionary Spending to Build Cash Reserves
Planned Charitable Giving
Social Security Survivors Benefits
Guest column: Complexity of Intestacy for Blended Families in Texas
Structuring Retirement Income Workshop Tomorrow
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Focus on Discretionary Spending to Build Cash Reserve

discretionary spendingIf building or expanding your cash reserve is one of your priorities, focusing on discretionary spending is a fast way to meet your goal.   You can curb current expenses on a temporary basis by curtailing or delaying spending on nonessential items and services to achieve your target.


Nonstop marketing, stores overflowing with new gadgets and goods, a desire to keep up with your neighbors, and the feeling that we deserve a little reward all tug at our purse strings. In a hectic world, it is no wonder we hardly notice how our spending creeps up. Consequently, spending can often be curtailed without placing the entire family on food rations. Besides helping you achieve your cash reserve goal sooner, you may form a habit that serves you well in future years.

List, review, and weigh the multitude of alternatives


In reality, there are nearly as many ways to save money as there are to spend it. Depending on your level of discretionary income (i.e., that which remains after you pay for necessities), you will find more or fewer expenses that offer ways to save for your cash reserve. Begin by listing nonessential expenses, and then estimate the savings you could obtain from each by reducing that spending, even if only temporarily.

Postpone big purchases


You can temporarily delay major expenses (such as the purchase of a new car, furniture, computer, or a home theater system) until you reach your cash reserve goal. While these items may improve your quality of life, you should make them a lower priority than building financial security. Remember, you are just postponing, not omitting, them.

Pare spending across the board


It is important to know where you actually spend your money. To understand this better, you may wish to track your expenses for a week or two. Many people are surprised by the way even small purchases (coffee, snacks, newspapers, lunches, etc.) add up over time. Once you understand your spending patterns, making small reductions across several types of expenses is an excellent and bearable approach to curbing spending. Here are some examples:

  • Reduce the amount you spend for lunches eaten away from home, either by bringing them from home or eating more frugally. If you eat lunch out only three times a week instead of five, you can save $728 over the course of a year (assuming the average lunch out costs about $7).
  • Expand the interval between your barber or hairdresser appointments.
  • Find less expensive forms of entertainment. Local theater groups, for example, can be very entertaining and will appreciate your support. Also, a movie rental and homemade popcorn are an inexpensive evening's entertainment.
  • Maintain better control over household telephone use, especially for such conveniences as automatic redial and directory information.   Using is free.
  • Cancel infrequently used cable TV services.
  • Drop a few of the family's extracurricular activities. A little more free time may even prove very welcome.

Dining and entertainment can add up fast


Eating out and entertainment spending add up to a bigger share of household income than you realize. Many people are shocked at the result when they suddenly tally what they spend in this area. Change the frequency and places where you eat out to save for important needs. Substitute less expensive sporting and entertainment events, or go less often.

Tip: Don't forget to consider all forms of entertainment, including sports events, plus related costs such as food, tips, parking, cab fares, and baby-sitting.

Omit some nonessential expenses


You can eliminate certain expenses entirely and, perhaps, barely miss them. Magazines you seldom read, club and organization memberships infrequently used, visits to the astrologer--eliminating these expenses can provide savings, whether you want to build a cash reserve or a portfolio.

Weigh the priorities of individual expense items against building a cash reserve. 


There are many ways to cut spending.  In most situations, it's not necessary or advisable to cut spending in all discretionary areas across the board.  You should select the areas that bring you the most satisfaction and enjoyment to not cut.  Compare the items you've listed with the financial protection a cash reserve affords you. It's your money--you should be the one who decides how to use it.

Decide which temporary spending cuts you can live with


Remember that reducing discretionary spending to build a cash reserve is a temporary step. Once you reach the goal, you can resume previous spending patterns if desired. Bearing this in mind makes spending-cut decisions somewhat easier. 


You may also delightfully discover that you don't really miss many of your spending cuts.  After you've achieved your cash reserve goal, you have the opportunity to put that money to work to achieve other goals or discover new uses that mean more to you.

Planned Charitable Giving

Planned Charitable GivingToday more than ever, charitable institutions stand to benefit as the first wave of the baby boomers reach the stage where they're able to make significant charitable gifts. If you're like many Americans, you too may have considered donating to charity. And though writing a check at year-end is one of the most common ways to give to charity, planned giving may be even more effective.

What is planned giving?

Planned giving is the process of thinking strategically about charitable giving to maximize the personal, financial, and tax benefits of your gifts. For example, you may need to receive income in exchange for the assets you donate, or you may want to be involved in deciding how your gift is spent--things that typically can't be done with standard checkbook giving.

Questions to consider

To help you start thinking about your charitable plan, consider these questions:

  • Which charities do you want to benefit?
  • What kind of property do you want to donate (e.g., cash, stocks, real estate, life insurance)?
  • Do you want the gift to take effect during your life or at your death?
  • Do you want to retain an interest in the property you donate?
  • Do you want to be involved in deciding how your gift is spent?

Gifting strategies

There are many ways to donate to charity, from a simple outright cash gift to a complex trust arrangement. Each option has strengths and tradeoffs, so it's a good idea to consult an experienced financial professional to see which strategy is best for you. Here are some common options:


Outright gift--An outright gift is an immediate gift for the charity's benefit only. It can be made during your life or at your death via your will or other estate planning document. Examples of property you can gift are cash, securities, real estate, life insurance proceeds, art, collectibles, or other property.


Charitable trust--A charitable trust lets you split a gift between a charitable and a noncharitable beneficiary, allowing you to integrate financial needs with philanthropic desires. The two main types are a charitable remainder trust and a charitable lead trust. A typical charitable remainder trust provides fixed income for one or two persons for life. At the end of the trust term, assets remaining in the trust pass to the charity. This can be an attractive strategy for older individuals who seek steady income. There are different variations of the charitable remainder trust, depending on how the income stream is calculated. With a charitable lead trust, the order is reversed; the charity gets the first, or lead interest, and the noncharitable beneficiary receives the remainder interest at the end of the trust term.


Charitable gift annuity--A charitable gift annuity also provides fixed income for one or two persons for life. But it's easier to establish than a charitable remainder trust because it doesn't require a formal trust document.


Private foundation--A private foundation is a separate legal entity you create that makes grants to public charities. You and your family members, with the help of professional advisors, run the foundation--you determine how assets are invested and how grants are made. But in doing so, you're obliged to follow the many rules and regulations governing private foundations.


Donor-advised fund--Similar to, but less burdensome than, a private foundation, a donor-advised fund is an account held within a charity to which you can transfer assets. You can then advise, but not direct, how your assets will be invested and how grants will be made.

Tax benefits

Charitable giving can provide you with great personal satisfaction, but let's face it--the tax benefits are valuable too. Your gift can result in a substantial income tax deduction in the year you make the donation, and it may also reduce capital gains and estate taxes.  To enjoy these tax benefits, the charity must be a qualified public charity. Be careful--not all tax-exempt charities are qualified charities for tax purposes. To verify a charity's status, check IRS Publication 78, or visit

Social Security Survivors Benefits

Social Security Survivors BenefitsYou might think Social Security is a program that only provides you with a monthly income after you retire. But what you might not realize is that Social Security may also provide monthly payments in the form of survivor's benefits, based on your work record, to certain members of your family after your death.

Earning survivor's benefits

In order to be able to provide Social Security survivor's benefits to your family, you have to earn those benefits. Generally, to be eligible for your family to receive survivor's benefit, you must pay Social Security taxes and you have to work long enough to earn sufficient credits to be fully insured. The length of time you need to work and pay Social Security taxes depends on your age--the younger you are, the fewer years you need to work. But in any case, if you've worked at least 10 years (the equivalent of 40 credits) you'll be fully insured for any Social Security benefits, including survivor's benefits.


Even if you haven't worked long enough to be fully insured, if you've worked at least 1 years out of the 3 years immediately before your death, survivor's benefits will be available to your dependent children and to your spouse if he or she is caring for your children.

Who can receive survivor's benefits?

Your spouse is eligible to receive full survivor's benefits at your spouse's full retirement age. Full retirement age is 66 for people born between 1943 and 1954, and gradually increases until reaching age 67 for people born in 1960 or later. Your spouse can receive reduced survivor's benefits as early as age 60. If your spouse is disabled, he or she can begin receiving survivors benefits as early as age 50. And your spouse can receive survivor's benefits at any age if he or she is caring for your child who is receiving Social Security benefits and is under age 16 or disabled.


Your former spouse, if you've been divorced, may receive survivor's benefits if your marriage lasted at least 10 years, and your former spouse does not remarry before age 60 (remarriage after age 60 will not affect your former spouse's eligibility for benefits based on your work record). If your former spouse is caring for his or her child who is under age 16 or who is disabled and entitled to benefits based on your work record, your former spouse may receive benefits at any age. In that case, your former spouse need not meet either the age or length-of-marriage requirements.


Your unmarried children may receive survivor's benefits if they are younger than age 18 or age 19 if they're attending elementary or secondary school full-time. If your child was disabled before reaching age 22, and remains disabled, he or she is eligible for benefits at any age. Also, your stepchildren, grandchildren, stepgrandchildren, or adopted children may be eligible for benefits under certain conditions.


Your dependent parents can get survivor's benefits if they're at least age 62 and you provide at least one-half of their support.

How much will the benefits be?

The easiest way to find out how much your family may receive in survivor's benefits is by checking your Social Security statement, which is sent to you each year beginning at age 25. Generally, survivor's benefits are based on your basic benefit amount, which can be increased by delayed retirement credits, or reduced if you claimed retirement benefits before reaching full retirement age. The amount your survivors receive is based on a percentage of your basic benefit, and the percentage, in turn, is based on the survivor's age and relationship to you.


For example, at full retirement age, your surviving spouse can receive 100% of your retirement benefit. However, if your spouse claims survivor's benefits between age 60 and under full retirement age, then the benefit will be reduced to between 71% and 99%, depending on his or her age. An eligible child and a surviving spouse caring for a child under age 16 would receive 75% of your benefit amount. At your death, there is also a one-time death benefit of $255 paid to your surviving spouse or child under certain circumstances.

Limits on benefits

Depending on the circumstances, the total amount of monthly benefits your family can receive is capped at between 150% and 180% of your retirement benefit amount. Your survivor's benefits may be reduced if you're receiving a pension from an employer that didn't contribute to Social Security, like federal civil service, or if you're under your full retirement age but still working, and your earnings exceed certain limits.


Social Security survivor's benefits are an important means of providing for the continued support of your family members after your death. For more information, go to the Social Security website,

The Complexity of Intestacy for Blended Families in Texas
Dying without a will is referred to as dying intestate.  I recently came across this article by Texas estate planning attorney Rania Combs that succinctly describes what happens when an individual in a blended family dies intestate.  It's great motivation to get a will if you don't already have one, and update it if needed.  Thanks to Rania for sharing this article!
The Complexity of Intestacy for Blended Families in Texas
by Rania Combs

Rania CombsHaving a will is important for every adult, but especially so if you are part of a blended family. Without a will, your assets will be distributed according to a statutory formula, which may not reflect the way you would want your assets to be distributed.

Intestacy can be complex in blended families

In Texas, when a married person dies without a will and leaves children from another relationship, his surviving spouse will only be entitled to keep her own one-half interest in the community estate. The deceased spouse's share of the community estate will pass to his children in equal shares.


Additionally, only one-third of the deceased spouse's separate personal property passes to his surviving spouse, with the remaining two-thirds passing to his children. 


If the deceased spouse died leaving separate real property, the surviving spouse is entitled to only a life estate in one-third of that property. The remainder is inherited outright by the deceased spouse's children in equal shares.

Distribution according to statutory formula can cause unintended results

To illustrate the problems that can result if you have a blended family and die intestate, let's assume Jack and Jill have been married for 25 years and have two children of their own. Let's also assume that Jack has two children from a previous marriage.

When Jack dies, he leaves behind the following assets:

  1. A beach house which be owned before he met Jill. 
  2. A home that he and Jill purchased after they got married and lived in their entire married lives.
  3. A stock portfolio worth $400,000 to which both he and Jill contributed for their retirement.

The home in which he and Jill lived is community property. But because Jack has children from another marriage, the home will not be inherited by Jill alone. Although she will retain the right to live in the home during her lifetime, Jack's children will inherit his half of the home in equal shares.


Since Jack owned the beach house before he met Jill, it is classified as separate property. Therefore, the beach house will be inherited by Jack's children, instead of Jill. Although Jill will retain a one-third life interest in the property, she may not have unlimited access to the beach house as she once did, especially if she has a strained relationship with her children or stepchildren.


And what will happen to the stock portfolio that she and Jack spent 25 years saving for their retirement? It will be split in half. Jill will retain $200,000, but the rest will be split equally between John's four children, which may result in Jill not having enough resources for her retirement.


Do you think this is the way Jack would have wanted his assets distributed?

Structuring Retirement Income Workshop Tomorrow
Keller Public Library Free Financial Education SeminarsI'm providing a free personal finance workshop at the Keller Public Library on Tuesday, March 15 at 6:30 pm on Structuring Your Retirement Income.  This retirement income workshop is designed for individuals who are in or near retirement.  Investing for retirement income is different than accumulation. 
To help you with this transition, we will cover:
  • differences in investing for accumulation and retirement drawdown
  • coordinating your portfolio withdrawal strategies with other sources of income
  • how to make decisions on pensions and annuities
  • how to balance investing for protection against inflation and market fluctuations
  • changes you need to start making in your portfolio 3 years before retirement


RSVP to [email protected] for planning purposes.  A drawing will be also held for a free copy of Daniel Solin's The Smartest Retirement Book You'll Ever Read.


Upcoming topics: 

  • April: Your retirement savings game plan (designed for those 5 - 30 years from retirement)
  • May: Investing: How to build a diversified portfolio and keep your costs low
  • June: Basics of disability and life insurance

Workshops are always the 3rd Tuesday of the month at 6:30 pm.  Please mark your calendars and tell your friends about ones that interest you.  The Keller Public Library is located at 640 Johnson Road.

I hope you found this newsletter informative.  KFP offers a free, no-obligation initial consultation to start the financial planning process for new clients.  To learn more or schedule a time, call 817-993-0401 or e-mail [email protected]
Jean Keener, CRPC, CFDP
Keener Financial Planning

Keener Financial Planning is an hourly, as-needed financial planning and investment advisory firm working with individuals at all financial levels.

All newsletter content Copyright 2011, Keener Financial Planning, LLC.