NDSU Extension - Dickey County


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Retirement Planning for Farm Families

Breana Kiser, Agriculture and Natural Resource Agent

retirementFarm families face challenges related to retirement planning and implementation similar to other small businesses.  One challenge is planning for succession of their farm onto the next generations.  Creating succession plan takes time, effort, family communication and working with professionals.  The NDSU Extension Design Your Succession Plan workshop will help you explore that you want for your business, how to discuss it in the family and how to get started creating a succession plan.  It will also help you choose and prepare to work with professional who will make the plan legal and viable.  The closest Design Your Succession Plan is delivered in 3 sessions this year on January 23, 25, and 30 at 6 p.m. in LaMoure.  Pre-registration is required for this program and seating is limited so register early.  Fees for the workshop are structured to encourage family members to participate together.  The registration fee of $125 for the first family member covers the cost of meeting expenses and includes resource binder and workbook.  Additional family members may attend $50 each with include a workbook.  Contact the Dickey County NDSU Extension Service for more information.

Once the succession of the farm has been taken care of, now it can be a time to think about retirement.  To farmers, the work “retirement” can sound like quitting, when their real passion is to work until they die.  Fear of retirement with no interests outside of farming or simply a lack of interests outside farming can be a motivator for some operators not to retire.  The identity of a farmer is often closely tied to their occupation. This may be due to several factors including the percentage of time devoted to operation and management of the operation, the high level of interaction between the farm business and family activities. The length of time engaged in the business is another dominant factor for operators who were raised on a farm and became operators at a young age.

Farmers are uniquely situated to implement subtle variations of retirement allowing for individualized alternatives. There isn’t a “turning in the keys” moment. Changes in enterprises, increased use of off farm labor sources, custom operations, custom farming, crop share and cash rent leasing of land allow for a transition from 100 percent of operations and management being provided by the farm family to simple ownership of the limiting resource in agriculture – land.
As you think about your retirement days, how will you want to live? What type of lifestyle do you hope for? Will you have enough money to support that lifestyle? What will be important to you and what won’t be? How will your life and expenses change after retirement?

Here are some items to consider:
•    Your home —Where will you live? Changing your housing or moving to a different part of the state or country, or to another country, can increase or decrease your expenses. Even if you plan to “stay put” in the same house, some of your costs will still change. For example, your heating and light bills may increase if you spend more hours at home. Or they may decrease if you spend more time traveling away from home. As your home ages, it will need more repairs and maintenance.
•    Transportation — What does it cost you now? How much of your transportation costs (gas, car maintenance, bus or train fares) are for travel to and from work?
•    Food — Will you eat out more often in retirement, or entertain friends and family more often? How much do you pay a year for lunches or other meals eaten at work?
•    Clothing and personal care — How much of your present clothing costs are for special clothing for your job? How much is for more expensive clothing than you will need after retirement?
•    Health and medical expenses — Will you buy insurance to supplement Medicare gaps, or will you be paying for all your health care insurance until you are age 65? Will you buy exercise equipment, or join a health club, or cancel a health club membership?
•    Entertainment — Will you spend more or less on movies, books, theater, clubs, shopping?
•    Hobbies — Will you spend more money on hobbies, such as woodworking and gardening?
•    Recreation — Will you spend more money on leisure activities, such as golfing and fishing?
•    Travel — Will you increase your travel during retirement? After you retire, you may spend more in certain categories such as health care and health insurance.

Farming is a capital intensive business. For operations that have purchased land and equipment, there are financial returns expected as land is leased or sold and equipment is sold. Depreciation recapture and capital gains taxes can act to diminish the returns from outright sale of assets to fund retirement. Returns from the leasing of farmland may be a primary expected source of retirement income.

As business owners, farmers have access to the tax-favored Simplified Employee Pension (SEP), Savings Incentive Match Plan for Employees (SIMPLE) and Qualified Plans. The value of those vehicles depends heavily on profitability of the operation and somewhat on the age or time to the retirement phase of the operator. Individuals can use Roth Individual Retirement Accounts (IRA), Deductible and Traditional IRAs or non-deductible Traditional IRAs. Each vehicle has a unique combination of the treatment of contributions and earnings, eligibility, limits on contribution, distribution requirements and treatment of those distributions.

Social Security is another source of retirement income that requires preparation by farm families. For tax purposes taxable income may have been minimized. That can have a significant and negative impact on social security benefits. A good starter source of information on issues farmers should consider about social security is “Farming: Social Security Issues”.
Any questions about planning for retirement contact the office.

Sources: Purdue University Extension, Financial Planning for Retirement Workbook and Iowa State University Extension, Retirement Planning for Farm Families.

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