According to the 2007 Census of Agriculture, the average age of principal farm operators in Alabama is 57.6. Many people think once you reach your mid-60s it’s time to hang up your hat and enjoy retirement. However, for many agriculturists once they reach "retirement age" they continue to be involved in some part of their farm’s operation. There are several reasons one might continue farming, but for some they must farm because they do not have savings for retirement. Without sufficient retirement savings, a farmer either must keep working or hope Social Security will provide enough for retirement.
When a farmer loves farming, he will use all his available monetary resources to continue producing food and fiber; meaning he may neglect saving for retirement in order to expand production or purchase equipment. In the back of their minds, some farmers view their assets as their retirement account, but for that to be true the assets must be sold in order to provide retirement funds. Since land can hold sentimental value, it can be very difficult for the farmer to sell to someone outside the family and it can be difficult for family members to obtain financing in order to buy the farm.
No one cares more about your farm or your retirement than YOU. Strongly consider planning for retirement now rather than putting it off for a rainy day. The sooner you start, the more likely you are to succeed. Most likely the reason you have delayed planning is you have questions and you are wary of the answers.
Before you begin asking questions, you must define retirement for yourself. In the business world, when people retire they conclude a life-long career in order to begin something new. In retirement, people travel, visit grandchildren, volunteer in the community or, in some instances, start a new business. When you, the self-employed agriculturalist, think of retirement, what do you want to retire to? Do you wish to stay engaged in your farm’s operations, but turn over the day-to-day activities to someone else? Or do you want to completely walk away from the farm and peruse something new and different? Before you can begin planning financially for retirement, you must have a mental picture of what you want your retirement to look like.
Once you have your goal for retirement, how much money will be needed? How much do you currently have in retirement savings? How much income will you need to live comfortably?
The ACES publication HE-736, "Planning for Retirement," (www.aces.edu/pubs/docs/H/HE-0736/) provides a worksheet for calculating the amount of savings needed for retirement. Additionally, Kiplinger’s has an online Retirement Savings Calculator (www.kiplinger.com/tools/retirement-savings-calculator.html) where you can input your numbers and the calculator will handle the math for you.
Once you’ve determined your needed savings for retirement, you will find you are either on track or need to save more. If you find your current retirement savings are low, you have a few options. First, you can play catch up by putting more money into savings — and the longer you have to retirement, the more benefit you will get from the power of compounding. Second, you cut expenses or pick up additional work in order to save more for retirement. Or, you may have to work longer.
If you don’t have savings for retirement, are you depending on Social Security as your retirement account? If so, did you pay self-employment tax over the years? If you reported a loss on farm income on your tax return for years, you most likely didn’t pay self-employment tax and thus may not have a benefit to claim. The U.S. Social Security Administration’s website (www.ssa.gov/) provides information on estimating your monthly benefit.
If you are still working and haven’t reached full retirement age, it might be better to delay drawing benefits. Some often ask, "When should I begin claiming Social Security benefits?" The AARP’s Social Security Benefits Calculator (www.aarp.org/work/social-security/social-security-benefits-calculator/) can assist you in estimating your Social Security benefits and suggest the best time to claim.
Another question asked is, "Can I continue to work and draw Social Security without it affecting the amount of my monthly benefit?" If you were born January 2, 1943, through January 1, 1955, your full retirement age is 66. If you have reached full retirement age, you can continue to work and keep all of your Social Security benefits, no matter how much you earn. However, if you have not reached full retirement age, there is a limit to the amount you can earn and still receive full Social Security benefits.
Developing a Succession Plan
While planning for retirement, you should also develop a strategy for how and when the next generation will assume management of the farm operations. To ensure a smooth transition, a succession plan should be developed. If your goal is to see future generations manage the family farm, a succession plan will aid you and your family in smoothly transitioning the management and ownership of the farm to the subsequent generations.
An ACES specialist can provide information and education on possible succession plans (their names and phone numbers are listed at the end of this article). If you prefer to complete your plan on your own, the Center for Farm Financial Management at the University of Minnesota has an online program called AgTransitions which can help you in developing a succession plan for your operation. Go to www.agtransitions.umn.edu/ to begin working on your plan.
Seek Guidance and Assistance
I have had several friends tell me, "I have the best CPA, financial advisor, attorney, etc." The problem is they each are talking about a different professional and they all can’t be the best. I am sure they are highly-skilled and competent, but saying your hired professional is the best is like me saying my brand of socks is the best — it’s all opinion.
Would you go to your family doctor for a heart transplant? Certainly not, you would want a skilled cardiac surgeon to perform the procedure. When you plan for retirement and develop a succession plan, you need to seek advice from someone who is a specialist in the area. Most attorneys and accountants, but some have specific training and experience in these areas.
The point being, don’t just choose someone because you heard they are the best or because you know them from your church, community or civic club. First, seek to be educated on what you need to successfully plan and accomplish your retirement and succession plans. Then choose a qualified specialist to assist you to accomplish your goals.
Again, no one cares more about your farm, finances or retirement than you. You may already have a retirement and succession plan in place; if so, great — be sure to review it annually to ensure you are still on track. If you do not have a plan for retirement or transitioning the farm to the next generation, don’t delay.
The items covered in this article are informational only and are not meant as tax, legal or financial advice; consult with your tax professional, lawyer or financial consultant for guidance on issues specific to your situation. The author does not endorse any websites, companies or applications, and cannot attest to the accuracy of the information provided by third-party sites or any other linked site.
The author is an Extension Economist with the Alabama Cooperative Extension System. For more information about farm management and financial analysis, please contact your County Extension Coordinator or an Extension Specialist: North Alabama: Holt Hardin, (256) 574-2143 or Robert Page, (256) 528-7133; Central Alabama: Jamie Yeager, (334) 624-4016; Southwest Alabama: Steve Brown, (251) 867-7760; Southeast Alabama: Thomas Hall, (334) 693-2010.