Focus on Retirement Planning

Here is a story line that farmers should consider, and make every attempt to avoid:

• A 70 year old couple is still milking cows, but need additional labor support.
• However, there are not enough cows to justify full time hired labor.
• The couple had raised & educated a family. The children moved away and have families, plus careers, of their own.
• Though they were able to cash flow the farm, even through the lean times, they never really had (or reported for income tax) much of a profit, therefore….
• are receiving very low social security payments.
• After capital gains are paid on a sale of assets, a considerable mortgage must be paid-off! They will not be able to afford to move to town.
• Now, they are using “zero percent” credit card offers to fill-in shortfalls of cash.

Unfortunately, it represents a mirror into the future for many current farmers, that are not looking ahead for the day that they too must retire? A sobering thought, also to be considered, is the effect of inflation on future demands for living expenses. Use the “rule of 72” whereby an interest (or inflation) rate is divided into 72 to find when money will double. If we assume an average of 4% inflation, the family living cash requirements will double in 18 years. Is that possible? Look at recent history, in 1975 the average family living costs for a family of four was about $12,000 per year; in 1980, about $15,000; in 1990 about $27,000; in 2000 $38,000; and today over $42,000. If history is any indicator, we may see annual family living requirements of $80-90,000 in less than 20 years! In retirement, financial planners indicate that most couples will need about 80% of that figure in retirement.

People are also living longer. Today, it is not uncommon to find family farms not only supporting working operators, but helping to fund living costs of not just one, but two generations living in retirement. If a farm business is to continue beyond the current generation of operators, what is the plan for funding retirement without breaking the business? Look at these life expectancy facts:
•An 85 year old man can expect to live another 6 years to 91
•An 85 year old woman can expect to live another 7 years to 92
•The chance to outlive resources increase with age
•It is projected that in 2050 the average life expectancy will be about 89! (77 in 2000, 70 in 1960)

Farms in the midwest, using the computer program FINPACK, report the following information about personal retirement savings (FINBIN Data, CFFM, University of Minnesota). This data is from 3227 farms, averaged for years 2001-2005:
Stocks & Bonds $ 9,266
Other Current Assents $ 3,730
Cash Value of Life Insur. $ 8,924
Retirement Accounts $ 25,065
Other Intermediate Assets $ 6,231
Total $ 53,216

In the past, farmers retired with a land base, mostly paid-off. How many current operators can afford to own enough land to fund retirement? Trends indicate that an increasing amount of land farmed is not owned by the farm operator. In Ohio, more that 50% of farmland is leased, and that percentage is growing.
These are some of the options farmers use to fund retirement:
• Land and/or Machinery Rent
• Find Employment to include Health Care Benefits
• Savings and Dividends
• Social Security
• Life Insurance
• Retirement Plans ( many have income tax advantages during working years)
• Selling Assets
• Deferred Compensation Agreements

The keys to an adequately funded retirement is early planning and an active execution of that plan. Certified financial planners are helpful in this regard. A web site at OSU Extension also has useful information: http://extension.osu.edu/home_family_and_youth/financial_securty.php

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