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Get Tuff on Retirement on Your Farm Operation

Jan Schaffner
Grain, Dairy, Swine, Beef, Timber, Young, Beginning Farmers, Women in Ag
Home > Education & Events > December 2018 > Get Tuff on Retirement on Your Farm Operation

Many farmers have worked their whole life building the farm operation of their dreams.  Not only have they had to pay down debt but they’ve likely made improvements or farm expansion along the way.  However, one thing that seems to take a back burner to everyday life is planning for retirement.  

If you just laughed at the notion of retirement, you are not alone.  In the farming community, the average age of a farmer is 58 and from my experience, many farmers don’t have plans to retire.  The idea of getting up every day and not doing what they’ve loved since childhood is unthinkable. 

That is why I’m assigning a four letter word to retirement, TUFF. By remembering TUFF, one can be prepared for the next chapter without fear or anxiety.  Talk about it, Understand your priorities, Follow through, and Finishing strong can help anyone through the process of planning for retirement on your farm operation. 

The first step is to Talk about it.  I have been a part of many plans that have taken years to develop and on the other end of the spectrum I’ve also seen plans finalized in just a few meetings.  I have a hunch that the biggest road block to retirement planning is the lack of communication.  Some farmers have a hard time conveying their thoughts when it comes to change.  And some don’t. 

One farmer might be willing to bring their son or daughter into the operation and allow them to be a real part of the everyday happenings.  Not just the chores; but the decisions beyond a typical employee level.  This could include financial decisions or allowing them to be the one to negotiate a rent contract.  Retirement planning won’t include anxiety if you know and trust the capabilities of the next generation.

Talking to the whole family is imperative to keep everyone informed as well as ensuring that there are no surprises.  One thing that I’m willing to bet on, is that most of us hate surprises.  Successful planning involves sitting down on the porch in between chores and talking openly.

Teaming up with your tax consultant, attorney, and financial planner, along with your family, is the wisest investment to make.  The team will communicate with you and each other and be able to develop and implement decisions based on your goals. 

The second part of TUFF is what you are talking about in those fundamental conversations - Understanding your priorities.  Many resources exist to get the discussion moving and to help facilitate these meetings.  Most often, the first few meetings will be brainstorming potential scenarios.  I am sure that my father is sick of hearing the phrase “I have an idea.” 

Soon enough, brainstorming will lead to possible retirement scenarios.  Tax consequences are different for each type of scenario and could help decide which route to take.  Renting out land versus installment sales are two different approaches that are used in retirement planning and each have different tax consequences. 
Examining the value of other assets will help dictate whether the retirement plan can include gifting.  However, one word of caution is that once an asset is given to someone else; quite frequently so is the income that it produced.  Again, your team of professionals will be there to help navigate you through that process. 

Next, the retirement plan will never be the best plan unless there is action and Follow through.  The attorney can draft up legal documents and the tax consultant can give you tax options but nothing will hinder a plan like procrastination.   The hardest step is the first, but allowing fear or anxiety to slow down progress could make that even more difficult down the line. 

What is the first step?  Maybe it needs to be broken down a little bit more.  Perhaps the first step is getting your Will written to reflect current circumstances.  Shockingly, some people have progressive farms and yet their Will is the last thing on their to-do list.  A part of the follow through for a retirement plan might include life insurance.  Life insurance is a great vehicle for a plan that includes on-farm and off-farm heirs.  Many parents want the children to be treated equally and a life insurance policy could be a tool to accomplish that. 

To Finish strong in regards to retirement planning simply means reviewing this plan and keeping it fluid enough that one can make changes as circumstances arise.  Knowing there is only so much control that one can exert after exiting the business, a careful plan must be well thought out and clearly defined. 

Your city friends might have their pensions from their non-farm job to finance their retirement.  Because of appreciated land value that farmers have historically received, and often large equipment inventories, retirement planning is much different from what your neighbor’s experience. A farmer’s retirement plan requires careful planning, and to have a successful TUFF experience that will accomplish the goals set for their retirement
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