Planning for Retirement

Retirement planning doesn’t have to be as daunting as it sounds. For many farmers, the most challenging part is acknowledging that they may have to participate in activities other than farming. This is not an easy transition, but thousands of farmers will tell you that there is life after farming; there is life during retirement.

The first step in this whole process is simply setting a retirement date. Then you can start thinking about what you want to do after you retire.

Set a Date!

Retirement planning starts by picking a date for retiring from day-to-day farm duties. Don’t get stuck in what I call the “5-year trap.” The 5-year trap is a common syndrome among farmers and non-farmers alike: When I ask a farmer when they will retire, they say, “Oh, in 5 years.” When I ask the same question 5 years later, the answer is still, “In 5 years!” By not setting a firm date, retirement planning may never get done.

Sometimes, people hesitate to retire because they want to see certain things happen before they hand the reins over to someone else.

Discuss with your family: What do you want to do on the farm before you retire?

  • Do you want to make sure the farm continues to the next generation?
  • Do you want to continue working during retirement?
  • What needs to occur for you to feel comfortable letting go of daily operations?
  • Do you enjoy what you are doing now?
  • How will you slow down and back off from your day-to-day responsibilities?

What do you want to do after you retire?

One size does not fit all in retirement planning. Studies have shown that your attitude about retirement is the key to how happy you will be. Let’s dispel some common myths!

Lifestyle Myths

  • Myth 1: Retirement is when you stop working. (If you enjoy working, there is no reason to stop. Think of it as a second career: volunteering, mentoring, or starting a new farm-based business.)
  • Myth 2: Your retirement will be short.
  • Myth 3: Retirees aren’t interested in self-improvement.

Instead of a “ride away into the sunset,” think of retirement as time for activities you never had time for: travel, visiting relatives, or hobbies.

Financial Myths

  • Myth 1: You need millions of dollars to retire.
  • Myth 2: Happiness is all about money.
  • Myth 3: You can (or cannot) depend on Social Security Retirement.

The best way to determine your needs is to create a budget that reflects your specific income and expenses. There are no financial “rules of thumb” that apply to everyone.

Discuss with your family: What do you want to do after you retire?

  • What kind of hobbies do you enjoy?
  • Do you still want to work, even if it is not on the farm?
  • Do you still want to work on the farm but do something different?
  • Where do you want to travel?
  • Do you want to spend more time with your family?

Retirement Income and Expense Building

A retirement budget is simply retirement income minus retirement expenses. Before looking at income from the farm, let’s concentrate on non-farm sources like Social Security and savings.

1. Social Security Retirement

Social Security still has significant value: 21% of married couples and 45% of unmarried individuals rely on these payments for 90% of their retirement income.

Four things you need to know:

  1. Work Credits: You generally need 40 credits. In 2024, you earn one credit for every $1,730 of earned income (up to 4 per year).
  2. Claiming Age: Early claim is age 62 (reduced benefits). Full retirement age is 66 and 10 months (increasing to 67 for those born after 1960). Waiting until age 70 increases monthly benefits.
  3. Earnings Limits: If you collect before full retirement age, you are limited in how much you can earn ($22,320 in 2024) before benefits are reduced.
  4. The “Catch-Up” Problem: It is hard to significantly increase benefits by paying extra into the system late in life.

Figure A: Calculate your estimated Social Security payments

  • Annual Benefits, Age 62: $__________
  • Annual Benefits, Age 65-67: $__________
  • Annual Benefits, Age 70+: $__________

2. Income from Retirement Plans

If you have an SEP IRA, SIMPLE IRA, traditional IRA, Roth IRA, 401(k), or pension, calculate your annual withdrawal.

  • Early Distribution Penalty: Withdrawing before age 59.5 usually incurs a penalty.
  • Beneficiaries: Money goes to listed beneficiaries, not necessarily who you name in your will.
  • Minimum Draw (RMD): Once you reach age 72 (or 73 under newer rules), you must withdraw a minimum amount.

Figure B: Annual Withdrawal Estimate

  • Annual Withdrawal: $______________

3. Other Sources of Income

Consider rental properties, mineral rights, savings accounts, or part-time work.

Figure C: Annual Income from other sources

  • Total: $_________

Total of all non-farm retirement income (A+B+C): $___________

Selling, Leasing, and Transferring Assets

Depending upon your goals, you may sell, lease, or transfer assets. Use the charts below to evaluate your feelings on these options.

Option Set 1: High Needs for Liquidity or Exit

Decision grid: rows for cash needs, desire to move on, stress levels, and desire to avoid risk; columns for Low, Medium, High; bottom row shows options: Transfer or lease, All 3 options may work, Sale.

Option Set 2: High Needs for Legacy or Tax Planning

In case the last chart didn’t help you decide, let’s flip the questions around and see how you feel about these four questions:

Matrix questionnaire: rows list four statements about the farm and finances; columns labeled Low, Medium, High for agreement; bottom row options read: Sale, All 3 options may work, Transfer or Lease.

Comparing Risks and Rewards

The primary decision boils down to risks and rewards. If you draw income from a renter or the next generation, your income depends on their success.

Comparison table titled 'Comparing risk and reward' with two columns (Risk, Reward) and three rows: Sale (*) under both risk and reward; Lease (**) under both; Transfer to next generation (*** under both).

Reflection

What do you want to do before you retire? Leave time to accomplish the things you want to get done on the farm and time for post-retirement activities!

  • Today’s date: ________________
  • Retirement date: ______________

Workbook Resources

The following worksheets in Cultivating Your Farm’s Future can help you start this conversation:

  • How “Retired” will you be?, p. 33
  • How “Retired” will you be? Follow-up, p. 43

References

This chapter is adapted from the Cornell University publication, Using Farm Assets for Retirement, by Steven Richards and NY FarmNet.

Author Bio

Steven Richards, Clemson University, Agribusiness Senior Extension Associate, Farm Business Management