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3 Retirement Strategies for Farmers
[Story by Daniel Miller, certified financial planner, Miller Financial Group in Red Oak, Iowa.]
Financial planning for those in agriculture can present challenges and obstacles that most people never have to consider. Unlike W-2 wage earners, agricultural professionals and other small business owners must consider how their retirement is going to affect not only their finances but also the finances of their family business, the lives of their coworkers (usually family members and coowners), and their estate planning and legacy.
Having been raised on a farm in northwest Missouri, I made my living working that operation before joining the financial world, so I understand the challenges rural families face. However, like many others, I am now the off-farm heir that is not involved in the daily work of our operation. I still care deeply, and I am still connected to the farm – but in a different way. It will always be part of my heritage, and this connection affords me the insight into what is important for rural families as they work to protect their legacy.
The new retiring generation may have to address some tough questions. Here a few things that are important to consider when planning for retirement and leaving your legacy:
1. Develop a Firm Exit Strategy
Farm owners have to consider a few different options when deciding how invested they will be in the farm postretirement. First, you can choose to stay involved in an advisory capacity. This means that you wouldn’t be running the farm’s day-to-day operations, but you’d still have some legal authority over the farm. Another option is to exit completely and hand over operations and decision-making to your predetermined successor. For many rural families, the role of the retiring party may be somewhere in between. If not addressed in advance, this blurry line of exactly who is now in charge may present some big challenges for all parties involved.
2. Choose the Right Successor
In rural families today, it is common for there to be one or two heirs who stay to work the operation, while other siblings leave to pursue other careers. With the mobility and opportunities afforded to young people in rural areas today, this happens often. Scenarios in which some heirs are directly involved in working the farm or ranch, and others are not, can make naming a successor to the farm or dividing up assets even more difficult. For example, if one sibling stayed on the farm to help build the operation, and the other didn’t, equal ownership from inheritance might not necessarily be fair.
If you’d like to do your best to ensure that your farm stays in the family, you may need to consider strategies designed to try to execute control from beyond the grave. You might consider incorporation, so that you can gift shares of the farm to other family members. It is quite common for someone to gift shares to their grandchildren, rather than their actual children. The primary reason that this is done is to ensure that if a natural heir divorces, shares stay within the family, and don’t end up in the hands of a spouse’s ex-husband or ex-wife.
3. Determine How You Will Fund Retirement
It’s no secret that retirement is expensive. Because of this, it’s important to have adequate savings, or if you haven’t saved enough, a solid plan for how you will fund your retirement. There are many different strategies that rural professionals may have to consider, including selling farm assets or taking cash out of the farm operating capital. It’s important to have these details locked down in advance because it could greatly impact the farm’s financial future for those remaining in the operation. It’s important to review this plan with your farm’s successor so that everyone is on the same page. You do not want your retirement needs to cripple the viability of the operation moving forward.
Unfortunately, there is no cookie-cutter answer when it comes to planning for retirement. Everyone’s situation is unique, so each family must have an approach that works for their situation. Everyone deserves personalized solutions and strategies designed to protect their retirement plans and their legacy. Consulting with professionals experienced in unique rural family planning issues should be your first step.
Daniel S. Miller is an investment adviser representative of, and securities and advisory services are offered through, USA Financial Securities Corp. (Member FINRA/SIPC). USA Financial Securities is a registered investment adviser located at 6020 E Fulton St., Ada, MI 49301. Miller Financial Group is not affiliated with USA Financial Securities.