New thinking on farming and retirement planning.
"The price of doing the same old thing is far higher than the price of change." - Bill Clinton
In farming the old (some might say current) way of thinking about retirement planning has been: work until you can’t or don't want to anymore, then liquidate assets and live off the proceeds.
For years retirement savings for the agricultural sector have consisted of putting all money back into the operation, growing through the acquisition of more land, new machinery, expanding the herd etc. In the past, when it came time to retire or “move off the farm” if there were no younger family member to take over, you simply sold everything and lived off the proceeds. Fine if the time was right, disastrous if not.
Currently, if there happens to be a younger family member or business partner who wishes to continue to farm you can have them take out a loan, rent land, machinery etc. and create a succession plan that works for both parties. However, this can be a somewhat complicated process and may occasionally prove difficult to remove the money you wish to live on without creating a strain on the operating budget of the farm.
But, what if farmers were to adopt a new, alternative strategy? Long-term thinking which includes: planning ahead, saving while you’re young, and easing into retirement while helping the younger generation transition to ownership/operation. The FCC has an excellent website and resources to help in planning a farm transition. Some of the thoughtful questions posed to owners when considering this transition are listed below:
What's important in your retirement years?
What's the true cost of living?
How much net income do you need to support current lifestyle and additional retirement needs?
Do you have a financial cushion for unforeseen events?
What's going to change in your retirement years that will require additional funds?
What are your living plans during retirement? For example, do you want to renovate, buy a new house or a new car?
Can you afford the payments on your assets?
Do you have assets you can sell?
Are there other ways to generate income?
What assets would you like to leave to your successor?
What assets would you like to leave non-farming family members?
Does this affect retirement goals?
It may benefit owners considering transition (or those younger farmers, just starting out) to give real thought and attention to the above questions. How could planning ahead make the answers to these questions easier? By meeting with a Financial Advisor or Certified Financial Planner, one could map out a strategy and establish savings and investments outside of the farm operation. This would help support and facilitate the transition into retirement without causing unnecessary financial strain on the farm operation. It also provides a sort of “security blanket” should the time not be right to sell the farm entirely. Building assets outside of the farm in the forms of Registered Retirement Savings Plans, Tax Free Savings Accounts or other non-registered plans should be a standard practice for farmers today.
David Jones, CFP of Lewis & Jones Group offers this valuable advice, "The advantages of accumulating these assets is that they can be de-cumulated gradually and easily when needed unlike land or equipment that usually must be sold entirely to generate cash to live on. Being the CEO of a farm is no different than being a CEO of a large corporation. The corporation must be able to operate after a CEO retires so succession planning starts the day a CEO is hired by funding a retirement pension/savings plan. This is much more effective than paying for a retired CEO and a new CEO at the same time."
Having the freedom to enjoy retirement and transition smoothly out of a farming operation is an experience every owner should enjoy. Speak with an Advisor today to find out how to make this goal a reality.
Brooklyn Scott is a Financial Advisor/Mutual Funds Representative for Lewis & Jones Group/Desjardins Financial Group/Desjardins Financial Security Investments Inc. in Killarney, Manitoba.
Mutual funds are distributed through Desjardins Financial Security Investments Inc. For insurance products, Desjardins Financial Security Investments Inc. acts as a national insurance brokerage agency.