Retirement Planning for Farm Families

When a farmer retires, they don’t just turn in the keys. Just like farming is a unique occupation, so is farm retirement and how you plan for it.

Folks with a ‘normal’ job, say a typical 9-to-5, may own their home or a few other assets, but a vast majority of their savings is liquid in the form of a 401K, retirement savings, or bank accounts, explains Jared Nelson, agent with Rural Mutual Insurance.

“With farms, if you have excess capital, it’s usually put into land, machinery, animals, and continue to grow the operation,” he says. “It does pose some challenges because you can have several million dollars worth of net worth, but only $2,000 in the bank. So, liquidity is the biggest concern for retirement and cash flow.”

There are two things to keep in mind as you make retirement plans:

  1. What do you envision for your next phase in life?
  2. How much money do you need to live comfortably in your new chapter?

Mental Preparation

The transition from farming to retirement can be very difficult for people, says Nelson.

“It is not an easy switch to turn from working seven days a week to not. You need to ease into it a little bit,” he says. “I encourage a lot of people that are starting into this retirement conversation to be prepared to have a seasonal job. You need to have something to do.”

The next phase of the farm is going to be different for everyone. Retiring farmers may choose to liquidate assets and sell the farm; rent out the farm for additional income; transition the farm to the next generation; or a combination.

Budget Preparation

The amount of money you’re going to need to retire will depend on the decision you make for the future of the farm. Hobbies, travel plans, and if you’re going to have a part-time job will also influence your budget. After you envision what you want your retirement to look like, then you’ll need to take a look at your new monthly expenses and create a budget.

  1. Iowa State University Extension asks farmers to consider monthly costs tied to the farm that may change upon retirement. This could include:
    • Mortgage: Will you move off the farm? Will you buy or rent a home?
    • Home Utilities: Were these mingled with the farm before? Get an accurate estimate.
    • Health Insurance: Was this previously covered by the farm business? Budget for Medicare or supplemental insurance, and consider Long Term Care Insurance.

Keep in mind that months and years in retirement are not equally active or healthy. A monthly estimate of costs of living across three decades is too simplistic. But it’s a start.

2. Budget the costs that are not monthly, such as trips, workshops or other things you’ve been dreaming of doing in retirement.

3. Allocate those costs across different stages of retirement. For some, this may result in financial gaps.

Nelson recommends mapping out where income is coming from over a 10-year period, such as from a particular asset that was sold, social security, or a seasonal job.

Consider the variations of income from these different sources. For example, there may be an incentive to delay social security or you may be penalized for early withdrawal of a 401K. An area that is difficult to estimate is the impact that inflation will have on expenses and incomes.

You’re not alone in planning for the next phase of your life. No matter where you are in your retirement journey, Rural Mutual Insurance agents can help. Reach out to your local agent today.