Ask many aging farmers when they plan to retire and their response likely will be a blank stare, or a mumbled, vague “maybe in five years.” The truth is that many farmers have no intention of — or plans for — retiring.
According to a recent USDA Census of Agriculture, the average age of farmers is increasing. In 2012, the average age of the principal farm operator in the U.S. was 58, up from 50.5 in 1982. More than 30 percent are at least 65 and 12 percent are 75 or older.
As a financial planner, I advise many small family business owners. But the farmers I advise seem to have the most aversion to retiring, or even considering retiring.
From my discussions, I have concluded there are a variety of reasons for their reluctance. Perhaps like no other business owner, a farmer has a deep attachment to and love of his or her life’s work. The land often has been in a family’s ownership for generations. What a farmer does day in, day out is the essence of self-worth.
In addition, the demands of farming leave little time to develop hobbies and outside activities.
Some of my farming clients admit that they may have thought about retiring. But they decided leisure time would be fun for only a day or two. Then they would be bored and itching to get back into the field.
Many owners of small, nonagriculture family businesses face the same challenges when they reach retirement age. They seem to hang on longer than wage-earning workers because they have created successful enterprises that they love and they feel an obligation to their employees, some of whom are family members. They also may not have developed a succession plan that designates how the business will be passed to their heirs.
They also simply may not have the money to retire. Over the years, they may have used their retirement savings to sustain their businesses in hard times.
In the case of farmers, many do not have a formal retirement savings fund. Rather, they hope the increasing value of their land will act as one in its place. When they no longer can work their fields, they typically sell or rent the land. If they are lucky, their still-farming children will continue the family enterprise and provide necessary retirement income.
Watching how their fathers and grandfathers have struggled, today’s young and middle-aged farmers — as well as small, nonagricultural business owners — seem to be taking retirement and succession planning more seriously.
They recognize that if their businesses are to remain healthy and viable for generations to come, they can’t leave their futures to chance. They must consider how their retirement will affect their financial well-being, as well as that of their workers and family members. They must begin estate and retirement planning years ahead of when they actually retire.
Here are some questions all small-business owners should ask:
• What role will I play in the company after I retire? Will I remain in an active or advisory capacity? Will I completely separate from the enterprise? Clarifying the role early will allow successors to be selected and trained and misunderstandings avoided.
• Who will take over after I retire? In farming, it is common for some children to be involved and others to be not interested in farming. How will the farm or any business be equitably divided?
• What will happen to the business? Will it be sold or stay in the family?
• How will my retirement be funded? Will I continue to receive income from the farm or family business? Establishing a retirement savings plan, such as 401(k) plan or IRA account, years in advance will help answer these questions and ease the financial burden.
• How will the Tax Cuts and Jobs Act of 2018, which made sweeping changes to how individuals and businesses are taxed, affect my farm or small business? The act doubled the estate and gift tax exemption to about $11.2 million per individual or $22.4 million for married couples. Likely, this tax break will have little effect on most small business owners. But there are many other aspects of the act that could possibly help.
These and other questions can be answered with the help of financial planners and attorneys who specialize in estate planning. The planning must begin today, even if the traditional retirement age seems to loom in the distant future.
Steven Van Metre is a Bakersfield certified financial planner who specializes in retirement income strategies and teaches courses on retirement planning for the Levan Institute for Lifelong Learning at Bakersfield College. His next Levan courses will begin on Thursday, Oct. 11, and Saturday, Oct. 13. Register at www.bakersfieldcollege.edu/levaninstitute.