In my seminar audiences, there are usually several members of the Baby Boomer generation. Many are farmers while others are lenders, agribusiness professionals, educators, or spouses. Most listen intently as they worry about the possible correction of financial fortunes in agriculture and rural America, as well as the overall U.S. economy.
During my recent travels in the Midwest region of the country, one couple asked, “ What effect will the recession have on the Baby Boomers contemplating retirement and drawing on Social Security? Should they retire or wait it out?” Well, these are extremely pertinent questions and the answer requires some work from the couple.
First, both members of the couple need to write out separately his and her business, family, and personal goals. Next, they need compare their goals to find what commonalities and differences exist.
With goals written and discussed, the next step for this couple is to develop a personal family living budget for retirement and their “golden years.” Which costs will increase and which will be reduced or eliminated? A general rule of thumb is that retirement costs will be 60 percent to 80 percent of pre-retirement expenses. Farm couples must also remember to consider any “perks” which may no longer be available if they should decide to sell or discontinue the business. One example of “perks” could be expenses that are co-mingled with the business such as fuel, insurance, housing costs, etc. In some cases, “perks” can amount up to 25 percent to 30 percent of total expenses. Per the question, this couple also needs to determine what percentage of retirement earnings will come from the Social Security as well as other sources. Often, retiring farm couples are disappointed at the meager amount of Social Security, but this is a direct result of minimizing taxes in the business over the years.
Today, up to 20 percent of people over 65 years of age continue to work or are still active in the business. At retirement age, one has to ascertain whether the necessary passion or desire exists to continue. Mental and physical health are also important considerations.
In contemplating retirement, fully realize that one must live until one dies. In money terms, that means you must have a stream of earnings to provide a decent standard of living. Often, this amount represents at least a one million dollar annuity. Of this amount, what percentage will come from the sale or lease of the farm, and what percentage is from other investments?
In conclusion, an economic reset or recession should not be the reason to retire or to continue the business. The best approach to this decision starts personally and requires examination of several factors. A plan that is thoughtful and thorough in considering goals, health, expenses and income is a good start in the right direction.
P.S. A biology professor who grew up on a farm in Vermont said to me one day at the gym, “Farmers who are active everyday lead fulfilled, rewarding lives. Those who stop farming seem to decline after selling the farm.” While I am not sure this is a scientifically based observation, it is an interesting point to ponder.