Are you ready for retirement? There are steps you should take to ensure you’re able to live the life you desire, once it’s time to pass the management reins to the next generation.
On average, American men today will live to 84.3 years, says the U.S. Department of Social Security. That means you can expect to enjoy at least 20 years of retirement or muddle through two decades of financial worry, depending on your level of preparation.
Consider that the average monthly income for a couple receiving Social Security benefits is $2,176. That’s about $26,000 a year, says Farm Journal’s Ag Pro in the article “5 Retirement Investment Tips.” If that’s an average benefit, then farm couples should expect to receive less than that. Why? Because farmers are very good at avoiding taxes, said David Marrison, Ohio State University Extension specialist. Even if they receive the average amount, he asks, where’s the rest of the household income?
When it comes to retirement income, about $26,000 is just not enough. To allow for a comfortable retirement and limit negative impact on the family farm, or any family business for that matter, planning must be done in advance. Here are a few tips that are simple, direct and can make a difference for your retirement.
When are you going to retire? Many people retire at 65. However, the decision often needs to be made from a financial perspective and not based on age. If you can work a little longer, that may give you a better chance of building up enough finances to retire comfortably.
What’s your budget? This is where so many people fail. How much money are you going to need when you retire, starts with knowing how much money you are spending now. For farm and business owning families, some expenses can get co-mingled, such as fuel or utilities. Get into the details and make sure you are not missing any expenses.
Inflation. Recent years have seen a very low impact of inflation but that may be changing. Once you’ve identified your target savings goal, build in inflation. Here’s one way to do it: take the number 72 and divide it by an interest-rate factor. Many experts use 4%, which is the average inflation rate for the last five decades. Using this rule, you can expect your living expenses to double what they are today because of inflation. Sounds scary? That’s why planning is so important.
Make a plan for savings. View retirement as both a means to an end and a way to reduce tax liability. For farmers, good times used to translate into mitigating taxes, by purchasing equipment. However, it’s likely that putting away money in a 401(k) may have been a better idea.
Start saving today. Even if all you are doing is setting aside 10% for the future, if you are young enough that can be a good start.
Add to these tips getting your estate plan done or updating your estate plan. Your estate plan is a critical piece for farm families, who want to pass the farm down to the next generation. In addition to a will, you also need Power of Attorney for your finances and documents for health care. Make an appointment with a local elder law attorney to get this done.
Reference: Farm Journal’s Ag Pro (Dec. 24, 2018) “5 Retirement Investment Tips”