Transferring the Farm and Creating a Retirement Paycheck 2010 National Women in Agriculture Educators Conference Robin G. Brumfield, Barbara O’Neill, Stephen.

Transferring the Farm and Creating a Retirement Paycheck

2010 National Women in Agriculture Educators Conference

Robin G. Brumfield, Barbara O’Neill, Stephen J. Komar, & Robert Mickel

Rutgers Cooperative Extension

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• Course URL: http://laterlifefarming.rutgers.edu/

• 10 modules related to retirement planning for farm households.

• Topics are areas of concern indicated by two focus groups of farmers:

– Above age 50

– Currently farming in New Jersey

– Conducted in the Summer of 2008.

Project Overview

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• Help farmers prepare for retirement

• Help farmers generate adequate retirement income

• Help farmers create a retirement “paycheck”

– Convert illiquid assets into cash and plan sustainable asset withdrawals so that savings lasts a lifetime).

Later Life Farming (LLF) Project Goals

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• Increase the financial security of farmers in later life.

• Discuss investment asset allocation and prudent retirement asset withdrawals to reduce the risk of outliving assets

• Present crop insurance as a risk management and wealth accumulation tool.

• Help farmers consider strategies to make up for lost time and learn strategies to jumpstart their savings.

• Address concerns about the impact of regulation on farmers’ financial security

• Link to existing websites to avoid “reinventing the wheel.”

Specific Objectives

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Farm Household Demographics• Average age of farm operators: 57.1

• 20% increase in age 75+ farmers from 2002 to 2007

• Farmers work longer than people in many other occupations (work and home are intertwined)

• Most common farm types:– Residential/lifestyle farms (36%)

– Retirement farms (21%)

• Median income (2004): $53,700; 21% > all U.S. households

• 95.1% of farm households had higher median net worth

• Much of farm households’ wealth is illiquid

• Great diversity in farm household incomes

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Theoretical Model: Social Marketing Theory

• People adopt new ideas when they feel they have received something of value from program organizer

• Program organizers need to address consumer needs and wants

• Strong focus on identifying and meeting consumer needs

• “Get inside the head” of target audience to identify how they think and behave

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• Held two face-to-face focus groups in 2 New Jersey counties

• Participants included:

– Full-time farmers

– Part-time farmers

– Land owners

– Renters

– New producers

• Gave $50 gas card as an incentive to participate

Project Methods

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• Perceptions about retirement

• Retirement role models

• Future plans to farm

• Planned sources of retirement income

• Questions about retirement planning and investing

• Greatest financial hope

• Greatest financial fear

• Impact of regulation on land values/retirement plans

• Preferred educational delivery methods and topics

13 Focus Group Questions

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• Most will farm at least part-time in retirement

• Most had positive retirement role models

• When no heirs are interested in farming, the farm’s future is uncertain

• Most had some type of retirement account such as an IRA (often through a spouse)

• Fear of government regulation, high medical expenses, family feuds, and losing the farm

• Unique set of retirement challenges (e.g., farm transition)

Major Findings

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Several FG participants avoided tax-deferred savings plans for the self-employed because of

Future income uncertainty

A desire to avoid administrative paperwork,

The legal requirement to fund employees’ accounts if they make plan contributions for themselves.

Concerns About Retirement Plans for the Self-Employed

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• One group preferred traditional Extension programming, (meetings and workshops).

• The second group was receptive to non-traditional educational methods , i.e., Internet.

• Cooperative Extension viewed as a trusted, non-biased, information source.

Preferred Information Delivery Methods

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• Few financial planners have expertise in farm financial management.

• Previous sale of development rights to generate positive cash flow now limits options.

• A smooth and equitable transfer of the farm concerns families with farming and non-farming heirs.

• It is important not to postpone estate planning decisions.

• Legal restrictions and regulatory impacts on development and land values.

Farmers’ Concerns Regarding Retirement

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• http://laterlifefarming.rutgers.edu/

• Many farmers plan to work past traditional retirement age AND need to convert land and other farm assets into a liquid stream of income.

• We used original material AND links to resources such as Who Will Get Grandpa’s Farm? Communicating About Farm Transfer and the Retirement Estimator for Farm Families (Purdue University)

Later Life Farming: Creating a Retirement Paycheck

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• Avoid overuse of the word “retirement” in marketing financial education programs to farm households

• Focus on their need to create regular cash flow and find meaningful pursuits in later life

• A unique challenge is how to create retirement cash flow when farmers’ primary asset, land, is illiquid and they have no plans to sell it

Implications for Extension Educators

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• Explain to farmers that they don’t have to fund retirement accounts for employees (e.g., SEPs) in “lean” years but, then, they can’t fund their personal accounts either.

• Focus educational efforts on tax-deferred investments that farmers can fund solely for themselves (e.g., IRAs).

Tax-Deferred Investing

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• Encourage farmers to have a family conversation about farm transfer and confront emotional issues, if any, “before it’s too late.”

• See Purdue University Extension’s Web site Who Will Get Grandpa’s Farm? http://www.ces.purdue.edu/farmtransfer/

Family Conversations

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• Explore ways to phase into retirement to gain the flexibility and reduced workload.

• Strategies include:

– Gradual transfer to the next generation,

– Groom a non-family member to take over the farm,

– Downsize the farm operation,

– Seek alternative employment other than farming,

– Sell equipment and/or livestock.

Prepare for Retirement

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• Farmers value the unbiased perspective of Cooperative Extension.

• Partner with attorneys and others who understand agriculture and business transfer issues is critical.

• Multiple teaching methods are necessary to appeal to a variety of learning styles.

Teaching Methods for Extension Educators

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Dr. Robin BrumfieldDr. Robin Brumfield

Dr. Barbara O’NeillDr. Barbara O’Neill

Rutgers UniversityRutgers University

[email protected] [email protected]

[email protected] [email protected]

Later Life FarmingLater Life Farming Web site address: Web site address: http://http://laterlifefarming.rutgers.edulaterlifefarming.rutgers.edu/ /

Questions? Comments? Experiences?