By Anna-Lisa & Ben Potter
Are you prepared for life after farming? On average, men age 65 today will live 84.3 years, the U.S. Social Security Administration reports. That’s almost 20 years of bliss or blunder. Average annual income for a couple drawing Social Security is $26,000, so you likely need other income sources, says David Marrison of Ohio State University Extension. Plan with tips from Marrison, Joshua Mellberg of J.D. Mellberg Financial and Tim Eggers of Iowa State University Extension.
1. Decide when the time is right
Many people default to retiring at 65, but they should let finances dictate when the time is right, says Mellberg, president and founder of J.D. Mellberg Financial in Tucson, Ariz. “With that approach, you are more likely to have the savings necessary to sustain you for the rest of your life,” Mellberg says.
2. Determine your budget
Sort out how much money you’ll need to cover living expenses, Eggers says. Think through fuel, utilities and other expenses that might have been commingled with farm costs. “Farmers plan to live on less but want to travel,” Marrison says. “To do those trips, you’re going to have to live daily life as you have been, but also have money” to fund the travel.
3. Account for inflation
Identify your target savings goal while realizing goods and services will become more costly. Marrison uses the Rule of 72. Take the number 72 and divide it by an interest-rate factor. Marrison uses 4%, the average inflation rate over the past 50 years. In this example, after 18 years, your living expenses will double.
4. Adopt A Savings Plan
Meet with your financial adviser to develop next steps, Mellberg advises. View retirement as a way to reduce tax liability, Marrison adds. “In times of good grain prices, farmers were doing a lot of tax mitigation by buying equipment, when in hindsight maybe what we should have been doing is putting that money into a 401(k),” he says.
5. Start investing today
Setting aside just 10% of your income today can add up to a nice retirement savings if you start soon enough, Marrison says. Be aware that if you plan to retire soon, low interest rates could act as a stumbling block, Mellberg says. Interest rates are about to get a boost, he points out, but it won’t be a “miracle fix.”