Are you ready for retirement? There are steps you should take to ensure you’re able to live the life you desire once you pass the management reins to the next generation.
On average, men age 65 today will live 84.3 years, according to the U.S. Department of Social Security. That’s almost 20 years of retirement. The average monthly income for a couple drawing Social Security is $2,176, roughly $26,000 per year.
That should trigger concern for producers, says David Marrison, Ohio State University Extension specialist.
“If $2,176 is an average benefit, it’s safe to say farm couples will receive less than that,” he explains. “Farmers are really good at avoiding tax payments, so [many] probably haven’t even paid in average contributions.”
Even if they do receive the average, Marrison says farmers should think through where the remainder of their living expenses will come from. “The average household lives on $60,000 per year,” he says. “If $26,120 will come from Social Security, what about the rest?”
The following tips can help you plan while limiting negative consequences for your operation.
- Decide when the time is right. Many people default to retiring at 65, but they should let finances dictate when the time is right. That way you are more likely to have the savings necessary to sustain you for the rest of your life.
- Determine your budget. Know how much money you’ll need to cover living expenses once you retire.
- Figure out inflation. Then identify your target savings goal, accounting for inflation. Marrison suggests using the Rule of 72. Take the number 72 and divide it by an interest-rate factor. He uses 4%, which is the average inflation rate over the past 50 years. In this example, in 18 years, your living expenses will be double what they are today because of higher inflation.
- Determine a savings plan. Meet with your financial adviser to develop a series of next steps. View retirement as a way to reduce tax liability, Marrison says.
- Start saving today. Even investing 10% of your income today can add up to a nice retirement savings.