Can Farmers Ever Afford to Retire?

One of my Money Talk clients is my long-time employer, Rutgers Cooperative Extension. In addition to writing monthly Small Steps to Health and Wealth™ financial messages, I also present online webinars and class segments.

 

I recently presented content for Annie’s Project-NJ; a program designed to build the skills of women farmers in New Jersey. My segment of their six-week class series was called Can Farmers Ever Afford to Retire?

The answer to this question is yes, with planning and regular savings, as is the case for workers in any occupation. Farmers may also have some unique income generation methods.

Below are eight common sources of retirement income for farm families:

 

Social Security- To obtain Social Security, workers need 40 quarters (10 years) of covered work and must be age 62 or older. Benefits are based on a worker’s 35 highest earning years and delayed retirement credits between full retirement age and age 70 increase benefit amounts.

 

Off-Farm Job Employer Benefits- These include a defined benefit pension, an employer retirement savings plan (e.g., 401(k), 403(b), 457 plan, and thrift savings plan), and other employer benefits (e.g., health insurance).

 

Rental Income- Some farmers supplement their income by collecting rent for the use of their land, buildings (e.g., barn, silo, riding arena), farm equipment (e.g., tractor, combine, plow, seeder, baler), animals, or other items.

 

Individual Retirement Account (IRA)- There are two types: traditional (funded with before-tax dollars) and Roth (funded with after-tax dollars). IRA owners can select a variety of investments (e.g., stocks, bonds, mutual funds, exchange-traded funds, and bank CDs).

 

Simplified Employee Pension (SEP)- This is a retirement savings plan for self-employed workers and small business owners. The contribution limit for sole proprietors is 20% of net self-employment earnings and the deadline for deposits is the filing deadline for each tax year.

 

Investment Income- This includes income derived from various investments, including land, and includes interest, dividends, capital gains, and payments for mineral rights.

 

Continued Income- This includes payments for crops, animals, and animal products (e.g., eggs and meat), agritourism income, a salary earned through continued work for an adult child or other new farm owner, and income from non-farm related work.

Farm Asset Sale Income- When farm assets are sold, the proceeds provide a nest egg that can be invested to provide retirement income. Another option, to keep farmland involved in agriculture, is to apply for Farmland Preservation payments.

For additional information about retirement planning for farmers, visit the Rutgers Cooperative Extension Later Life Farming website.

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.