hello and welcome to another one of our farm transition workbook video series
installments in this installment we're going to be talking about retirement
planning and how retirement planning can actually be a very critical part of the
overall farm transition planning process and if you're looking for more resources
on this issue you can turn your farm transition workbook these materials will
be covered in chapter 3 now lots of farmers and ranchers wonder why we even
talk about retirement because as we'll discuss in a few slides there's some
debate about whether or not the retired farmer or rancher actually exists but in
actuality we really care about what someone's going to be doing with the
latter portions of their career because it's integral integrally involved in how
we go about forming our transition plan and to illustrate that we can take a
little bit of a look at how someone's net worth changes over time when we
start out as a beginning farmer or Rancher we're probably what we call the
accumulation stage where we're acquiring more assets and hopefully having
positive growth in our net worth but we're making lots of debt payments we're
trying to grow and as a result there may not be a lot of spare cash flow left for
investment so our wealth accumulation tends to be relatively gradual however
as that debt gets paid off as we develop more assets that our income producing
those assets actually start to work 24 hours a day seven days a week and so our
wealth accumulation starts to seriously increase for lots of us this may be
occurring in the you know mature part of our our professional life maybe our 40s
50s perhaps even into our 60s as we get into retirement
we've switched then from a wealth acquisition stage to a stage in which
we're now consuming some of the wealth that we've accumulated because we may
not be actively adding to it as much we may be in a retirement mode and in a
retirement mode we're not getting getting those professional monetary
returns so we're probably using a little bit of that resource now this really
starts to become important for the farmer ranch operations transition to
the next generation because if we don't have enough wealth to live off
sustainably we're going to consume pretty much all of that wealth just to
maintain us while we're in our retirement years and as a result there's
really not gonna be much left to pass on to the next generation if we've done a
pretty good job of retirement planning we may be able to
consume only a slight portion of that amount leaving a pretty significant
amount to pass on to the next generation or if we've done incredibly well and if
we're managing our retirement lifestyle in such a manner that we're even able to
live just off of the income that our assets are producing not really have to
dip into a the principle we might actually still be growing our wealth
while we're in that spending stage and then that leads us to the giving stage
where when we decide are we going to basically give everything away to
someone else and zero out our personal wealth at our time of passing or if we
want to leave that in some form of entity that can continue sustainably to
throw off income perhaps for generations we may be talking about generational
wealth in this circumstance so all of this matters to Farm transition planning
because transition planning inherently involves passing along some of these
assets to the next generation and if in the spinning stage we've consumed all of
these assets then really there's not much of a transition to talk about
because there's really nothing to transition
that's why retirement planning is so important for our farmers and ranchers
because if they really do care about passing on something to the next
generation that retirement plan is going to define exactly how much there's going
to be left and in turn what tools are going to be needed to transfer that on
that's not necessarily easy for us though in agriculture because our
retirement assets and our business assets are almost inextricably
intertwined and those are then the assets that we tend to pass on to the
next generation meaning that retirement planning has to be part of our
transition plan because we just can't have a transition plan without it the
assets that are going to sustain us in our retirement span are gonna be the
assets are gonna have to be used by the business to successfully you know
maintain it for the next generation so that's why this is so hugely important
we really just cannot have a transition plan with that retirement planning now
lots of people say well I'm the farmer I'm never gonna retire and I understand
that people want to be involved actively with farming and you know as long as
they live in many cases but we also can't escape the fact that we can't
maintain the level of activity that we always have physically we just can't
sustain it and so in one form or another our involvement with the farming
operation is going change and if we start to look at that
as a form of retirement we can actually be very proactive about it because our
retirement plan is going to feed into our Enterprise mix which feeds into our
human resource needs which feeds into our transition plan and they'll
elaborate on that if we know what level of involvement we can have with the
operation and how much we're going to be able to actively contribute to its
wealth accumulation we also need to understand how much we're going to be
able to withdraw from the business to support our retirement income and our
lifestyle knowing what that budget looks like what we're going to be able to
contribute and what we're going to need to withdraw then defines the kinds of
enterprises that we're going to need to sustain not only our withdrawal needs
but also the withdrawal needs of whoever is working on the operation
perhaps assuming a greater role in its operation and responsibilities knowing
which enterprises that we're going to need to sustain the families involved
then goes on to define what we're going to need in terms of Human Resources who
can we bring on who's going to be changing their roles who might be
phasing out and all of that feeds into our transition plan and telling us what
we need in terms of both resources and people to make this plan actually take
place as we talk about this then we see that our retirement plan is clearly an
integrated part of our transition plan we need it because we need to understand
who's going to be contributing what who's going to be withdrawing what and
then that in turn defines how all the rest of the pieces of our transition
plan can actually come into place what enterprises will need to develop what
enterprises will need to sustain what enterprises we might need to let go who
needs to be brought in who can be kept in the operation and who might be
actually reducing the roles of involvement with a farmer ranch to
achieve all this stuff we need to have a vision and we need to have a very
clearly defined an achievable business plan to help us figure out how we're
going to have a business large enough to support all the needs that we're going
to be placing on it and at the same time as we see that some members of the
family may be reducing their level of involvement and others might be
increasing it we need to understand exactly how many captains we're going to
have on the bridge of this ship lots of farmers don't like to retire and they
certainly don't like to give up control of their operations which is completely
understandable but for the other members of this operation to grow
into the roles that they'll need to be able to maintain as part of a successful
transition plan they need to have room to operate and that might include room
without someone looking over their shoulder so these are all important
questions that our retirement plan can really help answer for us now as we talk
about retirement and again sometimes for farmers and ranchers retirement is a
really dirty word what we're basically talking about is how would you like to
spend the latter part of your professional life and having a plan is
really important to that because it's essential for us to have security and
happiness when we talk about security what we're talking about is knowing that
we're gonna have the financial means to deal with any uncertain circumstances
that are out there whether it's unforeseen medical expenses or perhaps
an unforeseen opportunity or perhaps the loss of a loved one are we going to have
what we need to be able to adapt to the circumstances and implicit in all that
is the fact that we've got enough to maintain a a reasonable lifestyle to
sustain us for as long as we live that's the security set of things but we talk
about happiness we really want to talk about creating a professional farm and
ranch environment in which you can enjoy what you've worked a lifetime to achieve
you know lots of farmers and ranchers feel like they always need to be
continually growing their operation and I see many times they don't take the
time to really you know relish and what they have already accomplished and so
with a good retirement plan we can find a way for farmers and ranchers to still
maintain a fulfilling rewarding level of professional involvement with their
operation but at the same time give them the time and the resources to appreciate
and enjoy the work that they've already put into the operation what we're
talking about here is really moving from professional success
to personal significance giving you the time to translate your professional
success into meaningful personal fulfillment which may sound a little
warm and fuzzy and yeah that's probably true but that's also what most folks
work their lifetime to achieve and so a good retirement plan really can help us
achieve that if we've talked about retirement too much already for you we
understand because lots of farmers and ranchers have questions about what
retirement looks like for them in the first place they feel
like they've just now got their operation to a condition in which
they're comfortable with it so why would they want to walk away from it and again
I think there's a misunderstanding between farmers and ranchers and and
financial professionals when we say retirement we don't mean you have to
walk away from your farm rather what we're talking about is some sort of a
change in your level of day-to-day professional involvement with the
operation maybe you're really moving from a position of being a day-to-day
manager to being a chairman of the board so to speak meaning that you still get
to participate in some of the big strategic decisions but you don't have
to worry about the day-to-day operations so much because those have passed on to
someone else obviously farmers and ranchers have an
emotional connection to their farm we certainly don't want to overlook that
either as a matter of fact we've got to take great care when we're establishing
our retirement plans and our transition plans because we want to make sure again
that there is a meaningful and rewarding role for that founding generation to
continue to play in the farm operation if we basically just say hey thanks for
all the work that you put in and accumulating this this farmer ranch
business but now go away we're gonna handle it from here just take your
retirement check and be happy go fish that's not good for those you know
founding generation members either so we need to respect that there is an
emotional connection to the farmer ranch and make sure that the farmer has an
emotionally satisfying way of staying connected to it that then leads to what
we do in retirement you know most of the time the right answers probably not just
go sit on the porch and drink lemonade although we certainly want the retiring
founding generation to have that option if they want it but we want them to have
again something important that they can contribute to the operation and still
maintain that very important emotional connection perhaps the boost base and
you know fundamental question that most people have and the reason that they
don't even really consider retirement is that they just don't have the confidence
that there's going to be enough money for them to retire and most of the time
I think if our farmers and ranchers took a look at the assets that they've
accumulated they might find that there actually is a viable path way to
retirement for them and they don't have to necessarily be as concerned about
having enough money for their day-to-day expenses but it does take having a plan
and so how can we plan for retirement what's it going to take in terms of
resource and in terms of income and how do we get
there from where we're at remember when we talked about this
earlier in the video series it's absolutely vital that you have to have
an understanding of where your operation is right now to understand if it's
possible for you to get to a place in your operations life span where you
could feel comfortable going into some form of retirement what kind of
contributions is retirement going to take from the farm in other words what
kind of income is the farm going to have to produce to enable us to take
retirement and what are the implications for that in terms of the enterprise mix
and in terms of the human resources that are going to be needed for us to
maintain that level of spin-off income for the founding generation there are
lots of other considerations out there perhaps but perhaps the most important
one is to remember that if we don't plan for what we're going to do later in our
professional life we're probably going to be a big draw in terms of the cash
flow for the farm or ranch business and there may not be enough cash flow for us
to do that and still have a viable farmer business sorry I have a viable
farm business to pass on to that next generation so how do we create this plan
it's really not as hard as you might think we just need to sit down and do
some business planning which we've talked about elsewhere in this video
series in the workshop as well the first thing we need to do is talk about our
retirement lifestyle what's that going to look like compared to the current
lifestyle that we have and one of the most important ways to figure that out
is to simply gather data about our current non-farm spending you know we
need to separate our personal spending from the farm spinning and say what are
we spending on housing groceries utilities healthcare transportation all
those sorts of things that may be personal to us but not necessarily
integrally part of the farmer ranch business it'll probably take quite a bit
of data they're probably going back at least several months if hope if not you
know maybe a couple of years to determine what our actual personal
budget tends to look like once we've got that then we can go about establishing
some goals about how we want to live in retirement then that in turn will help
us define what our income needs will be how much money are we going to have to
have from the assets that we've accumulated to maintain that kind of
lifestyle that we've got then we can identify some timelines if
no that retirement is 5 10 15 20 years away we can start to define exactly what
we need to do in order to achieve the cash flow goals that we need to have for
that retirement income to be supported after we've done all this now can build
a spending and investing plan we could estimate what our investment returns
might be again taking into account some of the various risk profiles that we
want to have to get the kind of asset growth that we'll need to achieve in
order to reach those financial goals we talked about and dr. Jones is going to
talk about those investment returns in another video that we'll have in this
series we also need to talk about factoring in taxes or potential changes
in income what would the investment landscape look
like if interest rates took a sharp increase or decrease if we've got lots
of our assets tied up in farmland what would happen if land values were
suddenly appreciate or depreciate as we get close to retirement the other thing
that we're going to need to think about is how do we change our investment
portfolio we might need to have a move from slightly riskier but higher
returning assets such as the stock market in boards things that are a
little bit more stable but also generate perhaps smaller returns like savings
bonds and the like so these are all kind of high level things for us to be
thinking about as we form our retirement plan but dr. Jones in another video in
this series is going to talk specifically about how do we go to
create our retirement plan in terms of savings goals estimating our income
needs and looking at an investment mix that's right for us to find that video
and more resources about all of the issues that we've talked about today or
for just more information about the transition process in general you can go
to our transitions website that's a geek on ok state ID you slash farm
transitions again that's AG econ ok State edu slash farm transitions we
thank you for watching you