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How Much Gold do I Need for the Golden Years? Nick Schneider, Kristi Cutts, and Peggy Olive

How Much Gold do I Need for the Golden Years? Nick Schneider, Kristi Cutts, and Peggy Olive February 2012. Step 1: Picture Your Future. Differently than other workers! Social Security SS is pay-as-you-go For farmers, contribution to SS is based on self employment tax

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How Much Gold do I Need for the Golden Years? Nick Schneider, Kristi Cutts, and Peggy Olive

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  1. How Much Gold do I Need for the Golden Years? Nick Schneider, Kristi Cutts, and Peggy Olive February 2012

  2. Step 1: Picture Your Future

  3. Differently than other workers! • Social Security • SS is pay-as-you-go • For farmers, contribution to SS is based on self employment tax • Since it’s based on farm earnings, contributions are erratic • Over half of total income for 60% of non-farm recipients • 13% of total income for farm operator recipients • In general, farmer retirement income is rather balanced. How do U.S. Farmers Plan for Retirement?USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al.

  4. How do U.S. Farmers Plan for Retirement?USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al.

  5. Off farm income, from a wide range of sources, is the largest share of household income. • ….Misleading? Why? Commercial farms (Over $250,000 in gross sales) receive 80% of income from farming. • There is a huge number of rural residence farms (<$100,000 in sales)… many of these have significant income from off farm sources. How do U.S. Farmers Plan for Retirement?USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al.

  6. How do U.S. Farmers Plan for Retirement?USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al.

  7. How do U.S. Farmers Plan for Retirement?USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al. Average U.S. Portfolio (2000/1999) from Pie Chart U.S. Self Employed Households: $1.26 million

  8. How do U.S. Farmers Plan for Retirement?USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al. • 40% of farm households participate in some type of retirement savings account. (60% for all U.S.) • Larger farms have a larger share of portfolio in farm assets. • In 2001, 7% of farmers contributed to an IRA. • Among farmers near retirement, 1/5 plan to rent land out,1/5 plan to sell land. • 2005 Farmer Survey from North Carolina: 47% Never Retire, 35% Partial Retirement, 18% Full Retirement

  9. How do U.S. Farmers Plan for Retirement?USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al. My Farm Is My Retirement Plan! • Will you be able to liquidate assets to support consumption in older ages? • Taxes • Emotional Connection • Family / Transition

  10. Step 2: Calculate Your Monthly and Annual Spending

  11. Average spending ages 55-64: Based on hh. Gross income = $70,609 U.S. Bureau of Labor Statistics, 5/11

  12. Average spending age 75+: Based on hh. Gross income = $31,676 U.S. Bureau of Labor Statistics, 5/11

  13. Notebook Receipts Checkbook or Bank Statement Calendar Envelope Method Computer (free programs on the web or from some banks) Ways to Track Spending:

  14. Step 3: Calculate how much money you need to save. Money Math: PM 1819 Retirement Income: How Much Do You Need?: PM 1818A Worksheets by Iowa State University Also: http://www.socialsecurity.gov/estimator/ http://www.choosetosave.org/ballpark/

  15. Social Security • You must be “insured” before retirement, survivors or disability insurance benefits can be paid to you or your family • To qualify workers accumulate credits for employment in any work subject (through FICA taxes) • Workers receive one credit if they earned $1,090 and the maximum of 4 credits if they earned $4,360 or more. (adjusted annually)

  16. Social Security • Fully insured status requires 40 credits • Currently insured status requires 6 credits to be earned in last 3 years (survivor/disability benefits but no retirement) • Transitionally insured status applies to workers who reach age 72 without accumulating 40 credits (limited benefits) • Not insured status applies to workers less than 72 & fewer than 6 credits (no benefits)

  17. Free On-line Courses for Farmers Investing for Farm Families by Nancy Porter, Colorado State University http://campus.extension.org/course/category.php?id=4 Later Life Farming from Rutgers University http://laterlifefarming.rutgers.edu/ Retirement Estimator for Farm Families from Purdue U.http://www.ces.purdue.edu/farmretirement/

  18. Step 4: How much gold do I have?-Determine your net worth

  19. Determine your net worth What Does Your Asset Portfolio Look Like?

  20. Cash is King but equity is Queen

  21. A Balance Sheet is the First Step

  22. Farm Balance Sheet in Excel

  23. Farm Balance Sheet Total Farm Assets-Total Farm Liabilities=Farm Net Worth

  24. Personal Net Worth

  25. Personal Net Worth

  26. Farm and Household Equity

  27. Balance Sheet Types • Balance Sheet made for a loan • Generally values assets lower to ensure equity of the farm will cover the loan if it defaults • Most common as most balance sheets come from a lender • They do take appreciation into account periodically as new financing is obtained

  28. Balance Sheet Types • Balance Sheet made determining long term profitability • Asset valuation is also low determined at cost value • Good for helping the farm determine assets that are truly earned • Will show increases over time only if the farm is profitable

  29. Balance Sheet Types • Balance Sheet made to determine cash worth of a dispersal. • Most useful for transitions • Looks at true market value of assets liabilities • Requires appraisals and research • Will generally value assets higher than the other types of balance sheets

  30. Appraisals • Ask your lender who they ask for loan approvals if a transfer • Certified rural appraisers http://www.asfmra.org/find-a-land-expert/find-a-property-appraiser/ • For tax reasons you want an appraisal even in a family transfer situation or before entering some trusts. • Look back for long term care expenses • Family members should be made aware of appraised values

  31. Deferred liabilities? • Ugly truth #1 • You do not get to keep the full value of what you own • You owe taxes on some • You may have commissions from auctions or real estate agents • Costs involved with account changes or loan charges • These are all deferred liabilities

  32. What do you want to keep? • There are some assets on the balance sheet that you want to enjoy during retirement. • Vehicles • The farm house? • Recreational items

  33. What do you need to keep? • There are some assets on the balance sheet that are not up for discussion • This is a personal decision for you but generally • A place to live • Transportation • The things listed in how much gold do I need

  34. What do you want left over? • If you want to leave something in an estate think about leaving it out of the retirement plan.

  35. What is left for you to live on? • Ugly Truth #2 • Comparing the how much gold do I need with the calculations from the balance sheet

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