Transferring the Farm and Creating a Retirement Paycheck 2010 National Women in Agriculture Educators Conference

1. Transferring the Farm and Creating a Retirement Paycheck2010 National Women in Agriculture Educators Conference Robin G. Brumfield, Barbara O’Neill, Stephen J. Komar, & Robert Mickel Rutgers Cooperative Extension

2. Project Overview • Course URL:http://laterlifefarming.rutgers.edu/ • 10 modules related to retirement planning for farm households. • Topics are areas of concern indicated by two focus groups of farmers: • Above age 50 • Currently farming in New Jersey • Conducted in the Summer of 2008.

3. Later Life Farming (LLF) Project Goals • Help farmers prepare for retirement • Help farmers generate adequate retirement income • Help farmers create a retirement “paycheck” • Convert illiquid assets into cash and plan sustainable asset withdrawals so that savings lasts a lifetime).

4. Specific Objectives Increase the financial security of farmers in later life. Discuss investment asset allocation and prudent retirement asset withdrawals to reduce the risk of outliving assets Present crop insurance as a risk management and wealth accumulation tool. Help farmers consider strategies to make up for lost time and learn strategies to jumpstart their savings. Address concerns about the impact of regulation on farmers’ financial security Link to existing websites to avoid “reinventing the wheel.”

5. Farm Household Demographics • Average age of farm operators: 57.1 • 20% increase in age 75+ farmers from 2002 to 2007 • Farmers work longer than people in many other occupations (work and home are intertwined) • Most common farm types: • Residential/lifestyle farms (36%) • Retirement farms (21%) • Median income (2004): $53,700; 21% > all U.S. households • 95.1% of farm households had higher median net worth • Much of farm households’ wealth is illiquid • Great diversity in farm household incomes

6. Theoretical Model: Social Marketing Theory • People adopt new ideas when they feel they have received something of value from program organizer • Program organizers need to address consumer needs and wants • Strong focus on identifying and meeting consumer needs • “Get inside the head” of target audience to identify how they think and behave

7. Project Methods • Held two face-to-face focus groups in 2 New Jersey counties • Participants included: • Full-time farmers • Part-time farmers • Land owners • Renters • New producers • Gave $50 gas card as an incentive to participate

8. 13 Focus Group Questions Perceptions about retirement Retirement role models Future plans to farm Planned sources of retirement income Questions about retirement planning and investing Greatest financial hope Greatest financial fear Impact of regulation on land values/retirement plans Preferred educational delivery methods and topics

9. Major Findings • Most will farm at least part-time in retirement • Most had positive retirement role models • When no heirs are interested in farming, the farm’s future is uncertain • Most had some type of retirement account such as an IRA (often through a spouse) • Fear of government regulation, high medical expenses, family feuds, and losing the farm • Unique set of retirement challenges (e.g., farm transition)

10. Concerns About Retirement Plans for the Self-Employed Several FG participants avoided tax-deferred savings plans for the self-employed because of • Future income uncertainty • A desire to avoid administrative paperwork, • The legal requirement to fund employees’ accounts if they make plan contributions for themselves.

11. Preferred Information Delivery Methods • One group preferred traditional Extension programming, (meetings and workshops). • The second group was receptive to non-traditional educational methods , i.e., Internet. • Cooperative Extension viewed as a trusted, non-biased, information source.

12. Farmers’ Concerns Regarding Retirement • Few financial planners have expertise in farm financial management. • Previous sale of development rights to generate positive cash flow now limits options. • A smooth and equitable transfer of the farm concerns families with farming and non-farming heirs. • It is important not to postpone estate planning decisions. • Legal restrictions and regulatory impacts on development and land values.

13. Later Life Farming: Creating a Retirement Paycheck http://laterlifefarming.rutgers.edu/ Many farmers plan to work past traditional retirement age AND need to convert land and other farm assets into a liquid stream of income. We used original material AND links to resources such as Who Will Get Grandpa’s Farm? Communicating About Farm Transfer and the Retirement Estimator for Farm Families (Purdue University)

25. Implications for Extension Educators • Avoid overuse of the word “retirement” in marketing financial education programs to farm households • Focus on their need to create regular cash flow and find meaningful pursuits in later life • A unique challenge is how to create retirement cash flow when farmers’ primary asset, land, is illiquid and they have no plans to sell it

26. Tax-Deferred Investing Explain to farmers that they don’t have to fund retirement accounts for employees (e.g., SEPs) in “lean” years but, then, they can’t fund their personal accounts either. Focus educational efforts on tax-deferred investments that farmers can fund solely for themselves (e.g., IRAs).

27. Family Conversations Encourage farmers to have a family conversation about farm transfer and confront emotional issues, if any, “before it’s too late.” See Purdue University Extension’s Web site Who Will Get Grandpa’s Farm? http://www.ces.purdue.edu/farmtransfer/

28. Prepare for Retirement • Explore ways to phase into retirement to gain the flexibility and reduced workload. • Strategies include: • Gradual transfer to the next generation, • Groom a non-family member to take over the farm, • Downsize the farm operation, • Seek alternative employment other than farming, • Sell equipment and/or livestock.

29. Teaching Methods for Extension Educators Farmers value the unbiased perspective of Cooperative Extension. Partner with attorneys and others who understand agriculture and business transfer issues is critical. Multiple teaching methods are necessary to appeal to a variety of learning styles.

30. Questions? Comments? Experiences? Dr. Robin Brumfield Dr. Barbara O’Neill Rutgers University brumfield@aesop.rutgers.edu oneill@aesop.rutgers.edu Later Life Farming Web site address: http://laterlifefarming.rutgers.edu/