Does retirement seem impossible? Focus on farm transition / FCC Knowledge
Are you ready to take over your family farm, but it seems like retirement is way far off? Or, are you yourself ready for retirement, but you’re really not sure exactly where to start? My name is Patti Durand and I’m an Agriculture Transition Specialist with Farm Credit Canada. What we are finding is as we are sitting down with farm families and chatting about transition with them, we’re recognizing common pitfalls and one of those is retirement planning or lack thereof. When you think about retirement from a farm, it’s something that … You want to think about a budget. What is retirement going to cost? And then think about: Can the farm handle it? Is this something that is reasonable for the farm to sustain? And then last but not least: What’s the most tax efficient way to get there? I had a junior partner that I spoke with, a young farmer. He was asking me: How do I prepare for transition? What do I do to get this rolling? And I suggested… maybe asked more so: Have your parents talked about retirement? Do they have a plan? Do they know what it’s going to cost? And his response to me really struck a chord and was memorable because he said: That’s not my business. My parents retirement is not something that I have the right to know about. And that is something I would respectfully disagree with. In many farms, the retirement, the cost of retirement is a debt obligation to the farm. It’s something the farm will pay for and be responsible for for quite some time. Absolutely, the junior partner needs to be part of that conversation because it’s an obligation that they’re going to be on the hook for. Rightfully so, the senior partners have earned it but know that information may be really helpful to share. I will be addressing the readiness of the junior partner to take over the farm in a future episode. So by all means, subscribe and then you won’t miss out on that. Back to the senior partners, they don’t even know where to start often. Many farms, all of their investment has just gone directly back into the farm. Every single piece of cash they ever had just was recycled and invested in the business. Which means they don’t have a personal wealth bubble outside of it to retire and to pay for that. In order to make some plans and actually move forward with it, I strongly recommend the senior partners, so the mom and dad, sit down to talk with each other about what retirement looks like. Sometimes people have very specific plans. Sometimes they have muddy plans or no plans at all. But start to talk that through. And the reason why that matters is because if you’re put on the spot when you sit down with the retirement planner, who is professionally trained to do this and you’re unprepared, either you’ll make a shoot from the hip answer that isn’t accurate. Or you’ll feel pressured and back off and stop planning altogether. Those conversations early, just a blue sky. What do we want? What we don’t want? Maybe we’re involved in the farm for quite some time. Maybe we’re going to back off completely. Maybe we’re going to stay where we are. Maybe we’re going to move. Unpack those things and talk them through in an unpressured environment and it will give you some clarity. The other piece of the budget that you do know today is what does it cost you to live. So teasing out your personal costs from your farm operation and getting a good sense of what that cost is, will be a number that a financial planner will put to work and be part of the equation. So once you’ve kind of got those things fleshed out a little bit or a little bit more clear, then bring that to the junior partner. Let them know about some of your goals, what you’d like to achieve, and so your son or daughter that’s farming with you, can just have some clarity and be involved in the conversation. By bringing that information to a retirement planner… So a certified financial planner would be a designation you’d probably want to look for… That can be something that they’re going to ask questions and you’ll be able to fill in the blanks in a confident way so it can be a really collaborative discussion. They’re going to be able to help you with the cost of inflation, unforeseen medical costs. Perhaps there is some insurance you need. Getting that information and leaning on that professional is helpful. So now that you have your retirement budget that your financial planner has helped you with to establish an annual value that you’re going to need for retirement. It’s a simple math equation. Here’s what the farm makes. Here’s what you’re going to need. What’s left? That discussion can include your junior partner. It probably should include your accountant and it can be kind of collaborative. Does the math work or doesn’t it? And then do we need to go back to the drawing board. Or can we proceed with making some decisions about the best way to approach it. Just to wrap it up, I’d say, number one: Know your budget. Make some plans ahead of time. Work with a financial planner to figure out what the annual number is. Then talk about it. Talk it through. Is this something that is reasonable? Is it something the farm can afford? And then make sure that you’re including your professionals because they can give you some great advice in terms of the best way to source those dollars from the operation and how to do it in a tax efficient way. I would say one bonus thought that I would really encourage, if you’re early in the game. If you are 30 years away from transition, having opportunity to set aside a personal wealth bubble, so starting to pull some cash and make some investments outside of your business, can be your own do-it-yourself pension plan. You have some funds set aside for retirement. So all that pressure isn’t put on the farm at the time when you decide to exit. So with that in mind… This is one of many videos. Click subscribe to connect and find out more good information. And thanks for watching. I’m really interested to hear your comments, so please enter them below or tweet @pelvera and we’ll be sure to follow up with your ideas for future episodes and answer any questions.