August 2010 // Volume 48 // Number 4 // Feature Articles // 4FEA6
Later Life Farming: Retirement Plans and Concerns of Farm Families
Many farmers are approaching retirement age and need to take advantage of critical planning years preceding this transition. Farm families often differ from other workers. Many are emotionally attached to their primary investment (farmland), and they don't expect to retire (i.e., stop farming) as much as reduce work hours or the scope of their operation. There is a need for information that addresses the unique retirement planning concerns and mindset of farm families. This article discusses findings from focus groups held with New Jersey farm families (N=13) in 2008 to inform development of an online retirement planning course for farmers.
This article describes a qualitative study of the retirement planning practices and learning needs of a sample of farm households. The "graying of America" is especially evident in agriculture. The average age of U.S farmers was 57.1 in 2007 (U.S. Department of Agriculture, 2009a). In addition, the numbers of farm operators age 75 and older increased by 20% from 2002, while operators under 25 years of age decreased by 30% (U.S. Department of Agriculture, 2009a). This increased percentage of older farmers provides a target audience with a large critical mass, making retirement planning for farm families a high priority financial education topic for Extension educators.
Compared to the general U.S. labor force, farmers often work longer than people in many other occupations. It is not surprising to see farmers in their 70s still farming full-time (Hernandez-Peck, 2004). Continuing a centuries old home-based business model, farmers live and work in the same place, often among extended family members. This lifestyle has the effect of making work and life seem almost inseparable and facilitates the continuation of work well into later life. With a large population of older farmers, retirement planning, including farm succession decision-making, is of considerable importance to farm households (Heleba, Parsons, & Sciabarrasi, 2004; Mishra, Durst, & El-Osta, 2005). In addition to their advancing age, farmers also face the unique challenge of creating a retirement "paycheck" (i.e., income received on a regular basis in later life) from a portfolio of largely illiquid assets such as farm land and equipment.
A 2008 survey of 300 farm household heads from 43 states found that farm households see themselves as continuing to work in later life (Porter, Schuchardt, Pankow, & O'Neill, 2008). More than half (51%) of respondents strongly agreed and 33% tended to agree with the statement "When the time comes, I expect to cut back from farming rather than to retire completely." Retired and retiring farm operators account for over a quarter of principal operators of U.S. farm businesses (Mishra et al., 2005). Also related to farmers' advancing age, it is estimated that about 70% of U.S. farmland will change hands in the next 20 years (FarmLand Access, n.d.).
Succession planning is an issue that all business owners must face as they get older, especially when a business owner wants to stop working. Succession decisions are especially challenging for farm households due to their emotional attachment to the operation and a strong desire by many farmers to keep the business within the family (Bradley & Jenkins, 2009). Farms are five times more likely to pass from generation to generation than any other business, and succession in family farms often occurs gradually in small increments rather than by a quick transfer (Keating, 1995).
A 2005 survey found that just 25% of North Carolina farm operators had discussed their retirement plans with their families and only 7% had consulted a financial advisor. The average age of respondents was 59, however, which is an indication that turnover of management and farmland was imminent. Perhaps one reason that transition discussions were postponed was that these farmers were in no rush to retire: 47% indicated that they never planned to retire, 35% planned to semi-retire (i.e., operate the farm while receiving Social Security and/or other retirement benefits), and only 18% planned to fully retire (North Carolina Agriculture, n.d.; Robinson, 2006).
Hachfeld et al. (2009) surveyed Minnesota farm families and found similar results: a majority had not named a farm business successor or developed a farm business transition and personal estate plan. Heleba et al. (2004) surveyed New England farmers about farm succession issues. Among the concerns reported by producers in qualitative feedback included social issues (i.e., interaction of family members, pressure for a younger generation to take over the family farm, and stress felt by a younger generation in being the first to "abandon" the farm), taxes and legal expenses, and worrying about how the next generation will be able to afford to farm.
The study reported here explored retirement plans and perceptions, financial concerns, and learning preferences of two focus groups of New Jersey farm households (N =13). The focus groups were assembled to inform development of an online retirement planning course that addresses the unique retirement planning issues of farm households. The sessions were conducted in two New Jersey counties. Participants were selected to represent the diversity of the farming community within the state (including full-time farmers, part-time farmers, land owners, renters, and new producers) and were recruited by Extension faculty (i.e., county agricultural agents).
Each session lasted 90 minutes and followed an identical format. Focus group participants were given a $50 gas card as an incentive to participate. During each group interview, an Extension faculty member guided the discussion, and a note-taker wrote down the ideas that were expressed. Each interview was also voice recorded. Later, the moderator and note-taker transcribed the interviews and created summaries of the ideas and concerns that participants discussed.
A series of 13 prepared questions were asked, with follow-up questions as needed. These questions allowed for open-ended responses and focused on a variety of topics related to retirement and estate planning topics, unique concerns of farm households, and educational delivery methods. The data were analyzed by analyzing the written notes and transcripts and identifying common themes expressed by focus group participants. Similar responses were grouped together and tallied.
The focus group in the first county consisted of eight participants, including one married couple. The group was 38% female, compared to the statewide average of 22% female farm owners in the last Census of Agriculture (U.S. Department of Agriculture, 2009b). The average age of the participants was 65 years, 8 years older than both the national and statewide average of 57 years. One participant left another career to start farming later in life. The participants had spent an average of 31 years in farming; the range was 8 to 44 years. Their average cash farm sales of $162,583 per year were larger than the average cash farm sales for the state of $95,564 (U.S. Department of Agriculture, 2009b). All of the participants were white, and they were highly educated, with 63% holding a Bachelor's degree or higher compared to 27% for U.S. residents and 33.4% for New Jersey residents (Educational Attainment by State, n.d.). In addition, all of these participants had Internet access.
The focus group in the second county consisted of five participants: two married couples and one other male farmer. Thus, the focus group was 40% female. The average age of the participants was 54.5 years. The participants had spent an average of 31.5 years in farming; the range was 23 to 40 years. All of the participants were white, had attended college or had a bachelor's degree, and had Internet access. Their farm sales averaged $87,500 per year.
Several key findings emerged from the focus groups that served to inform development of an online retirement planning course for farm families.
- Most participants agreed that they would work a reduced time schedule or still maintain part of their farming operation in retirement as indicated by the following comments:
"I just think of scaling back, not ever really stopping what I'm doing."
"If you're in the farming community, I don't see people retiring."
"Retirement for me is being able to continue doing exactly what I am doing now and, most importantly, enjoy it."
- Although the majority of farmers surveyed did not plan to retire, most had positive retirement role models in their lives. A common theme among these role models was remaining active, both in the community and in daily activities.
- Lack of interest in farming among heirs was the most common response in situations where focus group participants reported uncertainty regarding their farming operation's future.
- Many focus group participants had some type of retirement investment account such as IRAs. In some situations, they reported that their spouse was primarily responsible for any additional retirement savings (e.g., 401(k) plans from off-farm employment).
- Several participants noted that they avoided using tax-deferred savings plans designed for the self-employed (e.g., SEPs, SIMPLEs, and Keoghs) because of future income uncertainty, a desire to avoid administrative paperwork, and/or the legal requirement to fund employees' accounts if they make plan contributions for themselves.
- In several instances, landowners sold their development rights to generate positive cash flow. However, some expressed concerns about this decision due, in part, to restrictions associated with preservation and fluctuations in land value.
- The importance of a smooth and equitable transfer of the farm assets was of particular concern in families where some heirs intended to farm while others did not.
- The importance of not postponing farm transfer and estate planning decisions until it is too late was stressed repeatedly by focus group participants as advice for other farmers.
- Legal restrictions and regulatory
impacts on development and subsequent land values were a concern
among a majority of landowners in the focus groups. Changes in local
zoning ordinances, environmental regulations, "Right to Farm"
litigation, and land taxes were among the concerns shared by both
focus groups in comments such as these:
"I think they are going to regulate us right out of our property, it's going to be absolutely worthless."
"That's my biggest fear; to wake up someday and somebody made a decision that what you've been doing all your life is now illegal."
- Differences in preferred learning methods were observed between the two focus groups. One group showed a strong preference for traditional Extension programming, including sessions at agricultural meetings, workshop series, and small group discussions. The second focus group was more receptive to non-traditional educational methods and said they would be interested in participating in an Internet program on retirement.
- Both focus groups expressed a willingness to participate in Extension retirement education programming, citing Extension as a trusted, non-biased, information source.
Many producers in the focus groups reported limited availability of financial planners with expertise in farm financial management. The unique cash flows and expenses associated with an agricultural operation require a level of expertise not common among area professionals.
Online Retirement Planning Course
Following the focus group study, a 10-module online retirement planning course for older farmers was developed called Later Life Farming: Creating a Retirement "Paycheck" <http://laterlifefarming.rutgers.edu/>. The title was selected to emphasize the fact that many older farmers plan to work past traditional retirement age but also have a need to convert land and other farm assets into a liquid stream of income.
The course was informed by the focus group discussions, and its content incorporated findings such as farmers' fear of government regulation, lack of use of retirement savings plans for the self-employed, concerns about farm transfer and succession planning, and an expressed desire to continue to work, albeit at a slower pace, in later life.
The Later Life Farming Web site includes a combination of 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 (DeVaney, 2004), both from Purdue University. Below are the titles and a brief description of each of the modules.
Module 1: Creating a Retirement "Paycheck"—Describes the concept of a retirement "paycheck" and discusses tools to estimate life expectancy, how retirement in the 21st century differs from that of previous generations, and unique retirement issues and challenges faced by farm families.
Module 2: Farming in Later Life—Discusses factors to consider when deciding whether to continue working in later life. Also explores the concept of "phased retirement" as it applies to farm families and occupations that can make good use of a farmer's work experience and skill set.
Module 3: Where Am I Financially?—Includes an online financial quiz and worksheets to calculate net worth, develop a spending plan, and calculate the savings required to fund financial goals. There is also a link to the 20-page tabloid What Older Adults Need to Know About Money.
Module 4: How Much Do I Need to Save?—Includes tools to calculate retirement savings and links to online calculators and a USDA research paper about how U.S. farmers plan for retirement.
Module 5: Sources of Retirement Income—Includes information about Social Security and tax-deferred investments and links to an online publication for late savers. Also discusses unique sources of income for farm families, an online tool for farmers to estimate their retirement savings need, and a discussion of savings plans for the self-employed versus IRAs.
Module 6: Investing and Investment Diversification—Links to an investment course developed especially for farm families and another investing home study course for consumers. Also includes an online quiz to determine investment risk tolerance and an Excel spreadsheet to analyze portfolio asset allocation (i.e., the division of assets among asset classes such as stocks, bonds, real estate, and cash equivalents such as money market funds).
Module 7: Making Your Money Last—Discusses strategies to reduce household expenses, health insurance, and long-term care. Also covered are the recommended sequences of steps for "tax efficient" asset withdrawals and Monte Carlo analyses that determine how long assets will last.
Module 8: Farm Transfer Decisions—Includes a link to Who Will Get Grandpa's Farm?, a Purdue University Web site that describes suggested communication methods for family discussions about farm transfers and succession. There is also a worksheet to analyze the pros and cons of various farm transfer strategies and a link to a publication with case studies about actual farm transfers.
Module 9: Regulation and Tax Issues—Addresses factors that reduce the retirement income of farm families, including state regulations (e.g., building restrictions) that affect farm value and farmland preservation programs where operators are paid for the development rights to their farm. Also discusses federal and state estate taxes and federal income taxes as they apply to farm families.
Module 10: Getting Help—Describes factors to consider when selecting a professional financial advisor. In addition, it includes links for online resources about investing and personal finance and Purdue University's online retirement planning course, Planning for a Secure Retirement, and a description of eXtension, Extension's 24/7 electronic information delivery system.
The primary objective of the focus group study was to inform development of an online retirement resource that meets the specific needs of the farming community. The study, like many others, found that the concept of "retirement" (i.e., not working) is something that farmers don't relate well to. They haven't seen many other farmers retire and don't plan to stop working completely themselves. Rather, many would like to scale back their operation and/or work fewer hours.
Unlike salaried workers, farmers can work much longer into later life because they often own their enterprise, can't be "downsized" (or pressured to retire) by an employer, and "live where they work." In addition, many farmers view their work as a lifestyle rather than an occupation and are emotionally attached to their land and business. They are also concerned about the future of their farms and potential family estate distribution quarrels, which may also underlie their decision to keep working until farm transition issues can be resolved.
Following are five implications of this study for Extension educators.
- Avoid overuse of the word "retirement" in marketing financial education programs to farm households. Instead, focus on their need to create regular cash flow and find meaningful pursuits in later life. Additionally, a unique challenge for farm households is how to create retirement cash flow when their primary asset, land, is illiquid and they have no plans to sell it.
- Explain to farmers that they don't have to fund retirement accounts for employees (e.g., SEPs) in "lean" years but that, 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) because they seem to prefer them to savings plans that require employee contributions.
- Encourage farmers to have a family conversation about farm transfer and confront emotional issues, if any, "before it's too late." A helpful resource is Purdue Extension's Web site Who Will Get Grandpa's Farm <http://www.ces.purdue.edu/farmtransfer/>. Information about an Extension farm transfer workshop can be found in Hachfeld et al. (2009).
- Encourage farmers to explore ways to phase into retirement to gain the flexibility and reduced workload that many desire. Specific strategies include: gradual transfer to the next generation, grooming a non-family member to take over the farm, downsizing the farm operation, seeking alternative employment other than farming, and selling equipment and/or livestock.
- While farmers value the unbiased perspective of Extension, partnering with attorneys and others who understand agriculture and business transfer issues is critical. In addition, multiple teaching methods are necessary to appeal to a variety of learning styles.
Retirement and farm transition planning will become more critical as land becomes more valuable and farmers continue to farm later in life. These factors, combined with changing demographics of the typical farm family, will require new and innovative ways of providing educational programming for multiple generations. The traditional role of Extension staff as trusted educators of the agricultural community, combined with the expertise provided by the university system and other partners, will ensure that these needs are met.
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