A farmer’s guide to saving for retirement

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Farmers may not have the same financial options to save for retirement as large companies, but they still have options. The key is planning early so you can take full advantage of your income, as well as investments and interest earnings.

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1Savings account or CD
Although the interest rate on most savings and certificate of deposit accounts is currently very low, these are safe ways to save.

Most savings accounts allow for withdrawals as needed, but there could be a limit on the number of withdrawals in a given period.

CDs typically carry a penalty for early withdrawal. You also want to think about the term of your CD. Interest rates are currently at historical lows, but trending upward, so you need to think ahead about whether a CD makes sense.

2401(k)
Farms are less likely to provide 401(k) retirement plans, but there are exceptions.

A 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. The amount an employee invests in the account is excluded from the employee’s taxable income, and an employer can provide a match on the employees’ investments. The money put in a 401(k) is taxed when you withdraw it, at age 59 1/2 or later.

Farmers can also create a one-participant, or solo 401(k).

3IRA
Individual Retirement Arrangements allow you to make tax-deferred financial investments to provide financial security when you retire.

You can set up an IRA with a bank or other financial institution, life insurance company, mutual fund or stockbroker.

4Social Security
Although you will most likely qualify for Social Security income in your 60s, the amount you receive per month will be based, in part, on your lifetime earnings.

The Social Security Administration currently bases your retirement income on the highest paying 35 years of your income, so if you’re underperforming as a farmer, or you’re claiming a loss, you may be affecting your Social Security benefits.

5Family inheritance
One potential source of income is an inheritance. However, you need to be aware of any transfer fees, auction fees and potential taxes that may apply.

Ohio has done away with the estate tax, however, depending on the value of the property, you could be subject to the federal estate tax. In 2017, the federal estate tax threshold was $5.4 million, which means anything below this amount is exempt.

Lastly, do not count your inheritance as a certainty. You don’t know how much you’ll get until it’s yours.

6Selling land and other equity
If a large part of your land or equipment is owned as you near retirement, you may consider selling some or all of the operation. This could be a last resort for some farmers, and for others, it might be part of their long-term strategy.

Selling your property does not necessarily mean you lose control of the farm. You can sell into a trust, or to other family members who have an interest in continuing the operation.

Sources: The U.S. Internal Revenue Service, at irs.gov; Social Security Administration, at ssa.gov.

(Farm and Dairy is featuring a series of “101” columns throughout the year to help young and beginning farmers master farm living. From finances to management to machinery repair and animal care, farmers do it all.)

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