Retirement planning isn’t just about retiring from a career, it’s about retiring to a new phase of living, two consultants who specialize in farm financial planning said last week.
What’s key is being clear about what you want and preparing for it, said Ag Days speakers Mark Sloane and Andrew DeRuyck.
The two western Manitoba farmers operate Right Choice Management Consulting.
In a lively presentation, the pair urged farmers to start figuring out not only if they want to retire, but how, and then how to fund it through cash flow planning and strategic financial planning.
Understanding how you’ll spend your time in retirement is fundamental and worth some soul searching well in advance, they said. Avoid the predicament of being financially prepared but devoid of concrete plans for spending your time.
One of the best pieces of advice is from the quote from Henry Fosdick, “Don’t simply retire from something, have something to retire to,” said Sloane.
Start asking yourself what you’ll do in that free time, and moreover, if having that free time, is what you want.
“You’ve really got to give some serious thought to this. You spend your entire farming career using your time to earn your money. At retirement, you need to recognize that money won’t be your challenge, but how you want to spend your time.”
That said, a successful retirement also requires a good idea of how much it will cost as well as how to fund it.
Farmers must basically decide whether to use the farm’s accumulated assets to earn retirement income, or to sell them to generate cash to fund the retirement, said DeRuyck.
Some farmers are opting to rent out part of their equipment lines to continue to take back revenue from those assets, as an example. Others find ways to continue earning income in other ways during retirement.
With interest rates so low currently, you’ve got to have a wad of cash in the bank to live off interest income these days, notes DeRuyck.
“So we’re seeing a lot of guys looking at sitting on boards of directors in retirement, or working as a hired man, or earning employment income off farm,” he said.
“These are all ways to earn our way through retirement so you don’t have to have that ball of capital sitting in the bank.”
The pair also offered ideas around income-levelling strategies, and the implications for tax and capital gains exemptions around different courses of action. They also cautioned farmers to be cognizant of the risks to successful farm succession, including relationship breakdown in families.
“I would say it’s the most common reason for succession failure,” Sloane said, adding that as more Canadians marry later in life, and more marriages end in divorce, farms are increasingly exposed to this risk.
Financial risks and something they refer to as “management skill set risk,” or not having the required skills within the farm business necessary to carry it, are other threats.
Having someone designated to to both carefully manage financial statements and clearly communicate that information with all involved is critical. So is figuring out early on what skill sets may be lacking to keep the business running.
“The next generation often comes in preloaded with energy but does not necessarily come preloaded with knowledge,” said DeRuyck.