How Much Gold do I Need for the Golden Years? Nick Schneider,Kristi Cutts, and Peggy Olive February 2012

Step 1: Picture Your Future

How do U.S. Farmers Plan for Retirement? USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al. Differently than other workers! Social Security SS is pay-as-you-go For farmers, contribution to SS is based on self employment tax Since it’s based on farm earnings, contributions are erratic Over half of total income for 60% of non-farm recipients 13% of total income for farm operator recipients In general, farmer retirement income is rather balanced.

How do U.S. Farmers Plan for Retirement? USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al.

Off farm income, from a wide range of sources, is the largest share of household income. ….Misleading? Why? Commercial farms (Over $250,000 in gross sales) receive 80% of income from farming. There is a huge number of rural residence farms (<$100,000 in sales)… many of these have significant income from off farm sources.

How do U.S. Farmers Plan for Retirement? USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al.

How do U.S. Farmers Plan for Retirement? USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al. Average U.S. Portfolio (2000/1999) from Pie Chart AssetAverage U.S. HouseholdAverage Farm Household Business Equity$61,000$319,000 Principal Residence$104,000$71,000 Liquid Accounts$29,000$41,000 Retirement Accounts$40,000$53,000 Stock, Funds, & Other Financials $75,000$41,000 All Other Assets$50,000$65,000 Total (From Previous Chart)$359,369$590,897 U.S. Self Employed Households: $1.26 million

40% of farm households participate in some type of retirement savings account. (60% for all U.S.) Larger farms have a larger share of portfolio in farm assets. In 2001, 7% of farmers contributed to an IRA. Among farmers near retirement, 1/5 plan to rent land out, 1/5 plan to sell land Farmer Survey from North Carolina: 47% Never Retire, 35% Partial Retirement, 18% Full Retirement How do U.S. Farmers Plan for Retirement? USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al.

My Farm Is My Retirement Plan! Will you be able to liquidate assets to support consumption in older ages? -Taxes -Emotional Connection -Family / Transition How do U.S. Farmers Plan for Retirement? USDA- Economic Research Service, Amber Waves, April 2005, A.K. Mishra et al.

Step 2: Calculate Your Monthly and Annual Spending

Average spending ages 55-64: U.S. Bureau of Labor Statistics, 5/11 Based on hh. Gross income = $70,609

Average spending age 75+: U.S. Bureau of Labor Statistics, 5/11 Based on hh. Gross income = $31,676

$ Notebook $ Receipts $ Checkbook or Bank Statement $ Calendar $ Envelope Method $Computer (free programs on the web or from some banks) Ways to Track Spending:

Step 3: Calculate how much money you need to save. Money Math: PM 1819 Retirement Income: How Much Do You Need?: PM 1818A Worksheets by Iowa State University Also:

Social Security You must be “insured” before retirement, survivors or disability insurance benefits can be paid to you or your family To qualify workers accumulate credits for employment in any work subject (through FICA taxes) Workers receive one credit if they earned $1,090 and the maximum of 4 credits if they earned $4,360 or more. (adjusted annually)

Social Security Fully insured status requires 40 credits Currently insured status requires 6 credits to be earned in last 3 years (survivor/disability benefits but no retirement) Transitionally insured status applies to workers who reach age 72 without accumulating 40 credits (limited benefits) Not insured status applies to workers less than 72 & fewer than 6 credits (no benefits)

Free On-line Courses for Farmers Investing for Farm Families by Nancy Porter, Colorado State University Later Life Farming from Rutgers University Retirement Estimator for Farm Families from Purdue U.

Step 4: How much gold do I have? -Determine your net worth

What Does Your Asset Portfolio Look Like? Net Worth Farm Balance Sheet Personal Net Worth Determine your net worth

Cash is King but equity is Queen

A Balance Sheet is the First Step

Farm Balance Sheet in Excel

Farm Balance Sheet Total Farm Assets-Total Farm Liabilities=Farm Net Worth

Personal Net Worth

Farm and Household Equity Market Equity CategoriesValue Ag. Business EquityCash and Current Livestock/Crop$29, % Breeding Livestock/Perennial Crops$49, % Machinery and Equipment$33, % Farmland/Buildings/Improvement$1,031, % Other Farm Investment$00.00% Personal Asset EquityCash and Liquid Personal Assets$18, % Real Property$60, % Personal Investments$229, % Retirement Account$94, % Personal Property$42, % $1,588, %

Balance Sheet Types Balance Sheet made for a loan – Generally values assets lower to ensure equity of the farm will cover the loan if it defaults – Most common as most balance sheets come from a lender – They do take appreciation into account periodically as new financing is obtained

Balance Sheet made determining long term profitability – Asset valuation is also low determined at cost value – Good for helping the farm determine assets that are truly earned – Will show increases over time only if the farm is profitable Balance Sheet Types

Balance Sheet made to determine cash worth of a dispersal. – Most useful for transitions – Looks at true market value of assets liabilities – Requires appraisals and research – Will generally value assets higher than the other types of balance sheets Balance Sheet Types

Appraisals – Ask your lender who they ask for loan approvals if a transfer – Certified rural appraisers land-expert/find-a-property-appraiser/ land-expert/find-a-property-appraiser/ – For tax reasons you want an appraisal even in a family transfer situation or before entering some trusts. Look back for long term care expenses Family members should be made aware of appraised values

Deferred liabilities? Ugly truth #1 – You do not get to keep the full value of what you own – You owe taxes on some – You may have commissions from auctions or real estate agents – Costs involved with account changes or loan charges These are all deferred liabilities

What do you want to keep? There are some assets on the balance sheet that you want to enjoy during retirement. – Vehicles – The farm house? – Recreational items

What do you need to keep? There are some assets on the balance sheet that are not up for discussion – This is a personal decision for you but generally A place to live Transportation The things listed in how much gold do I need

What do you want left over? If you want to leave something in an estate think about leaving it out of the retirement plan.

What is left for you to live on? Ugly Truth #2 – Comparing the how much gold do I need with the calculations from the balance sheet