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Transitioning: Is your next generation capable and/or willing?


I run into many farm families trying to figure out how to transition their businesses to the next generation. There are some whom have a capable and willing younger generation, some that have a capable or willing younger generation, and still others that don’t have either. Every situation presents its own set of unique challenges. No matter what the situation may be for your operation, planning is imperative for the succession to be successful.

Ideally, planning for the end of a business or the transition of one should begin early. By that I mean that when you start your farm business or when you take it over from your parents you should be planning for your retirement. For many farmers, retirement is a dirty word, but it shouldn’t be. Planning for the future should be a priority for any business.

Planning is all about creating options for your business. If you don’t have options, then you won’t have the opportunity to make a decision that could better the life of you and your family. Many farmers are familiar with having a life insurance policy, but few take the time to create an IRA (Individual Retirement Account). While IRA’s are commonly used outside of agriculture they are often viewed as an unnecessary expense for most farmers. Many farmers view their land and other physical assets as their retirement. I once believed this myself, but have come to realize it is just poor planning.

Starting an IRA in your mid-twenties and adding only a few thousand dollars a year is an achievable goal and those funds—though not usable today—will multiply 5 times by the time you are near retirement age. Now consider if you had a farm and a retirement account, the retirement funds would be able to supplement the payments being received from your heirs. This can significantly improve the profitability of a farming operation. With the average person now living to nearly 80 years old multiple sources of income in advanced years of age are not an option but a necessity. The sooner these investments begin the more funds that will be available in the future.

So, what if you are in your forties or fifties? If that is the case, then you should start your investments in retirement today. You can contribute $5500 per year up until age 50 then $6500 per year until you retire. You may want to consult your tax advisor to see if there are any tax benefits to investing this money.

Again, this strategy is not about telling you whether or not you should retire, or about when you should retire. It is merely about providing options so you can choose if and when you might retire and how to maintain a sustainable farming business.

Source: Virginia Cooperative Extension


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