how much gold do i need for the golden years? nick schneider,kristi cutts, and peggy olive

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.

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

Asset Average U.S. Household

Average 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 $590,897U.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. • 2005 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 1819Retirement Income: How Much Do You Need?:

PM 1818AWorksheets by Iowa State University

Also:http://www.socialsecurity.gov/estimator/http://www.choosetosave.org/ballpark/

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

http://campus.extension.org/course/category.php?id=4Later Life Farming from Rutgers University

http://laterlifefarming.rutgers.edu/Retirement Estimator for Farm Families from Purdue U.

http://www.ces.purdue.edu/farmretirement/

Step 4: How much gold do I have?

-Determine your net worth

What Does Your Asset Portfolio Look Like?

Determine your net worth

Cash is King but equity is Queen

A Balance Sheet is the First Step

Farm Balance Sheet in Excel

Asset Description Market ValueWill you

liquidate?

Retirement Income Value

Current Farm Assets

Checking and savings accounts Y / N Crops held for sale/feed (Sched. A) Y / N Investment in growing crops (Sched. B) Y / N Commercial feed on hand (Sched. C) Y / N Prepaid expenses (Sched. D) Y / N Market livestock (Sched. E) Y / N Supplies on hand (Sched. F) Y / N Accounts receivable (Sched. G) Y / N Other current assets Y / N Total Current Farm Assets 0 0Long Term Farm Assets

Unpaid coop. distributions (Sch. H) Y / N Breeding livestock (Sched. I) Y / N Machinery & equipment (Sched. J) Y / N Buildings/improvements (Sched. K) Y / N Farmland (Sched. L) Y / N Farm securities, certificates (Sched. M) Y / N Other fixed assets Y / N Total Long Term Farm Assets 0 0Total Farm Assets

Farm Balance Sheet

Total Farm Assets-Total Farm Liabilities=Farm Net WorthTotal Farm Assets-Total Farm Liabilities=Farm Net Worth

Farm Liabilities Current Liabilities

Accounts payable (Sched. N)

Farm taxes due (Sched. O)

Current notes and credit lines (Sched. P)

Accrued interest - short (Sched. P)

- fixed (Sched. Q)

Deferred Taxes - current (AG Deferred Taxes #14)

Due in 12 months - fixed (Sched. Q)

Other current liabilities

C) Total Current Liabilities $0

Fixed Liabilities

Notes and contracts, remainder (Sched. Q)

Deferred Taxes - noncurrent (AG Deferred Taxes #15)

Other fixed liabilities

Total Fixed Liabilities

D) Total Farm Liabilities $0

Personal Net WorthPersonal Assets Description Market Value

Will you liquidate

?

Retirement Income Value

Liquid Assets

Cash on hand Y / N Checking Y / N Savings Y / N Real Estate Property $0 Primary residence Y / N Personal Investments $0 Stocks Y / N Bonds Y / N Mutual Funds Y / N Retirement Accounts $0 Retirement Acct./Fund 1. Y / N Personal Property $0 Vehicle Y / N Collectibles Y / N Household items Y / N Total Personal Assets $0

Total (Farm + Personal) Assets $0

Personal Net WorthPersonal Liabilities

Current Liabilities (< 1 year) Description Market Value Credit card/consumer credit Other loan payments due Other current liabilities

Total Current Liabilities $0.00 Long-Term Liabilities (> 1 year) Liabilities against Real Property Description Market Value Home mortgage balance Other long-term loans

Real Property Liabilities Total $0.00 Liabilities against Investments Description Market Value Investment real estate mortgage Legal judgments owed Other long-term loans Liabilities against Personal Property Description Market Value Auto loan balance Other long-term loans

Personal Property Liabilities Total $0.00

Total Long-Term Liabilities $0.00Total Personal Liabilities $0.00

Personal Net Worth $0.00

Farm and Household EquityMarket

Equity Categories ValueAg. Business Equity Cash and Current Livestock/Crop $29,955 1.89%

Breeding Livestock/Perennial Crops $49,200 3.10%Machinery and Equipment $33,500 2.11%Farmland/Buildings/Improvement $1,031,526 64.92%Other Farm Investment $0 0.00%

Personal Asset Equity Cash and Liquid Personal Assets $18,518 1.17%Real Property $60,440 3.80%Personal Investments $229,315 14.43%Retirement Account $94,392 5.94%Personal Property $42,000 2.64% $1,588,846 100.00%

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 http://www.asfmra.org/find-a-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