Last month, the first of a two-part retirement series focused on how to plan to protect your farm and your family in retirement. In this second part, we’ll cover financial planning before and during retirement, and how practice can help you achieve your overall farm succession plan and prevent you from running out of cash during retirement or when you need more care. .
What is a financial plan? Simply put, it is a comprehensive assessment of a person’s current and future financial situation. As we discussed last month, many farm families are so busy farming that they might consider retiring later than planned. We all know that the earlier you plan for a major life event, like retirement, the better your overall chance of achieving your goals.
From a legal perspective, a solid pre-retirement financial plan is critically important to a successful farm business transition. Many families spend time talking about a farm succession plan, but financial planning is an essential element that can be lost when focusing on passing assets to the next generation. There are many benefits to going through the financial planning process with an experienced financial advisor:
Define aims. The process helps you put your goals and objectives in writing and make informed decisions based on those objectives. Additionally, the process creates a baseline that the family can review for years to come.
Maximize retirement income. Income can come from Social Security or other government benefits. Having other liquid assets available can help fund those “extra” things you haven’t had a chance to do during your working life, such as charitable or family donations, vacations, and money. set aside for unforeseen life events such as long-term care. .
Additionally, knowing where the income would come from when you decide to reduce active farming activities gives you greater flexibility.
Identify the need for insurance and other financial products. This strategy also complements succession planning and helps the next generation continue the farming operation.
Keep reviewing the plan
Remember that it is important to monitor your plan and remind yourself of your goals and objectives each year. Most financial planners recommend reviewing a plan annually or more often, especially in times of market volatility like the one we are experiencing today.
Consider long-term goals and assess your risk tolerance with your advisor. Everyone has a different risk tolerance when it comes to investing for retirement or accumulating wealth. There are many investment approaches and strategies, too many to cover here.
The bottom line is that you need to remember your goals and objectives, and your overall plan in times of uncertainty. Most advisors recommend not making decisions based on short-term economic conditions. Perform a risk tolerance analysis annually, or at least periodically, reviewing and reminding yourself of your goals and objectives.
More for Advisors
It takes a team to move your plan forward. As a lawyer, I have seen firsthand the benefits for all involved when farm families engage their financial advisor in retirement planning as part of an overall goal-setting process for the agricultural succession plan.
For practical purposes, reviewing your plan helps your lawyer understand what’s important to you, know your net worth for tax planning purposes, and understand the financial assets you have.
Another important piece of information a lawyer will ask a financial planner is how much cash the family has in retirement. This helps the attorney analyze which legal tools and strategies will protect the deal in the future.
Protect your land
One of the most frequently asked questions by my clients is how to protect the greatest asset they own – their land – if they need long-term care. The best answer I have is to investigate long term care insurance or investment products as soon as possible.
What if there is simply no money available and not enough income to cover long-term care expenses? It is a difficult situation. You should consult a lawyer who can advise you on elder care planning. They will know the rules you need to understand and give your family advice on how to keep what you worked for together. Ultimately, the best approach is to plan early and often.
Herbold-Swalwell is with Parker & Geadelmann PLLC. Email him at [email protected].