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Retirement Planning for the Agricultural Family

Written by Chris Nolt

Many agricultural families have little money in qualified retirement plans when they reach their golden years. In addition to having insufficient retirement savings outside the value of their farm or ranch, many have small Social Security benefits when they reach retirement age. This may not be a problem if they plan to sell property to fund their retirement, but oftentimes, they prefer to pass their property on to their children.

One of the reasons agricultural families have little money in retirement plans and have small Social Security benefits is because they have invested nearly all of their profit back into their business. There is always some type of machinery or equipment you can purchase to reduce your annual income tax liability.

However, while buying that new tractor, four-wheeler or other piece of equipment may have lowered your taxable income during your working years, there can be negative consequences to spending money on depreciating assets. 

Please understand I’m not saying you shouldn’t invest in your business. I’m just saying make sure your purchase is a wise business decision. If the purchase won’t improve the profitability of your business, it may be wiser to invest that money elsewhere, even if you don’t get a tax deduction for doing so.

Appreciating versus depreciating assets

Depreciating assets are items you spend money on that don’t increase in value and which oftentimes require you to spend more money to maintain or keep them.

Appreciating assets, on the other hand, rise in value over time. If you want to retire someday, you need to invest in appreciating assets.

While taxes are a very important financial planning consideration, you shouldn’t be so overly concerned about taxes that you neglect to invest in appreciating assets. While it is a lot more fun to buy a new tractor or four-wheeler than it is to invest in the stock market or rental property, investing in the stock market or real estate will enable you to have money for retirement. 

If you spend $50,000 on a new piece of equipment, in 20 years, that piece of equipment will likely be worth close to nothing. On the other hand, if you invested wisely, that same $50,000 will likely be worth close to $200,000 or more in 20 years. 

Qualified retirement plans

Qualified retirement plans such as IRAs, SEPs, Simple IRAs and 401(k) plans allow you to deduct the contributions each year from your taxable income. By making contributions to qualified retirement plans, you can benefit from tax savings and accumulate wealth.   

There are pros and cons to each type of retirement plan. Deciding upon the right plan for you and how to invest in the plan is an important decision. It is wise to seek out a financial advisor for this decision. 

Be careful, however, that your financial advisor is not looking out for their best interest more than your best interest. It is wise to look for an independent, fee-only registered investment advisor because they don’t sell commissioned-based products, and they have a fiduciary duty to put your interests first.

In summary, if you would like to retire someday and you don’t plan on selling your farm or ranch to fund your retirement, consider making contributions to a qualified retirement plan as early as possible and invest in other assets that will generate retirement income such as rental property. 

Chris Nolt is the owner of Solid Rock Wealth Management, Inc. and Solid Rock Realty Advisors, LLC, sister companies dedicated to working with families around the country who are selling a farm or ranch and transitioning into retirement. For more information, visit solidrockproperty.com and solidrockwealth.com.