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