Thinking about retiring?

Wednesday, April 23, 2025

Here Is Some Timely Advice

By Mary Loggan

Planning for retirement is a crucial yet often overlooked aspect of farming. Many producers face challenges, such as transferring operations and managing long-term financial security, so preparing well in advance is essential. Effective planning can provide tax advantages, ensure a smoother transition of assets, and help protect the farm’s viability and personal retirement income.

Whether farmers are considering family succession or an outright sale, the process involves carefully considering financial factors, family dynamics, and future involvement in the operation.

Better Farming spoke with FCC business advisor Corey Henderson to explore the key steps farmers should take to secure their future and that of their operations.

Planning ahead

One of the most significant advantages of planning ahead for retirement is the ability to use tax-efficient methods to transfer farm operations.

“This is because there are waiting periods for several different structures to qualify for preferential tax treatment (e.g., a partnership has to be in place for two years before it qualifies for a capital gain exemption),” explains Henderson.

Planning also spreads income over a more extended period, ensuring it is taxed in lower tax brackets.

“It can also keep revenue below thresholds for taxes such as the Alternative Minimum Tax or clawbacks of Old Age Security.”

In addition to the financial benefits, planning provides time for the next generation to take over the farm gradually if farm succession is the next step.

“Planning and transferring the farming operation over time can also be a much more viable approach for the next generation as it gives them time to build their management skills and allows them to take over the farm in more manageable increments.”

Succession versus sale

There are two key differences between planning for succession versus outright sale.

“The difference between family succession and selling the farm outright is that viability is introduced as a concern, as well as family relationships and dynamics,” says Henderson.

“If the farm is sold outright to a third party, the vendor is mainly concerned about tax and whether the sale proceeds will give them sufficient retirement income as the viability of the purchaser does not impact the vendor.”

In contrast, family succession introduces both financial and emotional complexities.

“If the farm is rented to a family successor or sold to them, challenges can impact the parents’ retirement income on the operation, or it can lead to tension in the family.”

This can be particularly difficult when trying to ensure fairness among family members.

“There are also fewer issues with fair versus equal in a sale situation as the estate can be divided up equally without the concern for viability, whereas it is hard to divide up an estate equally if there is a successor and they require the bulk of the farm assets to remain viable.”

Henderson also points out farmers’ emotional challenges when stepping back from the operation.

“Selling the farm outright can also be challenging for some producers as they may not have the ability to ‘slow down’ and may have to choose to quit farming, whereas they can remain involved longer in most family operations with less obligation or time commitment.”

On the other hand, he says, “Some farmers may have a hard time slowing down if the farm is transferring to a family member, as they may feel committed to helping their children succeed.”

Challenges

One key challenge in retirement planning for farmers is determining how much income they will need once they retire.

“Many producers don’t know how much they need to live, as their living expenses have always been incorporated into many farm expenses in the past,” Henderson explains.

“They worry about running out of money if they sell assets to their children too quickly.”

Farmers also face concerns about the farm’s future if things go wrong with a successor.

“Many producers are concerned about what will happen to their land if their successor fails or if they encounter financial difficulties or a divorce.”

Another common issue is the difficulty in relinquishing control of the farm, especially when it’s been a lifelong commitment.

“Many producers have a hard time giving up sole control of the farm,” he says.

First steps

“I would take the time to calculate what I need per year in income to live the lifestyle I want in the future,” he suggests.

Knowing what will be needed for living expenses provides a foundation for any succession plan.

“Your accountant will use it to determine the most tax-efficient options for transferring the farm and generating the income.

“Setting expectations for the farming child that they can budget and plan for will also be useful.”

Another piece of advice Henderson shares is to consider what aspects of farming the individual enjoys most.

“Give thought to what you enjoy doing most and focus on that for retirement.

“I usually define retirement as the ability to do what you want and stop doing what you don’t want.”

Many farmers want to stay involved in the farming lifestyle but with less risk and more flexibility.

“They want to get away from the farm periodically, so how can you continue to do what you love but offload the risk, responsibility or unpleasant tasks to someone else?”

Henderson says this is why retirement planning can give farmers a more straightforward path to a financially secure and personally satisfying future.

Farmers can ensure that their operations transition smoothly and enjoy the years ahead by assessing financial needs, family dynamics, and long-term goals. BF