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Planning For Retirement. Presented by Eileen St. Pierre, Ph.D., CFA Personal Finance Extension Specialist Oklahoma State University Farm Transitions 2009. What Retirement?. Why Plan?. Retirement planning is long-term in nature. Current recession and market uncertainty

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planning for retirement

Planning For Retirement

Presented by Eileen St. Pierre, Ph.D., CFA

Personal Finance Extension Specialist

Oklahoma State University

Farm Transitions 2009


What Retirement?

Farm Transitions 2009

why plan
Why Plan?
  • Retirement planning is long-term in nature.
  • Current recession and market uncertainty
  • Social Security will not be enough!
  • Effect of inflation
  • Reduces children’s burden in long run
  • Allows you to have control over the quality of your retirement years

Farm Transitions 2009

how do you envision retirement
How do you envision retirement?
  • Where will you live?
  • What will you do?

Expect your answer to this question to change, possibly several times.

This is why you have to save as much as you can, as early as you can.

Farm Transitions 2009

what if
What If ?
  • Unanticipated health care costs
  • Need for long-term care
  • Forced to permanently retire
  • Kids/Grandkids move away
  • Replace vehicles
  • Downsize house
  • Stock market rollercoaster ride continues
  • Unexpected change in inflation or interest rates

Farm Transitions 2009

how do you achieve financial independence
How do you achieve financial independence?
  • Spend less than you make
  • Budget in order to save
  • Manage your credit wisely
  • Aim to save at least 10% of your net income
  • Pay yourself first
  • Avoid procrastination

Farm Transitions 2009


“I know we are supposed to pay ourselves first. But how do we save money when we only get paid a few times a year?”

Farm Transitions 2009


“If I need money, I will just sell a cow.”

What if something happens to the cow? Your money is gone.

Need to diversify.Do not put all your eggs in one basket.

Farm Transitions 2009

measuring economic security
Measuring Economic Security
  • Financial Net Worth is a measure of economic security
  • Calculate Current Net Worth

Net worth = Assets – Liabilities

  • Financial Net Worth (Non-F/R)

FNR = Net worth – Home Equity

  • Financial Net Worth (Farm/Ranch)

FNR = Net worth – Home Equity – Farm Equity

Farm Transitions 2009

tips on saving money
Tips on Saving Money
  • When you get paid, take some % of that money and immediately put it in a savings or money market account.
    • If 10% is too much, try 5% or even 3%. The important thing is to start saving.
    • This takes a lot of discipline!
  • Always keep 2 years of living expenses in your savings account.
  • Put extra into a retirement account. This account should be invested in riskier assets than your savings account.

Farm Transitions 2009

what expectations do you have for the farm
What expectations do you have for the farm?
  • Transferred slowly or sold outright?
  • If transferring to next generation, will retiring generation still be involved?
  • Lease out assets?

Do not ignore tax consequences.

Do not underestimate the emotional element

in your decision.

Your decision affects the cash flow you receive in retirement.

Farm Transitions 2009

where will the money come from
Where will the money come from?
  • Social Security
  • Pension Plans and 401(k)
  • Plans for the self-employed
    • Keogh Plans
    • Simplified Employee Pension (SEP) IRAs
    • SIMPLE Plans
  • Traditional and Roth IRAs
  • Other savings and investments
  • Home/Farm Value
  • Part-time work

Farm Transitions 2009

timeline for retirement
Timeline for Retirement
  • Age 50: Begin making catch up contributions
  • Age 59 ½: No more tax penalties for early withdrawals from retirement accounts
  • Age 62: Minimum age to receive SS benefits
  • Age 65: Eligible for Medicare
  • Age 66: Born 1943-1954, eligible for full SS benefits
  • Age 67: Born 1960 and later, eligible for full SS benefits
  • Age 70 ½: Start taking minimum withdrawals to avoid penalties

Farm Transitions 2009

how much money do you need for retirement
How much money do you need for retirement?
  • 70% to 100% of current working income
  • Calculate current monthly income and expenses
  • Calculate estimated retirement monthly income and expenses
  • Online retirement calculator

Farm Transitions 2009

ways to increase retirement income
Ways to Increase Retirement Income
  • Decrease living expenses
  • Wait longer to collect social security
  • Increase contributions to IRAs and 401(k)s
  • Earn higher returns on non-farm investments
  • Earn more working part-time in retirement
  • Increase rent on pasture land and farm property
  • Lower farm-related payments such as insurance and property taxes

Farm Transitions 2009

what assets should i invest in
What assets should I invest in?
  • Money market securities (Cash)
  • Bonds or Fixed Income (FI)
  • Stocks or Equities (E)

Instead of direct investment, it is easier and less costly to use mutual funds or Exchange-Traded Funds (ETFs). There are plenty of low cost companies out there (ex. Vanguard, Charles Schwab, T. Rowe Price)

Farm Transitions 2009

what do i need to know before investing
What do I need to know before investing?
  • There is a positive relationship between risk and expected return.
  • Need to earn a high enough return to beat inflation and ensure your money will grow enough for your retirement.
    • This involves taking on enough risk.
    • Need to have enough equities in your portfolio to accomplish this.

Farm Transitions 2009


73-year average annual return:

  • 1926-1999
  • Source: The Vanguard Group

Farm Transitions 2009



Averages over this 11-year time period

Large-Cap Stocks 9.75%

Small-Cap Stocks 9.74%

Foreign Stocks 9.75%

Bonds 6.15%

High-Yield Bonds 6.85%

Money Markets 3.85%

Farm Transitions 2009


Source: Value Square Asset Management, Yale University (

S&P Index


Farm Transitions 2009

what do i need to know before investing1
What do I need to know before investing?
  • Look into automatic withdrawals.
  • Make sure you are comfortable with the amount of risk in your portfolio.
  • The younger you are, the more time you have to recover from market downturns.
  • Adjust your portfolio as you age.

Farm Transitions 2009

how do i allocate my assets
How do I allocate my assets?
  • Consider lifecycle investing.
  • Starting point: Put (100-age)% in E and the rest in FI and other asset classes.
  • Age 45, 55% in E, 45% in FI
  • If you are a late saver or want (need) to take on more risk, increase E%
  • As you age, put higher % in FI and Cash
  • Age 60, 40% in E, 55% in FI, 5% in Cash

Farm Transitions 2009

how do i allocate my assets1
How do I allocate my assets?
  • There are funds that do this for you.

Lifecycle or Target Date funds

Example: Lifecycle 2040

  • Read the prospectus!

Many take a more aggressive approach.

Is the equity allocation too high for you to accept?

Farm Transitions 2009

  • Estimate income and expenses in retirement using online farm retirement calculator and/or worksheet
  • Identify potential income sources, including farm business assets

Farm Transitions 2009

helpful links
Helpful Links Farm Retirement Calculator) Retirement Course) Plans for Small Business)

Farm Transitions 2009

thank you
Thank you!

Farm Transitions 2009