Prep your income for leaner times

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Baby boomers are reinventing retirement and savings plans. They are expected to live longer, play harder — and many will work part-time to help stretch their money with the hope that they will not outlive their savings.

Those of us in farming have many of the same concerns about retirement. But, before we get there, we also must be prepared to deal with the unexpected expenses and uncontrollable hard times that occur during our productive lives. We can’t control the weather, crop yields, or even milk prices. But some of the same tools that you use to prepare for retirement can help you prepare to weather these leaner times, also.

Here are four ideas to help you position yourself and your family farm.

1. Health-care cost.

We’re going to live longer, but we’re also going to require more in the way of health care. Start thinking about long-term-care insurance — covering nursing home and in-home care  —  in your 50s, if not before.

Also, be sure to include the cost of health insurance in your retirement budget. One thing is for sure, it’s not cheap. Many of you already pay health insurance premiums — often upward of $15,000 a year for a married couple. If you have a spouse who works off farm, this expense may currently be covered, or at least you pay a reduced rate. But have you thought about how you will pay this expense when your spouse retires? When your spouse retires, the insurance policy you walk away with, called COBRA, expires after 18 months unless you convert the policy. The bottom line here is: Do your homework to determine your options and be prepared to make an educated decision.

2. Have a small footprint.

Strive to be as trim as you can be. Pay off your debts and invest in capital expenses, such as energy efficiencies, that will reduce bills down the road. Test-drive your retirement/hardship plan before you need it. How much money do you really need to operate the farm and to cover family living expenses on a daily, monthly, yearly basis? Live on that budget for awhile. Will it really work, or have you miscalculated? Build an emergency cushion to help get you through the tough times. Stay on top of your expenses so that you can quickly switch to a “reduced-spending mode” when the need arises.

3. Tapping into retirement accounts.

If you withdraw money from your 401(k) or Individual Retirement Account before you reach age 59 1/2, you will have to pay income taxes, plus a 10-percent penalty on it. After that age, you can take as much money out as you wish, though you’ll still pay income taxes at your current rate.

The glory of the retirement account is that your nest egg is growing at a tax-deferred rate.  If you have to tap into any account, take withdrawals from your taxable accounts before you hit the tax-deferred ones. Also make sure that your beneficiary forms for these accounts are up-to-date. The beneficiaries you have named on these forms will take precedence over what your will states.

4. Keep your plan up-to-date.

Make sure that you have a durable power of attorney, a living will and a will.  It’s also important to maintain an updated list of policy and account numbers and current contact information.  Keep a copy of this information with a lawyer, a trusted relative or in a lockbox.

The most important idea here is to plan ahead and be prepared. Take the time now to think about the future and how you will handle the curves that life sends you.

David Chlus is senior vice president of investments with Smith Barney, Inc., in Utica, N.Y., and a partner in a 90-cow dairy.



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