Rutgers New Jersey Agricultural Experiment Station [Later Life Farming]

Module 2c: Phased Retirement: An Option for Farmers?

In some occupations, particularly at colleges and universities and in large corporations, policies to implement the concept of "phased retirement" have been implemented by employers. The term "phased retirement" means exactly as it sounds: a worker gradually ramps down the time that he or she spends in paid employment with a corresponding reduction in salary and/or benefits, often for a set period of time. For example, someone might work half-time for half-salary for up to three years, often while collecting full or partial pension benefits to make up for the loss in pay.

Phased retirement can be a "win-win" for everyone one involved. Employers get to trim expenses while retaining the services of valuable and experienced workers, while employees who don't want to work full-time, but aren't quite ready to fully retire, gain some flexibility in their work schedule and more free time in their lives for other pursuits.

In the world of public and private employers, workers are subject to the phased retirement policies (or lack thereof) at their place of employment. It has been reported that many phased retirement arrangements are made on a case by case basis between workers and their supervisors. Workers with specialized skills in high demand can often negotiate the most attractive terms, especially when their employers are concerned about a "brain drain" when older workers retire.

But farmers are different. In many cases, you ARE the boss. If there's going to be a phased retirement process, you'll need to create it. At Rutgers Cooperative Extension's focus groups with farm families, many participants indicated that they wanted to scale back work on the farm in retirement but did not want to ever really stop working completely because farming is a lifestyle, as well as an occupation. "I want to continue doing what I enjoy," noted one farmer who attended.

If you feel this way, too, below are specific ways that farmers can create a phased retirement:

  • Gradual transfer to the next generation. When the farm will be transferred to a son or daughter, this is often a gradual process where first the son or daughter takes on some of the labor responsibility and some of the income, then more and more of the management, and eventually a transfer of the farm assets, sometimes first the equipment, then the land, or a transfer of parcels of land. This can be part of an estate plan where land and assets are gifted each year, or part of the farm can be purchased each year. This can allow you to have a partial retirement and phase out of farming as the next generation is phasing into farming. This is a very individual process that varies from farm to farm. It brings up emotional issues as well as financial ones and if not approached carefully can result in a lot of hard feelings. It is important to have a meeting of all family members involved in the process and develop a clear plan of responsibilities. It is often difficult in farming (as in any family business) for the current owner to let go and let the next generation take over. But if a family business is to succeed from one generation to the next, responsibilities as well as income must eventually transfer to the new generation. This can give the son or daughter a chance to learn the business while you are still around to help out and allows you the chance to enjoy retirement will still having a role on the farm.
  • Grooming a non-family member to take over the farm. If no son or daugther will take over the business, another option is to groom someone outside the family to take over the business. As with a family member, this can be a gradual transfer of labor, then management, and then farm assets from you to the new owner. This is often a great opportunity for someone who wants to own his or her own farm, but is not in a farm family, or has other siblings who will take over their family farm. This can be a win-win for both parties: you can gradually retire, and the new owner can gradually become the farm owner. It is important to have a clear understanding, with a binding written legal contract, of how this transfer will take place.
  • Downsizing the farm operation. This can be done in as many different ways as there are farm families. One option would be to sell a portion of the farm, i.e., to a family member, non-family member who wants to farm or expand his or her own farming operation, to a trust, or to a developer. Another option would be to rent a portion of the farm. A third option would be to switch the type of farming to less labor intensive production, for example, grow hay to sell to other farmers rather than growing more labor-intensive vegetable crops. This could also be done in combination of one of the previous two options where you slowly downsize the portion of the farm you operate while others slowly take over the labor, management, and eventually ownership of the farm.
  • Selling equipment or animals. If you don't need income from farming at the current level of productivity, you could consider scaling back production and selling assets such as equipment or animals. For example, you could sell the combine and hire someone else to do this for you, or sell part of your dairy herd, and milk fewer cows. You can invest the money you receive from selling off assets, or use it to pay down debt; either way, this should allow you to live on less money and work a little less.

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