48 and seemingly on pace, but…

[SDFarmer]

Hoping to find some reassurance.

I’m 48, my wife is 45. No kids, insurance paid by her employer 100%. Her income 50k ish, mine can be zero, or 200k (hello Mother Nature) Current debt is 100k left on mortgage, other than that just 2 vehicle payments at about 8k per year. That’s where the easy part ends!

1.4 million in joint taxable accounts. Almost all in mutual funds. 45% US, 35% international, the rest minus cash in bonds in funds such as VGSTX. Yes, I’m overweight international.
She has 75k in an IRA, 19k in Roth. I have 17 in a Roth.

I’m also joint owner of a brokerage account with my father mostly made up of proceeds from the farm. 950k in that
200k in cash, mostly used for farm expenses.
The farm has 225 paid in full acres of land
In the process of buying another 160 at 6k per acre. (Already renting it for 165 per acre per year, so after a down payment it will be a wash in yearly payments compared to now)
Probably 600k in equipment.
Only current farm debt is 40k, pending purchase of land.
We hardly spend anything other than our vehicle payments. Never go out, rarely eat out, no vacations, no smoking or drinking….we’re boring homebodies lol.

I am the only child and sole beneficiary of my parents estate (farm, etc).

I’ve had a few lucky guesses investing and done well, but the chance taking in that is done. Just in funds for 99% of my portfolio now.

To finally wrap it up, I guess im just looking for advice. All looks very good at a glance, but I’d like to proceed with as little risk as possible. My wife has MS, so I’d like to make sure that we have enough for any possible future medical expenses. She’s doing well and only needs a cane on rare bad days, otherwise good with no help.

So would it be wise to decrease my portfolio risk to say a 60/40 or even 40/60? Do I keep on with the land purchase opportunity? Farming is fickle, and a couple of bad years can suck down the accounts if you’re over leveraged. At today’s rates, we could rent out what we have for roughly 35k per year whenever I decided to retire down the road.

Sorry for the long winded post. I guess I am just am looking for reassurance that we aren’t going to have to worry regardless of circumstance.

Thanks. I understand if that takes a couple of weeks to digest!

 

[The Cosmic Avenger]

Welcome! The main thing is to go back over the last few years of expenses and make sure you know what you'll need to spend every year after taxes. Price out a really robust health insurance plan and include that, too, so you won't have to worry about being able to afford health care. And make contingency plans; what if land lease rates plummet for some reason? Has that ever happened in our history? (I really don't know, you would know better than I would!) Even if it hasn't, things change, which is why most of us hope for the best but plan for the worst.

I wouldn't get more conservative; in order to fund a retirement that may last 20 years longer than average, you might want to stay closer to 70/30. Some other members here have done the research, and that asset allocation (AA) has a very good long-term performance. I wouldn't even necessarily shy away from 80/20 if you had enough cash or equity to carry you for 2-3 years, but that's a judgement call. It actually sounds like you may be used to that kind of thinking what with the variability you mention in farming income, so that might help!

 

[SecondCor521]

You've got a lot going on between the farm and your wife's MS.

I always start with goals. You've stated yours - retire sometime in the future with minimal risk. So then I would recommend being as precise as possible with your goals. At what age do you want to retire - 50, 52, 55, 57 1/2, 63, 72? Do you want to stop farming completely, or just cut back for a while first? Does your wife want to retire, and at what age?

And what risk do you want to minimize? People generally fear loss of portfolio value, which is a risk, but there's also inflation risk to consider, especially over a potential 40 year retirement. In your case there's also the riskiness of the variability in farming income.

Personally I set my AA based on wanting to have the best statistical chance of staying retired for the rest of my life. You can plug in your data to FIREcalc at www.firecalc.com and play around with the AA or use the investigate option on the rightmost tab (tabs are across the top of the page). You didn't mention SS but it could play a bit of a role in reducing your risk.

I'd probably include the farm business as part of my portfolio in FIREcalc - the assets, the income, and the expenses - in addition to the personal side of the ledger. I would only include your part though, not your parent's portion. You can model an inheritance on the "future lump sum" tab, but relying on an inheritance that is statistically another 15 years out is generally frowned upon on this board because there are too many things that can happen between now and then. Plus it sours the brain and relationship to think of their money as eventually yours.

Your wife's MS - I don't know what medical care is required for that, but that would be something to investigate. When she leaves her job she will probably qualify for ACA coverage, the price and coverage of which varies a great deal, but for middle-ish incomes can be comparable to employer coverage. I have a friend who has had MS (I think) for 20 years and is now wheelchair bound and can't work and owns a very expensive handicap-adapted minivan, so if your wife's MS progresses like that it's something to definitely have plans in place - consider at the very least her potential loss of income, $80K for a van, plus any home modifications like handicapped shower/bathroom/kitchen/hallways/ramps/etc.

It seems to me that purchasing more land increases your risk (and potential reward), which goes against your stated goal of minimal risk. So you might noodle on that apparent discrepancy. I'm sure there's a rational explanation, but articulating it to yourself might clarify some things about what your real goals are.

If those cars associated with the car payments are newer, you might consider older and cheaper but still reliable vehicles. I'm driving a $2500 car that is 28 years old, but it's a Lexus with just over 200K on the odometer so still reliable and looks OK. Over time car payments can suck a lot of money out of a budget.

I'm a boring homebody too, but when doing your planning you might consider the possibility that you two have pent up desires for travel or other expensive stuff. Maybe, maybe not, but the financial impacts are quite different in that range of possibilities.

HTH. Good luck.

 

[Stormy Kromer]

I'm on a farm also, probably not too far away from yours. I own my farm but no longer farm it. It is a great source of retirement income. I'd buy the land at $6k and farm it til you're ready to rent it out. Keep in mind that only the interest part of your payment is deductible, not the entire amount like in cash rent. There is no depreciation on farmland except maybe some tile, fences or existing buildings.

I farmed through the crisis in the 1980's and a lot of farms went under. The biggest debt fear I would have is machinery and equipment. It seems you can hang onto land and ride it out til it comes back in value. Can you believe that land is $6k an acre ? In the 80's it was under $1k.

I consider my farmland a fixed income investment, similar to a bond except it yields about 3.5%. It has also appreciated a great deal since I purchased it. So in your situation I think being heavy in equities is all right.

It appears that you are in excellent financial condition. My major concern would be your wife's health and making sure you can do what you want while you can. If she can no longer work and loses her health insurance you can look into ACA. Since you're self employed you could deduct the entire amount. I'd also look into a HSA.

If you like farming there's no reason you can't continue into your retirement years if you choose to. I have many friends that farmed through some tough years with old equipment and livestock, and now that they're older they have great equipment and no debt and they're doing well financially. To them its fun now that the pressure is off.

Keep us posted.

 

[finnski1]

Welcome. I have no knowledge of the vagaries of farming. I have a lot of respect for farmers in general. Especially family run operations.
Having my income go from potentially 0 to $200k based on the conditions etc is not something I could handle well at all.
I will leave it to others to give some good advice.
Sounds like you have done very well to this point managing your financial situation. I would simply say keep on doing what you have been doing!

 

[ivinsfan]

Zero income when farming doesn't happen any more unless you never buy subsidized crop insurance.



Are both your parents still living? Do you have a formal business agreement ie partnership,LLC, C corp. This is important because at your age your parents could be quite young. They need cash and funds to live on as they age.




Sorry for your DW's health issues and hope she does well going forward.
Honestly as an only heir going forward you'll be fine unless someone in your family develops a severe gambling addiction or something along those lines.


I'd tell you to fund a regular IRA but you are probably just fine without it. A lot of farmers expect cash rent money to replace IRA's and fill in for low SS money but in your case SS money will be available through your spouse.

 

[SDFarmer]

I'm on a farm also, probably not too far away from yours. I own my farm but no longer farm it. It is a great source of retirement income. I'd buy the land at $6k and farm it til you're ready to rent it out. Keep in mind that only the interest part of your payment is deductible, not the entire amount like in cash rent. There is no depreciation on farmland except maybe some tile, fences or existing buildings.

I farmed through the crisis in the 1980's and a lot of farms went under. The biggest debt fear I would have is machinery and equipment. It seems you can hang onto land and ride it out til it comes back in value. Can you believe that land is $6k an acre ? In the 80's it was under $1k.

I consider my farmland a fixed income investment, similar to a bond except it yields about 3.5%. It has also appreciated a great deal since I purchased it. So in your situation I think being heavy in equities is all right.

It appears that you are in excellent financial condition. My major concern would be your wife's health and making sure you can do what you want while you can. If she can no longer work and loses her health insurance you can look into ACA. Since you're self employed you could deduct the entire amount. I'd also look into a HSA.

If you like farming there's no reason you can't continue into your retirement years if you choose to. I have many friends that farmed through some tough years with old equipment and livestock, and now that they're older they have great equipment and no debt and they're doing well financially. To them its fun now that the pressure is off.

Keep us posted.

I figure the possible new land as an investment. As I said I’m already renting it, so any payment after a down would be basically the same, except I’d have something to show for it. Looking at a dp of 200-300k. My dumb brain figures that if for some reason I’d sell it way down the road, I’m not going to be out anything as long as I recoup the down and any interest paid along the way. That allows for a big drop in value before I’d be upside down. If I was strictly an investor who wasn’t shelling out a yearly payment to farm it already I’d certainly think a lot harder about it.

 

[SDFarmer]

Zero income when farming doesn't happen any more unless you never buy subsidized crop insurance.



Are both your parents still living? Do you have a formal business agreement ie partnership,LLC, C corp. This is important because at your age your parents could be quite young. They need cash and funds to live on as they age.




Sorry for your DW's health issues and hope she does well going forward.
Honestly as an only heir going forward you'll be fine unless someone in your family develops a severe gambling addiction or something along those lines.


I'd tell you to fund a regular IRA but you are probably just fine without it. A lot of farmers expect cash rent money to replace IRA's and fill in for low SS money but in your case SS money will be available through your spouse.

Sorry, net zero would be more accurate, and not quite that dire as I don’t have much outstanding farm debt to pay right now. Just more of an attempt to show the variability of my income. Still a drought burns through capital regardless!

 

[ivinsfan]

Sorry, net zero would be more accurate, and not quite that dire as I don’t have much outstanding farm debt to pay right now. Just more of an attempt to show the variability of my income. Still a drought burns through capital regardless!

I don't know what you mean by net zero do you mean break even.


Government payments have been very generous lately, I was curious if you carry crop insurance as that will lock in some net income.


Anyway my other comments were more important IMO.

 

[ivinsfan]

I figure the possible new land as an investment. As I said I’m already renting it, so any payment after a down would be basically the same, except I’d have something to show for it. Looking at a dp of 200-300k. My dumb brain figures that if for some reason I’d sell it way down the road, I’m not going to be out anything as long as I recoup the down and any interest paid along the way. That allows for a big drop in value before I’d be upside down. If I was strictly an investor who wasn’t shelling out a yearly payment to farm it already I’d certainly think a lot harder about it.

Well don't forget property taxes, land hasn't been a "bad" investment since the 80's bust. If you can cash flow it you are probably fine but in my experience new land buys won't cash flow as a stand alone. Your other owned acres will need to help it cash flow.

 

[teetee]

Pay off all of your debt is a low hanging fruit to reduce risks. Farm business can be unpredictable. You don't need debt to complicate your life. I don't think you will do it since in your message it sounded you are perfectly fine with them chipping away your income every year. But it is funny 100% of people who fired bankruptcy are the ones owe money to the banks.

 

[ivinsfan]

Pay off all of your debt is a low hanging fruit to reduce risks. Farm business can be unpredictable. You don't need debt to complicate your life. I don't think you will do it since in your message it sounded you are perfectly fine with them chipping away your income every year. But it is funny 100% of people who fired bankruptcy are the ones owe money to the banks.

Home payment is fine, but if the OP wants to have a car payment there is really no good reason to have payments on two cars at the same time.

 

[SDFarmer]

Home payment is fine, but if the OP wants to have a car payment there is really no good reason to have payments on two cars at the same time.

Wife spends an hour on the road commuting, about 5 minutes of that is in town. The rest is middle of nowhere driving in South Dakota, half of it before the sun comes up with little traffic on the road. Having something dependable in -20 winter weather is important here. I traded a 2007 2 years ago for myself. Both on 0%. It’s not like we’re trading every year to keep up with the Jones’. As for the payments, I’d rather have the money working for me rather taking that lump sum out to pay for it as long as I’m not paying interest.

 

[ivinsfan]

Wife spends an hour on the road commuting, about 5 minutes of that is in town. The rest is middle of nowhere driving in South Dakota, half of it before the sun comes up with little traffic on the road. Having something dependable in -20 winter weather is important here. I traded a 2007 2 years ago for myself. Both on 0%. It’s not like we’re trading every year to keep up with the Jones’. As for the payments, I’d rather have the money working for me rather taking that lump sum out to pay for it as long as I’m not paying interest.

I get it ..I'm rural too..just saying in the future you might arrange to have one car on payments at a time...your problem this time was that you drove your vehicle for 13 years... very rural people just have more transportation costs that's a given. BTW I wasn't the one that said you needed to pay off all your personal debt.

 

[SDFarmer]

Pay off all of your debt is a low hanging fruit to reduce risks. Farm business can be unpredictable. You don't need debt to complicate your life. I don't think you will do it since in your message it sounded you are perfectly fine with them chipping away your income every year. But it is funny 100% of people who fired bankruptcy are the ones owe money to the banks.

Mortgage is 2.99%. I’m getting a return of triple that on average. Why would I take a lump sum out to pay it off? I’m not over extended on the farm. I have 1 piece of equipment that I owe anything on, and that started this spring. No payments on anything for 5 years before that. I’m not into buying shiny new equipment and buying everything in sight like most farmers. Newest tractor is a 2011 model that I’m not going to upgrade for 3 years now that I bought a (used) planter this spring.

 

[SDFarmer]

I get it ..I'm rural too..just saying in the future you might arrange to have one car on payments at a time...your problem this time was that you drove your vehicle for 13 years... very rural people just have more transportation costs that's a given. BTW I wasn't the one that said you needed to pay off all your personal debt.

I got to that one above this post lol.

 

[Stormy Kromer]

You're in great shape financially. Land will make you money, machinery is just something you need to make it happen.

I've seen a lot of farmers over buy machinery for poor reasons. One was to reduce their income tax and the other is just to be big for big's sake, or for appearance.

I'd be willing to bet that most farmers don't invest in anything else but their farm. There's nothing wrong with that, many have done very well and I'm happy for them. There are other investment options available and it looks like you've done well with yours.

BTW. I drive a 2012 Chev. Silverado and plan on buying a new one in 2022. I plan on financing as much of it as possible for the same reason you mention. I'd have to sell $50,000 of appreciated investments to net $40,000 to pay cash after state & federal taxes. Or, I can finance it at 2.9% and pay for it with current cash flow income from my investments. I choose option #2. As for saving up to pay cash for a vehicle, you can't save fast enough to keep up with increasing auto costs.

As for tractors, I grew up on a JD 4020 with no cab. That's all I ever farmed with in the years I operated the farm myself. Not many young people would farm today if they had to do that. My dad started with horses and only in his last few years had a tractor with a cab.

Keep your machinery costs low and pay off your land. You're doing fine.

 

[ivinsfan]

Mortgage is 2.99%. I’m getting a return of triple that on average. Why would I take a lump sum out to pay it off? I’m not over extended on the farm. I have 1 piece of equipment that I owe anything on, and that started this spring. No payments on anything for 5 years before that. I’m not into buying shiny new equipment and buying everything in sight like most farmers. Newest tractor is a 2011 model that I’m not going to upgrade for 3 years now that I bought a (used) planter this spring.

My question here is what happens if/when you farm solo. Will you need to cash out your parents share so they have money to live on?


Or maybe your Dad will farm forever and you will retire at the same time.. we have a little something like that going on now except it's two brothers with less of an age difference.

 

[SDFarmer]

My question here is what happens if/when you farm solo. Will you need to cash out your parents share so they have money to live on?


Or maybe your Dad will farm forever and you will retire at the same time.. we have a little something like that going on now except it's two brothers with less of an age difference.

Mom passed two years ago, dad is 85. While everything was in a trust with myself being the next in line and only trustee, we still went ahead and put myself as co-owner on everything after she passed away.

He still is a seed getter, parts runner, still likes to fix things, and of course chief supervisor lol. He said once he quits doing something every day, he will be dead in a week like everybody else.

He’s got enough squirreled away to live like he wants for a long time. We do family land on shares, so he has income too. No siblings to fight with.

 

[ivinsfan]

SD I know a lot of guys like your Dad,including my hubby. Your family has done good planning and I see no money issues in your future.

 

[teetee]

Mortgage is 2.99%. I’m getting a return of triple that on average. Why would I take a lump sum out to pay it off? I’m not over extended on the farm. I have 1 piece of equipment that I owe anything on, and that started this spring. No payments on anything for 5 years before that. I’m not into buying shiny new equipment and buying everything in sight like most farmers. Newest tractor is a 2011 model that I’m not going to upgrade for 3 years now that I bought a (used) planter this spring.

Because people tend to think that money they owe is still theirs. That creates a mirage that can get you into trouble.

If you have no debt, your baseline is true. You minimize risks. If you think debt is a good leverage, it just shows you are missing the point of risks.

You are now burdened with debt and investment, it is not difficult to see you would have less risks if you just have investment. If you lose in the investment game, you only lose money. If you lose investment while having debt, you will lose your house and your car.

 

[ivinsfan]

Because people tend to think that money they owe is still theirs. That creates a mirage that can get you into trouble.

If you have no debt, your baseline is true. You minimize risks. If you think debt is a good leverage, it just shows you are missing the point of risks.

You are now burdened with debt and investment, it is not difficult to see you would have less risks if you just have investment. If you lose in the investment game, you only lose money. If you lose investment while having debt, you will lose your house and your car.

Are you referring to consumer goods in this post?


Also if someone is still bringing in W 2 income your last sentence is an exaggeration.

 

[SDFarmer]

Because people tend to think that money they owe is still theirs. That creates a mirage that can get you into trouble.

If you have no debt, your baseline is true. You minimize risks. If you think debt is a good leverage, it just shows you are missing the point of risks.

You are now burdened with debt and investment, it is not difficult to see you would have less risks if you just have investment. If you lose in the investment game, you only lose money. If you lose investment while having debt, you will lose your house and your car.

Our income is paying our debt. If we weren’t working I could see your point. If we weren’t working, I’d probably pay it off and take some risk off the table in the investments too.

 

[Stormy Kromer]

I'd buy the land. It looks like it would cash flow for you. If you're paying $165 cash rent now your interest & property taxes will likely be about that same amount, assuming you put down 20% or so. Any principal payments would be putting equity in your pocket.

As the song says "Buy Dirt".

Of all my investments I've bought in my life, equities have done the best. But, my farm is my favorite one.

 

[SDFarmer]

I'd buy the land. It looks like it would cash flow for you. If you're paying $165 cash rent now your interest & property taxes will likely be about that same amount, assuming you put down 20% or so. Any principal payments would be putting equity in your pocket.

As the song says "Buy Dirt".

Of all my investments I've bought in my life, equities have done the best. But, my farm is my favorite one.

That’s the plan. Planning on putting enough to bring the payments to something reasonable. 2-300k. It’s one of those “would you be interested in buying if I sold” things. Now I just have to convince the owner that now is the time to do it before interest rates rise and value drops. Sure it would be nice to pay a cheaper price, but if it’s not signed, sealed, and delivered before then, they might just hold on to it until the next run up and I’ll still be stuck making rental payments with nothing to show for it until the next opportunity years down the road. At that point I might be looking to coast!