February 23, 2017

Northwest FCS News

Recently at a conference in Nebraska, an older producer asked me if he should take his Social Security benefits now or wait until he is 70. As many farmers of various ages seek additional sources of income, this is an important option for those producers later in life.

The first consideration should be financial need. My immediate response was to ask him if he needed the supplemental income. In this gentleman’s case, the farm business continues to generate enough income to cover expenses and his living needs. In situations of multiple family members or partners in the business, an important follow-up is to ask if earnings are sufficient for all family members or partners. Most have heard the phrase, “too many hogs at the trough,” which can create tension in the business. This is particularly true given the current economic margins, which are causing many to adjust withdrawals from the business.

Next, assess the value of your Social Security earnings. Given the amount, it may be more appropriate to postpone your collection. The other aspect to consider is the amount your spouse is qualified to receive. In some cases, the spouse is entitled to an equal level of earnings, which collectively may be a significant amount. However, some farmers and ranchers are quite surprised at the level of Social Security for which they qualify. Often, farm businesses attempt to minimize income taxes, which lessens their contribution to Social Security. Remember, Social Security payments are based on your highest 35 years of earnings or net income.

As a rule of thumb, the amount of your Social Security payment will increase approximately 8 percent annually for every year that you defer payments from 62 to 70 years of age. For the spouse, it is probably best to defer payments to maximize the overall amount received, if possible. After all, few investments today will earn you an 8 percent guaranteed return over an eight-year period.

The older farmer from Nebraska also worried about the stability of the Social Security program. “What if Social Security is bankrupt by the time I collect?” he asked. While nothing in life is guaranteed, the odds are that Social Security payments will still be available, at least in some form. Eligibility may be tightened and eventually, other supplemental earnings may be factored into the level or eligibility of payments.

Like any major decision, the choice of when to collect Social Security benefits should be weighed against one’s goals and future desires. In the end, it is a highly personal decision. Hopefully, these factors will help the gentleman from Nebraska and others in their deliberation and decision.