Answers are from the Agrivision panel: Tom Kestell, dairy farmer, Sheboygan County, Wis.; Sam Miller, retired managing director, group head of agricultural banking, BMO Harris Bank; and Katie Wantoch, statewide University of Wisconsin Extension farm management outreach specialist/professor of practice. If you have questions you would like the panel to answer, send them to: Wisconsin Agriculturist, P.O. Box 236, Brandon, WI 53919; or email [email protected].

I’m 74 years old, and I crop farm 300 acres. I don’t have a mortgage, and I don’t have any debt. I plant my own corn, but I hire a neighbor to plant my soybeans. The same neighbor combines my crops in the fall. That neighbor asked if I would consider renting my land to him. He would pay me $225 an acre. I made $67,000 on my crops in 2021 and 2022, but I haven’t made that much money since then. I’m not sure if I’m ready to retire from farming. My neighbor said I could work for him as much as I want. Please advise.

Kestell: Congratulations on reaching the  age of rational reasoning. Early in life, at 6 or 7 years old, we reach the age of reason; this is when we should know the difference between right and wrong. Some people seem to struggle with this their whole life. Later in life, we reach the age of rational reasoning, usually after we have made most of the mistakes in our busy careers.

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It’s interesting that your net profit in 2021 and 2022 were equal to the income you will receive just for renting your land to your neighbor in 2025 and beyond.

Major life changes such as retirement are always hard decisions to make, but the use of rational reasoning can be a guide to help you map out what comes next in your well-lived life. I have advised many people over the years to do exactly as your neighbor suggests: Rent your land to him but continue to be involved by working for this neighbor in his enterprise.

You may be pleasantly surprised how much you enjoy doing the job of cropping without the stress of turning a profit, investing in inputs, fighting weather setbacks, etc. I have many times over the years said that if I retire, I would drive combine for other farmers for free just because I enjoy it.

I think you have the ideal situation presented to you. You can continue doing what you enjoy, and you can do it risk free and make the same or more money. It sounds a little like winning the lottery. Good luck and enjoy your sunset years!

Miller: Fortunately, you have choices. Congratulations on being debt-free, which provides options from a financial standpoint.

The rent at $225 times your 300 acres equals the $67,000 return you made in 2021 and 2022 without the growing or price risk — in other words, a low-risk option. Financially, this is a clear-cut decision to rent the land.

Your other question is more difficult — do you want to continue farming? Maybe rent the land for a year and work for your neighbor to see if you can make the transition. If you would rather farm, don’t rent it the following year. The challenge with this option is keeping your equipment for a year without any use. Good luck with your decision. 

Wantoch: Congratulations on your lifetime of farming. Commodity prices have been volatile over the last few years. It’s always a good idea to know your cost of production. That way you’ll have a good idea at what price you sell your crop for that will generate a profit.

It sounds like your neighbor is offering you a good deal of renting your farmland and offering you an opportunity to stay involved by working for him. Take time to think about what you want to do in your spare time. If this option doesn’t sit well with you, I’m sure you’ll be able to find another offer or other opportunities to use your time and talents.

Transitioning to retirement

I know from reading this column for the past 20 years that you are supposed to plan ahead for your retirement. Well, I’m 69 years old, and I’ve milked cows for 49 years. I’ve decided I am selling my 55 cows and 45 heifers this fall and retiring. I think milk prices will be about as good as they are going to be by then, and I just don’t have it in me to milk through another winter. Are there some things I can do to minimize how much I will pay in taxes? I talked to the neighbor down the road, and he says he will rent my 200 acres next year and buy my corn silage and haylage this fall. I won’t need my machinery anymore, but I don’t have very much. What are your thoughts?

Kestell: Congratulations on your long and successful career. I’m glad that at this late date you realize the value of planning for your upcoming retirement.

I agree with your conclusion about milk prices, and the demand for dairy cattle has never been higher or more intense. Keep in mind to prepare your herd for sale — pregnant cows are always desired by buyers. It is also important to prospective buyers to have cows with well-trimmed feet, good body condition, low cell count and no blemishes, etc. This makes cows easy to sell.

Buyers want and need cows that can transition well, produce for several lactations and turn a profit for them. It is important that you have a deal with your neighbor for the extra feed you will no longer need. Feed stored in silos can be hard to move and be discounted greatly.

Many things can impact the tax liabilities that you will face. You have spent a lifetime to accumulate your assets and spend as much time as necessary to protect them from the tax man. Start with hiring a competent tax adviser you trust and feel comfortable with. Your goal as a team should be to minimize your tax liability in a legal and ethical manner.

Use every strategy available to transition into retirement with as much of your nest egg intact as possible. Your tax planning should include short-term and long-term planning. I would advise some sort of delayed payment for the dairy herd into the 2025 tax year or similar strategy to average your income. A competent tax adviser will have a whole arsenal of tax saving advice for you.

Please put concerted effort into your retirement strategy; it will pay off handsomely. Good luck and enjoy your retirement.

Miller: Congratulations on your decision to transition to retirement. I suggest visiting with your tax preparer to estimate your tax liability for selling various assets — cows, heifers, feed, equipment, etc. I assume you are not selling the real estate.

Each class of assets may have a different tax impact, such as ordinary income for feeds, crops and heifers, and potentially capital gains for nondepreciated cows and equipment. Once your tax consultant calculates the tax bill and discusses timing for selling the assets, you may need to spread the sales over two tax years.

For example, you could sell the livestock and feed this fall, and the crops and equipment after the first of the year to spread the tax bill over two years. You may be advised to sell everything this year. Get the information in hand to be able to make an informed decision.

Wantoch: Yes, financial advisers, consultants and other professionals strongly encourage you to plan for retirement. This can begin in your 20s or 30s, but really at any age is a great time to plan for the next stage in your life. I would suggest you visit with a tax preparer or accountant since they will be able to review your current farm asset situation. They will then be able to provide the best tax advice and craft a plan for how to meet your tax goals.

I suggest that you consider staggering your sales over the next year or two. As you review your farm balance sheet, you’ll have less capital gains tax owed on the sale of your current assets as compared to your noncurrent (intermediate or long-term) assets. Learn more about preparing a balance sheet at farms.extension.wisc.edu.

Be sure to consider what’s next for you in life, as selling your livestock will be a big change. Best of luck.