Why It Pays to Start Your Retirement Plan Early
When it comes to retirement, timing is everything—especially for farmers who often prioritize reinvesting in their operations over setting money aside for the future. But the earlier you begin saving, the greater the payoff thanks to the power of compound interest. Starting your retirement plan early not only helps secure your financial future but can also ease the eventual transition of your farm to the next generation.
The Power of Compound Growth
Compound interest is a powerful tool that rewards consistency and time. One way to think about compounding is the “Rule of 72”—if you divide 72 by your expected annual return, the result is the number of years it will take your investment to double. For instance, with a 3% return, your money doubles in 24 years; at 8%, it doubles in just 9.
This difference becomes even more meaningful the earlier you start. Let’s compare two farmers who each invest $10,000 into a retirement plan—one at age 20, the other at 40—and assume they let the funds grow until age 70:
At a 3% return:
Investment at age 20 grows to $469,016
Investment at age 40 grows to $100,627
At a 10% return:
Investment at age 20 grows to $1,173,909
Investment at age 40 grows to $174,494
That’s a significant difference—and it all comes down to starting earlier, even with the same initial amount.
Low Costs, High Value
One reason many farmers shy away from retirement plans is the perception that they’re expensive or complicated. But maintaining a solo 401(k) or contributing to an IRA is typically low-cost and straightforward. For married couples, contributing up to $14,000 annually across two IRAs is often an easy first step.
It’s also wise to invest in low-cost exchange-traded funds (ETFs) or mutual funds. These options typically have lower fees, which means more of your money stays invested and working for you over time.
Most Growth Happens Later—So Start Now
Interestingly, the majority of earnings in a retirement account often occur in the final decade before retirement. That’s why it’s so important to start early—even small contributions made in your 20s or 30s can grow significantly by the time you reach retirement age.
Protection from Risk
Aside from long-term savings, retirement accounts offer protection against financial risk. For farmers—whose livelihoods often come with market volatility and external pressures—this added layer of security is especially valuable.
Retirement funds held in employer-sponsored plans like a 401(k) are fully protected in the event of bankruptcy. While IRAs aren’t entirely exempt, the protected limit is substantial. As of April 1, 2025, the exemption amount increased to $1,711,975, effective through March 31, 2028.
This means most farmers with IRA balances under that threshold will retain access to their retirement savings—even in the worst-case scenario. In many states, IRAs are either fully or partially protected as well. These accounts don’t just help you save—they provide peace of mind.
Build a Better Financial Future
Starting a retirement plan may feel like a big step, but it’s one of the smartest financial decisions a farmer can make. With time on your side, even modest contributions can grow into a reliable source of income and protection. Planning for retirement also makes future succession planning easier by reducing financial dependence on the farm.
To read the full article by Paul Neiffer, visit: https://www.agweb.com/news/business/succession-planning/best-time-start-your-retirement-plan
Need help determining how retirement planning fits into your overall financial strategy? At De Boer, Baumann & Company, we can help you explore tax-advantaged savings options, assess long-term needs, and make the most of your future investments.
