Off-farm investments are an important part of risk management for farm owners.

Off-farm investments diversify your financial portfolio so that all the funds to pay for your retirement don’t have to come from a single source – the farm. It opens up the farm purchase options available to successors as well since they won’t be solely responsible for funding their parents’ retirement lifestyle.

This approach can provide inheritance options for non-farming children without affecting the farming operation. For instance, an owner could provide a one-time cash payment to a non-farming child of $50,000 without having to pull that cash from the farm operations all at once.

Off-farm investments can also help you financially tackle unforeseen circumstances. Maybe your partner gets ill or your marriage breaks down. Those things can put significant financial strain on you personally. Off-farm investments can be helpful sources of cash.

Both owners and successors will want to think about off-farm investments. And you will want to include your financial advisor and accountant in this.

Things to consider when looking at off-farm investing - for owners

Do you have the cash flow to invest off-farm? Review the current level of free cash that comes from your operation in the section "Making the Retirement Plan Happen Financially" in Step 2. You did this work earlier.

Can you afford to start setting a bit of money aside for investing?

What about your spouse’s income? If your spouse has an off-farm job with a pension, how much can it contribute to your retirement cash flow?

What are the rates of return available and/or likely? If you do have some money available for investing, should you be re-investing it in the farm rather than outside investments?

What type of off-farm investments suit your circumstances? You can choose from a number of investment options like registered retirement savings plans (RRSPs), registered education savings plans (RESPs), money markets, mutual funds, bonds, stocks and real estate. There are tax implications for each.

What’s your time horizon? If you are late in your farm ownership and plan to retire in the next two years, you’ll need to make different choices than someone who is planning to retire in 20 years.

Things to consider when looking at off-farm investing - for successors

Do you have the cash flow to invest off-farm? Based on how you and the farm owner have planned the transition of the farm, can you afford to start setting a bit of money aside for investing?

What about your significant other’s income? If they have an off-farm job with a pension, how much can it contribute to your retirement cash flow?

What are the rates of return available and/or likely? If you do have some money available for investing, should you be re-investing it in the farm rather than outside investments? You’ll have to do some financial projections (probably with the help of your accountant) to get a sense of what you can expect from the farm. Your financial advisor can help you determine if it’s smarter to pay down some expensive debt in the short-term.

What type of off-farm investments suit your circumstances? You can choose from a number of investment options like registered retirement savings plans (RRSPs), registered education savings plans (RESPs), money markets, mutual funds, bonds, stocks and real estate. There are tax implications for each.

What’s your time horizon? This depends on when you’d like to retire and transfer the farm to your own successor(s). It’s not too early to start thinking about it. If your retirement dream is to live at the beach, teach young farmers in a developing nation or laze around the front porch of the farmhouse watching your own children work the family farm, they’ll be achievable if you start now.