“Many farmers tend to invest in assets instead of showing or paying themselves wages, utilizing the tax code to reflect as little taxable income as possible – but they run the risk of not qualifying for retirement benefits,” Jodi Gauker, business development Extension educator with Penn State Extension (PSE).
“Let’s start with a baseline understanding of Social Security,” Miranda Harple, marketing and business development education specialist, PSE, began. Most have a basic understanding of how the program functions, even if only in a peripheral sense.
The federal program provides retirement and disability support to qualified individuals and their immediate dependent family or survivors. Funded by a FICA (Federal Insurance Contribution Act) payroll tax deduction, payments made throughout an individual’s working career earn credits toward Social Security payments. The program was created by the FDR Administration’s 1935 Social Security Act. It’s seen several amendments over the years: in 1939, for survivor’s benefits; in 1965, for disability benefits; in 1965, for Medicare; and in 1972, for supplemental security income (SSI) – a “needs-based program that provides cash assistance to individuals who are blind, disabled or 65 and older who have limited income and resources.”
It’s important to view Social Security benefits as just one piece of the retirement safety net – and the same in the broader conversation about farm succession and what happens after retirement.
“It’s a part of your ‘three-legged stool,’” said Paula Ledney, education program associate/financial analyst, PSE. Savings, investments and any tax-advantaged retirement plans as equally important “legs” equipping you and your operation for success when stepping into retirement.
Social Security is a percentage of your lifetime earnings, based on the 35 highest years of income. It’s important to be mindful of the credit accumulation process (how many you have currently based on what’s been paid into the program and how many credits remain to meet the program’s threshold), how income is being reported and how your business is set up.
“If your farm is an S or a C corporation, you’re most likely paying yourself some amount of wages,” Gauker said. “If you’re an LLC or you file Schedule F as a sole proprietor, you earn credits based on your farm’s net income. Remember, if no profit is shown, no credit is earned.”
The average payout for 2025 thus far is $1,976/month for a total of $23,712 annually. Some earn less. The current maximum payout is $5,108/month for a total of $61,296 annually – for those who started collecting at full retirement age and were “top earners” over 35 years. In 2025, the maximum annual wage base is $176,100.
To qualify for retirement benefits, you must have 40 credits (or 10 years) of the required wages or net profits. Individuals can earn one credit per quarter, at a minimum cap of $1,810/quarter ($7,240/annually).
For disability benefits, you must meet the definition of disability under the SSA: “the inability to engage in any substantial gainful activity (SGA) by reason of any medically determinable physical or mental impairment(s) which can be expected to result in death, or which has lasted or can be expected to last for a continuous period of not less than 12 months.” Social Security disability applicants are three times more likely to die within a calendar year than their peers, due to a stringent threshold of qualifiers.
Survivor benefits can be paid to the families of deceased workers who were collecting or had qualified for Social Security. Spouses who are 60 or older (50 or older if disabled) can claim these benefits – and spouses of any age can claim the benefits if they are the caregiver of the deceased’s children or dependents. Former spouses can also claim the benefits, provided the couple was married for over 10 years and the former spouse has not remarried.
Now the other side of the coin: Medicare. Medicare is the federal health insurance program for people who are 65 or older, certain younger people with disabilities and people with end-stage renal disease. It’s comprised of two components – Part A (hospital insurance) and Part B (medical insurance).
In addition to the portion of FICA taxes paid throughout your career that goes to Social Security, a small portion goes toward Medicare, funding Part B for most qualifying beneficiaries. However, there are circumstances where you might not qualify for Part A without paying an additional monthly premium.
How much does the Part A premium cost per month in 2025? According to a chart shared by Brian Moyer, education program associate, business and community vitality, PSE, there are three potential totals:
- $0: “[1] If you or your spouse worked for 40 quarters (10 years or more); [2] If you were a federal employee on Jan. 1, 1983; [3] If you were a state or local employee any time after March 31, 1986.”
- $285: “If you or your spouse worked between 30 and 39 quarters (7.5 and 10 years).”
- $518: “If you or your spouse worked fewer than 30 quarters (7.5 years).”
It’s important to be aware of the system, where you stand and what you might or might not qualify for. Contributors can create an account online at any time by visiting ssa.gov/myaccount/create.html. By setting up the account, you’re able to view your currently slated benefits, see what you’ve paid in so far and other functions.
Not sure when to retire? The SSA also has two calculator options to help you figure out your benefits and make this important decision. The “quick” option is made available when you set up your online account and there’s a “detailed” calculator at ssa.gov/OACT/anypia/download.html.
by Andy Haman
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