Walnut IRA

In 10 years, about 18.1% of the U.S. population will be over 65. In 15 years, almost 20% of our population will be of retirement age.

You might be asking yourself, “How are we going to pay for all these damn old people?” Social security hasn’t exactly been getting good press in recent years; “Social Security’s total expenditure has exceed its non-interest income since 2010.” (nyt.com) This is just fancy talk for Social Security is running out of money.

While my trust in lawmakers and our government hasn’t completely faded, I don’t think I’ll put all my retirement eggs into the social security basket. 401k’s, 403b’s, 457’s, IRA’s, Roth IRA’s, and pensions: they’re all necessary, easy options for each and every one of us to take advantage of. But the 401k has caps, you can’t invest more than $18,000 annually. Where should you put the money you’re saving for retirement?

I think I’ll ‘branch out’ from the old norms. Here’s my idea: tree farming. Yeah, tree farming. I know a lot of you do quite a bit of reading already, so put down your sultry sex novels about all the varying tints of light black and pick up a how-to book on growing your own trees. It’s an art, to say the least, but think of all the farmers who grew crops before the Google machine was even invented. Start up time/costs might deter you from this lucrative business, but the long-term payoff will be worth it.

Trends in agriculture:

We are constantly bombarded with images of barren ground where beautiful forests once stood. Statistics on the inefficiency of sexy renewables, such as solar and wind energy, are everywhere. Global warming and humans are teaming up to destroy the planet. It’s a problem and we need to face it. We hear a lot about oil in financial news and global disaster in environmental news but we hear little to none about how to grow our own fuel. Biofuel, it’s called. And anyone with a chunk of land can produce it.

Shown below is the production of all energy in the United States. By combining the waste, biofuel, and wood categories, we see that biomass produces 48% of all renewable energy (eia.gov).

Renewable energy makes up only 9% of the U.S. energy production.
Renewable energy makes up only 9% of the U.S. energy production.

The goal of biomass renewable energy is to harvest energy while still storing carbon in the ground. Below-ground biomass is, you guessed it, the amount of biomass stored below ground, in an organism’s root system. A willow has a large amount of below-ground biomass that can’t be harvested. A willow has low nutritional needs so it can grow in mineral poor soil. It can grow in hardy conditions i.e. Northern United States. Willows are also carbon-sinking crops; after harvest, they leave carbon in the ground (including the carbon dioxide output of the machines used to produce the crop). Sure, it’s a good crop for the environment, but how does this play into my retirement scheme Mr. Schleusener?

Willows, from the genus Salix, possess an extremely high profit margin. A acre of willow can yield 4 to 5 tons of marketable rods per harvest; at a market price of $10 a pound, a farmer’s revenue are $80,000 per acre per harvest! Willows have an average lifespan of 20 years before needing to be replanted; they can be harvested every year after their 2nd birthday. The plant’s lifetime revenues will be $1,440,000!

Costs? Land, labor, water, protection (from vicious deer). University of Kentucky College of Agriculture published an article quoting the cost of land, labor, and management to be “$4,000 to $40,000 per acre” per harvest, dependent of location, size, quality of product, etc.

Lets take the highest of their estimate just to be safe. Revenues of $80,000 net costs of $40,000 yield $40,000 per acre per harvest of profit. That’s just one acre of land at the highest cost estimate, without taking into account returns on land.

Another bonus of the willow crop is their ability to reproduce from stems. Simply replant the new crop from trimmings taken from the old crop. As long as you have the extra land, expansion will be easy.

Let’s say willows aren’t really your cup o’ tea. If you’re an investor who cares little about cash flows now as opposed to after your time has passed, consider trees as a legacy you will provide to trustees. Walnut trees take around 30-60 years to fully mature. During this time, you can collect the nuts, use them as food, and sell the surplus. Six thousand pounds of walnuts can be harvested from an acre of trees every season. Selling at three bucks a pound, your revenues approximate to $18,000 per acre per year. Minimal profit, sure… but the plants pay for their own installation over their lifetime. According to proftiableplantsdigest.com, a fully-grown walnut tree can bring in $4,000 to $5,000 each at harvest. An average of 250 trees can be grown on a single acre, resulting in revenues of $1,000,000 to $1,250,000 per acre. Not a bad investment.unclesamwantyou

A 10% tax credit is also awarded to those who intend to sell their crop at maturity. The land and the trees are both tax deferred, until a capital gain is made. This is similar to a traditional IRA, where the tax is charged upon withdrawal.

Profitableplantsdigest.com states, “The average [acre] of walnut trees has an average return of 14% per year”. For relativity, the average annual return of the S&P 500 from 1966-2015 was 11.01%. In 2015, the S&P 500 returned -0.73%. Equities are a great way to earn money on your money if you know how to do it correctly. Otherwise, stick with what you know, or can easily learn.

Whether you’re a lawyer, real estate agent, artist, or professional athlete, you always need a place to get away for a while. Instead of a ski-cabin at Veil, buy a small farm in Northern California. Instead of a beach house, build a beautiful retreat home on a lake in Idaho. Make your retirement a place where your kids and grandkids go to find peace and quiet from their busy, hectic every day lives. If you want to create real value, give back to the environment, and leave something of lasting significance as your legacy, invest in a profitable farm getaway.

Thanks for reading.

Note, if you’re actually interested in the biofuel projects being done with Willows read this: http://www.esf.edu/willow/

 

 

http://www.profitableplantsdigest.com/growing-walnut-trees-for-profit/

http://www.eia.gov/totalenergy/data/monthly/pdf/flow/primary_energy.pdf

https://www.cbo.gov/publication/49795

http://www.nytimes.com/interactive/2011/02/04/business/aging-population.html?_r=0

Some notes about social security:

Social security spending in our country totaled $840 billion in 2014, representing about “a quarter of federal spending.” (cbo.gov) Social security has two sources of income: payroll and income taxes. A huge majority (97%) of this income is derived from the payroll tax. The payroll tax is generally 12.4% of earnings up to a certain point; the tax is split evenly between the employer and employee. (If self employed, you have to bear the whole tax, sorry guys.) “The Old Age and Survivors Insurance Trust Fund is financially adequate throughout and beyond the short-range period (2015-24) period… [However], Social Security’s total expenditure has exceed its non-interest income since 2010.” (nyt.com)

 

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