Ministry and Retirement Planning
Retirement raises plenty of questions and anxiety for anyone in ministry, maybe more so than in other professions. Pastors often tie their identity to their work, and they can even begin to believe the church cannot go on without them. Of course, that’s ego and pride getting in the way. The church survived long before the current pastor of the church arrived and will continue long after they leave. For some pastors, it’s more about the logistics; they never put much thought into a succession plan. But for many, it is financial. They simply cannot afford not to work. Save for a few of the high-profile pastors that make the PreachersNSneakers list; most are hard-working servants of God that sacrificed pay for passion.
Many people today associate a specific age with retirement. The Social Security Administration (SSA) website states that those who qualify can begin receiving benefits as early as 62 but will receive more significant benefits if they delay until age 67. And stop thinking Social Security is a retirement fund; the SSA’s estimate for the average benefit payout in 2022 was $19,884—hardly the good life. A healthier way to view retirement is not aged-based but dollar based. Just because someone hits a certain age doesn’t mean they get to retire; they get to retire when they have a retirement fund that supports them through their life expectancy.
Understanding the Options
As a part of the Employee Retirement Income Security Act (ERISA), the government allows employees and employers to contribute money to tax-favored plans for retirement. While for-profit organizations offer 401(k) retirement plans, often with an employer-matched contribution, churches fall under the non-profit category and can provide a similar 403(b) plan. For ordained or licensed pastors, there is a 403(b)(9) plan to allow provision for their housing allowance. While 401(k), 403(b), and 403(b)(9) plans offer pre-tax options, meaning the tax is deferred until retirement. However, Roth IRA (Individual Retirement Arrangement) plans offer a post-tax opportunity, meaning the money is taxed going into the plan but not taxed during retirement.
The Church’s Role
Some statistics show that as many as 58% of pastors have less than $50,000 set aside for retirement. In light of the Apostle Paul’s letter to Timothy to instruct that “The elders who direct the affairs of the church well are worthy of double honor, especially those whose work is preaching and teaching.” this is unacceptable. Church budgeting experts know that healthy churches typically spend 45-55% of their operating budget on compensation. Even when budget cuts are necessary, including employer contributions for the pastors as part of the compensation total is imperative. One pastor recommends that, at a minimum, churches need to provide ministry employees:
- Qualified Plan: Churches need to find a reputable broker and set up a plan allowing all ministry employees to contribute a portion of their income into tax-favored plans that invest the money for retirement.
- Equitable Employer Contribution: While it’s common that for-profit organizations match the employee contributions 4-6% when it comes to pastors, it may be helpful for the church to consider more. Pastors with housing allowances are considered self-employed for FICA taxes. The church should consider paying the employer portion (7.65%) to contribute to the pastor’s retirement account.
The Pastor’s Role
Contributing to a fund allowing a pastor to retire with dignity does not fall squarely on the shoulders of the employer (church); the employee must also do their part by contributing to the plan. The book of Proverbs contains timeless wisdom on various topics, including finances. Pastors need to heed Proverbs 21:20 “There is precious treasure and oil in the home of the wise, But a foolish person swallows it up.”, especially when funding their retirement account.
Many factors may keep those in ministry from retiring, but churches and pastors must partner to ensure finances are not one of them. It starts with churches setting up a qualified plan and budgeting a fair amount to contribute to the plan. Then the employee must recognize their role in saving to retire with dignity. These two steps allow pastors and churches to move on in healthy, productive ways.