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The Ultimate Retirement Strategy For Ministers

By Raul Rivera

It was approximately 6 months before he would reach retirement age, and he was worried because he did not have enough credits to qualify for Social Security.  Nearly 36 years earlier, at the age of 26, Reverend Earl had entered full-time ministry and applied for self-employment tax exemption ("opted-out"). Throughout his entire professional life he had worked in full-time ministry and had never earned any income outside of that. He asked me what he could do now that he was facing an uncertain future. Later on I will teach you an important strategy every minister needs to execute. I call it The Three Legs of Retirement™.

Go to the ant

Scripture admonishes us to continue to prepare for the future. Proverbs 6:6-8 teaches us the wisdom of the ant by showing us how it gathers its food in the summer as it prepares for the winter months. Pastor Earl is a classic example of many ministers that reach the golden years of life and have no plan to live out the latter part of their years on earth. It is each minister's responsibility to plan and prepare for the latter years of life. We cannot simply believe that we will always be able to work like young men and women and earn income forever. As we age, we must grow in our wisdom and set up for ourselves vehicles that produce income for us so that in our latter years, we will be independent and able to enjoy a high quality standard of life. Below are some nuggets of wisdom that we must consider as we age.

  1. We will not always be able to pastor a church.
  2. We will not always be able to earn income by the sweat of our brow.
  3. We must understand that a day is coming when we may not be able to perform physical work.
  4. As we age, our life's goals and desires change: children grow up and grandchildren come. We must plan now to have resources to invest in our posterity instead of being stuck in a low-wage job somewhere just to make ends meet.

God provides, and He is faithful. That is not the question at hand. The question at hand is, "Will you consider the information God is providing you with now, and apply faithfulness to this important area of preparing for your future?"

I want to encourage you to stop from your busy day and consider where your life is leading you. Retirement is a guaranteed event in your life. It does not mean that you stop being busy for the Lord, but rather that your business for the Lord will not be within the context of generating income. What will you do? Pastor Earl did not know what he would do. He was nervous and afraid of the future because he knew the church he had pastored for so many years was changing and he would not be able to lead it for too much longer.

Why pastor Earl had fear

When he was 26 he "opted out" of Social Security. What he did not know is that he never left the Social Security system, as many have been led to believe. He thought that because he "opted out," he could not receive any retirement benefits when he reached 62 and ½ years of age. After I researched his work history, I shared some good news with him, and he was overjoyed that he had been wrong in his understanding! With a few adjustments, he could still receive retirement benefits when the time came.   

Three Legs of Retirement™

Pastor Earl's story goes much deeper than helping him qualify for Social Security.  Receiving Social Security benefits is just one part of retirement. There are at least two other things that every minister should have at retirement. I call them "The Three Legs of Retirement™". I use the concept of a three-legged stool. Each leg on its own is not enough. In order for the stool to work, it must have all three legs. I have taught The Three Legs of Retirement™ to thousands of ministers at our Ultimate Church Structure Conference. It is awesome seeing the faces of ministers as they receive empowering knowledge upon which they know they can act. Below is a brief description of each leg.

  1. Social Security: Social Security alone will never provide for a decent retirement. But at least it is something. I have taught ministers that it is always best to apply for the self-employment tax exemption (opt-out) but to still be wise and make sure they get their credits. Outside of religious principles, the reason I teach this is because paying 15.3% of your hard earned income in order to receive Social Security benefits is a terrible investment. In fact, when you do the math, you get a negative return on investment. Why pay into it if you do not have to? 
  2. Roth IRA: With proper planning, such as setting up a housing allowance and getting self-employment tax exemption, chances are that a typical minister with 2 children can earn $50,000.00 a year or more without having to pay any income tax.  That makes a Roth IRA a very good investment for your retirement. A Roth IRA lets you invest up to $6,000.00 per year (depending on your age) into an account that grows tax-free. Therefore, as a minister, you get to make your money tax-free, invest it into a Roth IRA and let it grow, and then withdraw it tax-free, too. That is a great deal.
  3. Church-Sponsored Deferred Compensation Plan: Current tax code allows a church to set up a deferred compensation plan without it coming under the traditional 403(b) plans that necessitate extensive reporting requirements. When set up correctly, a church-sponsored deferred compensation plan is an agreement between the church and the minister that defers part of his/her compensation to a later date such as retirement. The church then invests the money over a number of years so that it grows tax-free. When the time comes for the church to start paying the minister from the accumulated money, it can do so tax-free if the church designates it as a housing allowance. IRS Revenue Ruling 63-156, 1963-2 C.B. 79 provides that a retired minister may exclude from gross income a parsonage allowance provided as compensation for past services. That is what makes the church-sponsored, deferred compensation, retirement plan so powerful. The plan pays the minister for past services. If you have attended our Ultimate Church Structure Conference, you will find more information on this on page 146 of the conference manual, under the title Deferred Housing Allowance. Additionally, the Compliance Kit software program will create a church-sponsored deferred compensation agreement.

Nothing to fear

There is nothing greater to build your confidence than knowing the facts. Most ministers are concerned that if they opt out of Social Security, they will not get any benefits when they retire. That is simply not true! In order to qualify for Social Security benefits when you retire, you must meet the following condition:

  1. You must earn at least 40 credits to qualify for benefits. That is equivalent to 10 years of employment.
  2. You can earn up to 4 credits per year; and to qualify for a credit, you must earn at least $1,160.00 of income. Therefore, if you make at least $4,640.00 per year then you get 4 credits.

Pastor Earl did not know that with a little bit of planning he could still receive retirement benefits from Social Security. After looking up his work history, we noticed that he had started working at the age of 18 in order to pay for college. He had forgotten that he worked in secular employment until he was 26. He had a total of 32 credits. When I told him that he could still earn additional credits, he was surprised. I went on to explain that "opting out" did not mean he would be disqualified from Social Security, but rather that the income he earned as a minister (and only the income he earned as a minister) would be exempted from the tax and from the credits. Now, at age 62, all he had to do was earn an additional 8 credits at his own pace. He could do that by earning income not related to ministry. He already had three good ideas on how he could do that. Next, though late in life, he needed to start investing into a Roth IRA and convince the church to set up for him a church-sponsored deferred compensation plan.

We can help

Pastoring and leading a ministry is not just preaching, teaching, and counseling. A pastor is also the president and CEO of a corporation, a leader, and someone who leads others by his/her influence. As the leader of your church, you need to know the pitfalls that exist and teach others to avoid them. "The Three Legs of RetirementTM" is one way to avoid the pitfall of an unfulfilled retirement. Prudence tells us to ask one question, "What don't I know?" Chances are high that there is much to learn when it comes to the compliance side of leading a ministry. We are here to help.

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