This post specifically addresses people serving in some form of ministry. If you serve in a local church, faith-based nonprofit, or mission work, we need 5 minutes of your time. If you are not serving in ministry, you are welcome to read on…our desire is to offer some financial common sense.
Nearly 50 years ago, my father-in-law had a conversation with a Bible College administrator, urging the college to offer a course in financial common sense and planning. He was firm that the course should be required, not an elective. The answer he received, “There is simply no place in the curriculum for such a class.”
Over the past week, conversations and reading have reinforced the need for financial education for those in ministry.
- One minister who is 65+ said, “I would love to retire, but unless I marry a rich woman that ain’t gonna happen soon. I can take Social Security soon, but it isn’t enough to live on. For you young folks, look at this as a cautionary tale. I was once like you and never gave much thought to retirement. When I was young, I thought I would never retire. Why would I ever want to?”
- A Forbes article pointed out the average person in Generation X (born 1960-1980) is “facing an uphill battle to maintain their standard of living in retirement.” If this is true for Gen X people working in the for-profit world, we are sure the situation is equally bleak for those in ministry, missions, and nonprofit service.
We cannot magically cure the financial information drought among those whose career is Christian service. However, we can spend significant time promoting sound financial thinking and planning.
Today, we offer “5 things I wish college had taught about money!”
Waiting to begin saving, even for only a few years, carries a high price. We begin here, because it is so easy to delay thinking about and planning for retirement. After graduation, our thoughts are focused on beginning a ministry, moving on to graduate school, marriage, starting a family, buying a home, our first student loan payments, and more.
Unfortunately, we often miss that this is the best time to begin saving for retirement! What is the cost of waiting “until we can afford it better”? According to Vanguard, the median 401(k) balance for those in Generation X is $40,243. The cost of waiting has been outrageous for this generation, but the realization may have come too late for many. Advice: Do not wait to begin saving for the future. The price of the waiting room is highway robbery.
Avoid retirement account “leakage.” The author of the aforementioned Forbes article spoke with someone who had contributed the maximum to their 401(k) plan for 20 years but were disappointed with their low balance. The fault did not lie in their investment returns, which had been solid. The disappointing value was the result of several early withdrawals they had taken from the plan. I have personally seen this play out in the lives of people working in Christian service. Over many years, several situations seemed sufficiently pressing that dipping into the retirement account made financial sense. History shows, most who borrow or withdraw funds from retirement accounts seldom put the money back! The lack of access to funds until retirement is one advantage pension plans historically provided for retirement savings. While it seems uncomfortable not to be able to withdraw funds, it does protect retirement income. Advice: Build a solid emergency fund and do everything possible to never withdraw money from retirement.
Be passionate about controlling expenses. As we grow older, it is SO tempting to “trade up” to a nicer car, nicer home, and nicer things for ourselves and our children. The financial pressure of the increased cost soon tempts us to decrease our retirement savings. Slowly, almost imperceptibly, we discover we will have to cut back our retirement dreams, because we spent the money years before. A best-selling book series, Automatic Millionaire, came from the idea of reducing spending on expensive coffee at fashionable shops. Advice: Aggressively searching for daily cost savings will pay handsome dividends later.
Do not view your home equity as retirement savings. Owning the personal residence is part of “the American dream.” However, home equity is not a reliable source of retirement savings. First, to access the home equity in retirement, you may need to sell your home. It is unknown whether your home will be worth what you want it to be at that time. Currently, our personal home appears to be rising in value steadily, but the homes of my parents and in-laws were worth less than anticipated when it came time to sell them. Some years ago, The Motley Fool listed several reasons against relying upon home equity for retirement. Advice: Buying a family home provides security. We will never argue against owning a home. However, relying upon home equity for retirement income is “iffy” at best.
Be cautious about Social Security. Ministers and religious workers have the option of filing Form 4362 to opt out of Self Employment Taxes and the Social Security system for ministry income. The question is, “Should I opt out of Social Security?” The Christian Churches Pension Plan, nor any of its employees, will provide individual advice on this question. We do advise everyone to be thoughtfully cautious in deciding. If you decide to remain in the program, remember the program was never intended to provide a full retirement income. Social Security is intended to replace 33% of one’s working wages. This is not enough to live on in retirement. Also, there are consequences to consider about opting out of Social Security. Anyone who opts out receives zero Social Security or Medicare benefits from any ministerial income.
Opting out was once a very popular move, and it has always appeared to make financial sense. Contributing 12.4% of one’s income for 45 years in order to receive 33% of one’s income beginning at age 67 seems like a very low return on investment. However, history has proven far too many people have failed to invest the saved funds in a pension plan or retirement account. As a result, they have no income at retirement. Also, opting out of Self-Employment Taxes will eliminate one from Medicare unless a) it is provided from other employment covered by Social Security, b) it is provided as the result of spousal benefits from spousal employment, or c) you are willing to pay the $471 monthly individual Medicare premium for 2021.
Advice: Exercise thoughtful caution before electing to complete and file form 4362 as a minister or religious worker.
Live in your home, it doesn’t provide income
Be thoughtful in all financial decisions