This article deals with pastors and their retirement stewardship. This is important because pastors play a special role in the Church. They have been uniquely called, gifted, and given to the Church as shepherds and teachers (Ephesians 4:11-12). The Apostle Paul instructs us to respect, highly esteem, and love those who serve us in this way (1 Thess. 5:12-13).
We do this through our love and prayers, and also by supporting them through our giving (Philippians 4:15-16). We accept the awesome privilege and responsibility of helping them to succeed in their work. Just as we support them during their working years, we should also assist them in planning for life after work; i.e., “retirement.”
I am interested in my pastor’s finances, including their retirement stewardship. Not because I’m nosy and want to get into their “business,” but because as a brother in Christ and a friend, I care about them and their families. I also care about them for the sake of my church. We all need pastors who are on strong financial footing while they are working and also when they retire.
You may be someone with similar concerns, or perhaps you are directly involved in establishing pastoral compensation and benefit plans for your church. You may even be a pastor who is concerned for yourself and/or your staff. In this article, I will discuss the challenges pastors face in this area and the things that can be done to help ensure they can “retire with dignity.”
Pastors have a big job
I once read that someone described a pastor as “an ordinary man with extraordinary demands.” They are just ordinary men; they are persons like you and me. They are husbands, fathers, and friends, and they have the same financial challenges and needs that the rest of us do. They need to earn a decent living for their families, and they need to be able to retire one day.
Pastors are also men with extraordinary demands on them. I love what Tim Challies wrote in an article titled, “The Pastor as Renaissance Man.” He uses that phrase to describe a pastor’s role in being “all things to all people.” Tim says that such a man is a faithful exegete of scripture (a theologian and teacher), a prayerful missiologist to the lost (an evangelist), and a longsuffering shepherd to his flock (a pastor, counselor, and friend). He believes as I do that such men are truly worthy of our love, respect, and support.
Given all these demands, finances should be very low down on the list of the main concerns in a pastor’s life. Yes, they need his attention, but should not be of paramount concern. And planning for retirement, although very necessary, should not be something that causes additional pressures or anxiety. In other words, we should not add “personal finance and retirement expert” to the long list of things we ask of these men.
The good news / bad news of retirement
Most pastors will eventually retire. The reality is that most of us will, sooner or later. Although my pastor has said that he wants to, “die with his boots on,” he will one day have to slow down, at least a little. And even when a pastor retires from full-time vocational ministry, he will most likely want to continue to work in service to the Lord for as long as he is able. (What we would call a “biblical retirement.”) Scripture repeatedly cites the need in the Church for maturity, wisdom, and humility as an example to the next generation. But even though a “retired” pastor continues to serve, it won’t be quite the same as being in a full-time position. And of course, he will no longer be drawing a salary, which makes retirement stewardship so necessary.
When a pastor retires, it’s usually a good-news/bad-news situation, much like it is for everyone else. The good news is that retirement is the beginning of a new stage of life with the opportunity to do things that the pastor didn’t have time for when he was working full-time. The bad news is that life, as he knew it (and probably loved) as a full-time pastor of his church, is ending.
I have some pastor friends who are nearing retirement and one long-time friend who recently retired. The senior pastor of my church, whom I mentioned above and is also a good friend, is just beginning a well-planned, year-long transition out of that role. Some pastors are better prepared than others, both financially and emotionally. My pastor has been thinking about and planning his transition for a few years now. It hasn’t caught anyone by surprise. He was very wise and thoughtful to plan – for his sake, the sake of the other staff pastors, and especially the good of the congregation.
But some pastors won’t be very well prepared when that time comes. The lack of preparedness may be due to unforeseen circumstances, or a lack of planning, or both. Regardless, the sooner a pastor starts planning for retirement (and his succession) the better for all concerned, even if it isn’t imminent.
Pastors face significant challenges in planning for retirement
The same powerful forces that are at work and that make planning and preparing for retirement necessary for you and me are just as important to pastors. Things such as increased longevity, the need for income for life, taxes, inflation, the uncertainty of investments, and escalating healthcare costs, are all in play.
Many pastors aren’t ready for retirement because they often don’t have a lot of home equity (if any), or a pension or a sufficient retirement income from savings. Most will not receive a pension in the traditional sense, and they may or may not receive Social Security benefits. A lack of financial literacy can also be a factor. Pastors are theologians, preachers, teachers, managers, and counselors, not financial professionals. They focus on spiritual things and the people they serve, not necessarily on learning what they need to know about planning for retirement.
I also think personal finances, including retirement planning, can be “theologically challenging” for some pastors. On the one hand, their calling is to serve God and the Church, so finances tend to not be a major concern or influence in their work or life. On the other hand, financial needs and challenges can be very real and sometimes even stressful. So pastors may, at times, feel conflicted or ill-equipped to deal with these problems and, at the same time, may not know what to do or where to turn for help.
Unfortunately, the financial services industry doesn’t always make things any easier. It tends to over-complicate matters to the point that pastors think they have to go to highly compensated, sales-commissioned “experts” to tell them what to do. That is not to say that I don’t think a pastor should seek out professional help if he needs it – he definitely should. But commissioned financial salespeople may guide him toward overly complex or costly solutions. Instead, he should seek out a fee-only financial planner or advisor who is totally objective and unbiased. And for reasons I’ll discuss later, it would be best if that person was not a member of his congregation.
It all starts with paying them a fair salary
Two new pastors were recently ordained in my church. In our small denomination, when a man is ordained as an elder (vocational pastor), there is an exchange of vows. One of the vows that the congregation makes to the pastor is as follows: “Do you promise to supply him with whatever material support he may need to fulfill his ministry among you?”
This vow mainly concerns financial support, which for most of us would be in the form of tithes and offerings. We pledge to support those who labor in our behalf in a way consistent with the pastor’s roles and responsibilities, experience, and education – a fair salary with benefits based on an appropriate set of guidelines.
I’m not concerned that any of my pastors are in financial trouble. As far as I know, they are all able to take care of their families and lead frugal, generous lives. And I also think they are paid a fair salary and receive fair benefits. You may have the same perspective on your own pastors’ situation. But what you and I can’t know, necessarily, is whether it’s enough. Is it enough for them to fulfill their ministry among us? Is it sufficient to be able to retire with dignity? And how much is enough, anyway?
Some might define enough as just what is needed to meet the pastor’s basic needs (food, clothing, shelter, transportation, etc.). Others may go further and include things like healthcare and retirement benefits, vacation and sick time off, and enough money to allow for recreation and entertainment, an annual vacation, books, a decent car, etc.
Dr. Wayne Grudem, writing in an article for Christianity Today, said that after he had looked at a couple of key New Testaments verses on the subject, he found that although there is often some disagreement about this, they put forth a principle of “abundant generosity that was far greater than [he] had imagined (I Timothy 5:17, 18).” He went on to say that, in effect, the Bible is saying that a pastor deserves a fair wage and then some because they work full-time “in the highest and most important calling God gives,” and that, “Certainly, his work is worth at least twice what other people get!”
Dr. Grudem goes on to make clear that he is not saying that the Bible commands churches that they have to pay their pastors a double salary. What is more important, according to the Bible, is that the work he does makes him worthy of it. And of course, the salary that any particular pastor receives can be based on a variety of factors, including church size, income, location, the number of paid staff, etc.
In further discussion about what is enough, Dr. Grudem had this to say,
If I take my wife out to dinner (using money that the Lord, in whatever way, has made it possible for me to have), shouldn’t I be sure that my pastor has enough money to take his wife out to dinner occasionally as well? If I buy some new clothes, shouldn’t I be sure my pastor has enough money to buy some new clothes too? If I take my family on a special vacation, shouldn’t I be sure my pastor can give his family a special vacation too? When we begin to think about all the gifts the Lord has given us, our list of ‘all good things’ begins to get very long indeed.
Basically what he is saying is that a pastor’s salary should be at a level that would permit him and his family to enjoy the same non-essentials that most of his congregation takes pleasure in, recognizing that not everyone in his church is at the same income level nor do they all enjoy the same things. In that sense, a salary that represents an estimated median income of the congregation as a whole (50 percent make more, 50 percent less) may be a good way to go. If the majority of families in a congregation are making $75,000 per year, is it fair to pay the pastor only $45,000? Perhaps a salary in the $60,000 to $70,000 range or more would be appropriate if the church can afford it.
But aren’t most pastors overpaid?
We need a reality check on this one. Sure, there are the sensational reports of the TV evangelist that makes millions, but salary data compiled by Richard Hammar in his latest statistical report, 2016-2017 Compensation Handbook for Church Staff, suggests that the vast majority of pastors are not overpaid. Most are paid very near the average U.S. income of $50,000, and many are paid far less.
Art Rainer, Vice President for Institutional Advancement at Southeastern Baptist Theological Seminary and author of the book, “The Minister’s Salary: And Other Challenges in Ministry Finance,” described the results of his survey:
We did an informal survey of over 100 pastors. We simply asked them anonymously questions about their personal financial condition. Over 80 percent of them said they felt financial burdens. Many of them were using their credit cards to pay regular bills because they had no cash. Very few of them had any savings at all –not just contingency savings, but any savings. The survey asked if they needed a raise. Most of them said yes. We then asked if they had broached the subject of an increase with anyone in the church. All of them, that’s 100 percent, said no.
Rainer echoed Dr. Grudem’s sentiments about pastors’ salaries when he wrote,
Be as generous as possible. Some churches seem to want to pay as little as they can. With these heroes, why not take an opposite approach? Pay as much as you can without hurting the financial health of the church.
I say AMEN to that!
I have no direct experience working on any pastoral compensation committee or in hiring pastors or anything like that. That is not how my church operates. But I do have relationships with pastors, so I know that they have to deal with the same things the rest of us do: balancing their household budgets, giving, and saving for retirement.
What about retirement?
1 Cor. 9:14 says that the Lord Himself has commanded that, “those who proclaim the gospel should get their living by the gospel.” This obviously applies while they are actively pastoring, but I think it also pertains to their retirement as well. Pastors have the same responsibilities that the rest of us do to plan and prepare for needs that they know will have to be met in the future (Proverbs 6:6-8), but they should also have access to the same benefits, tools, and services that most of the rest of us do.
Sadly, a fair number of full-time pastors receive no retirement benefits at all. According to the Compensation Handbook cited above, only 44 percent of solo pastors (smaller churches), and 64 percent of lead and senior pastors (larger churches) do receive retirement benefits, leaving 56 and 36 percent, respectively, who do not. (Benefits, in this case, refer primarily to some kind of retirement savings plan). We should all be rightfully concerned for any pastors, especially those in smaller churches, who serve faithfully and sacrificially for 30 or 40 years and have no retirement plan. Even if they desire to pastor for the rest of their lives, age and health-related problems can make that difficult if not impossible.
In his book, Art Rainer further explains why retirement planning can be such a challenge:
Many ministers have no financial training. Their educational path may have included Bible college and seminary. Getting any business training in those institutions is rare. Some ministers even have an aversion to learning about finances. Most churches don’t have sophisticated benefits plans like corporations. They often put what they can toward the minister’s retirement. Some put nothing toward retirement. Some ministers have an attitude that God will provide regardless of their stewardship. While that attitude has no biblical basis, it is still pervasive in some ministry circles. Ministers are often reluctant to get a financial advisor to guide them through the morass of financial issues, and retirement is one of the more complicated. As noted earlier in this book, many ministers are not paid adequately. They are unable to contribute to a retirement plan.
According to Jim Richard, Director of the Stewardship Services Foundation, a fully funded retirement plan, when combined with Social Security, would give a pastor the 80% of pre-retirement income that most retirees (and most others, for that matter) would aspire to. That’s assuming he has a debt-free home, which I would say is an important goal for any retiree. If the pastor has opted out of Social Security, which Mr. Richard doesn’t advise, his retirement savings plan has to be even more robust. He further recommends that
…the plan begins as early as possible with a minimum annual contribution of $2,400 building to $6,000 as soon as possible, and even more, if he starts the plan after 40 years of age. Pastors should not be in IRA’s or Roth IRA’s. They should be in a 403(b) pension plan where the deposits are made by the church which exempts the amount from self-employment tax and makes the distributions eligible for housing allowance upon retirement which would shelter it from Federal and State Income Taxes.
Of course, these amounts are just a suggested guideline, and each church can do what is most appropriate for them.
As shown in the chart below, there are three basic types of retirement plans available to churches: Section 401(a) qualified plans (pre-tax), Section 403(b) tax sheltered annuities (pre-tax), and nonqualified retirement plans (after-tax, such as savings accounts and annuities). In general, 403(b) plans, which both Mr. Rainer and Mr. Richard prefer, tend to be favored by churches (and other non-profits) because they offer more flexibility than 401(k)s.
A business employee making $50,000 per year and contributing 6 percent to a 401(k) with an employer match of 100 percent of up to 6 percent of salary would be able to save $6,000 per year or 12 percent of their gross income. That is within a reasonable range to be able to retire at age 65 with enough savings to provide 80 percent of pre-retirement income.
But a pastor with a salary of $50,000, who designates 6 percent for retirement while the church contributes no matching funds, would only be contributing $3,000 per year or 6 percent of salary. That would most likely not supply 80 percent of pre-retirement income at age 65 and would put the burden on the pastor to contribute an additional 6 percent from salary, which could cause significant strain on his finances.
Home ownership, instead of the “parsonage” concept, is becoming much more common. All of the pastors in my church own their homes. Homeownership and a paid-off mortgage by retirement age is a great way for a pastor to reduce housing expenses in retirement and also build equity that could be tapped in the future if needed.
Plus, they are still entitled to a “housing allowance,” which is very beneficial to pastors because it permits them to exclude their housing costs from federal income tax. (They are not, however, exempt from the minister’s self-employment tax…more on that later.) In addition to the housing allowance, there is a double deduction for mortgage interest and real estate taxes, which also helps a lot.
These tax benefits certainly help a pastor’s financial situation, but keep in mind that a young pastor with a large family who is on a relatively small salary wouldn’t have paid a lot of taxes anyway.
Social Security and the self-employment tax
Pastors have the option of not contributing to Social Security. If they don’t contribute, they won’t be eligible for Social Security benefits when they retire. As we all know, such benefits are an integral part of most people’s retirement plans.
Some opt out, and some don’t. The unique thing about a pastor and his Social Security and taxes is that he is considered a “dual status employee.” That means that he is an employee for income tax purposes and self-employed for Social Security and Medicare purposes, which is called the self-employment tax. So, unless a pastor opts out, he is automatically covered and must make regular payments as any self-employed person would.
Because the church does not pay one-half of the amount the way other organizations do for their employees, under current IRS rules, the pastor pays 12.4 percent for Social Security and 2.9 percent for Medicare, for a total of 16.3 percent. So if they opt in, pastors must pay double what other employees do.
Many churches address this by adding to his salary an amount that would cover the 8.15 percent that the church would pay if he were not a pastor. Because he must pay taxes on the additional 8.15 percent, and based on a 15 percent tax bracket, a proper increase would be closer to 9.5 percent. The pastor can add that amount to what he is already saving for retirement, which is highly advisable, but that will require consistent financial discipline.
For those that do opt out, it can’t be a purely financial decision. If it were, most would not. It’s more of a matter of principle or conviction. According to the IRS, the reason has to be, “Because of your religious principles, you are conscientiously opposed to accepting, for services performed as a member of the clergy, any public insurance, including Social Security.”
The most important thing here IMO is that the Social Security program is actually pretty good, and for some pastors, the benefits he receives upon retirement may be his only source of income. For those that do opt out, retirement stewardship becomes even more important as they will have to make adequate provisions for retirement income, disability, and Medicare insurance.
Recommendations to help pastors with their retirement stewardship
Retirement stewardship is important for everyone, and it is a life-long endeavor. As we have discussed, it can be particularly challenging for pastors. The following is a list of recommendations that may be helpful to pastors and those in the church who care about them:
- First and foremost, pray for your pastor(s). As we have discussed, they have a challenging job. Their finances can be challenging too. So pray for them. Pray that your church will have sufficient resources to support them. Pray that they will be prudent with their finances and especially that they will practice wise retirement stewardship.
- Pay pastors a fair salary. Congregations, deacons, church boards/committees, and elders should do all they can to compensate their pastors fairly. The salary should meet the family’s needs without their wives having to work. That includes providing adequately for bi-vocational pastors who work “part-time.”
- Provide a comprehensive benefits package. Pastors need an adequate healthcare insurance plan for them and their families as a tax-free benefit. They also need disability insurance, which provides for income replacement due to a disabling illness or accident that protects him and his family (can be a tax-free benefit). The pastor should also have life insurance. Perhaps a minimum of two times annual salary of term life insurance paid by the church. The pastor should then have the opportunity to purchase additional term life as needed, perhaps in the $500,000 range.
- Pastors should strongly consider owning their homes. Most churches have gotten out of the parsonage business, and its best for the pastor for a variety of reasons. The goal is to have a paid-for house at retirement, which reduces housing expenses but also make home equity available in retirement if needed.
- Pastors should take full advantage of the tax benefits of home ownership. Federal income tax law provides for generous benefits to the pastor who is buying his home. Income taxes can be reduced and possibly eliminated due to the housing allowance and additional deductions for mortgage interest and real estate taxes.
- The church should provide a retirement plan for pastors. The church could fully fund it or could help fund it by supplementing the pastor’s contributions. The goal is to replace 70 to 80% of the pastor’s income in retirement, including Social Security (if available). That typically requires an annual total contribution of 10 to 15 percent of gross income, starting at age 25 to 30, larger percentages if starting later (age 35 to 40).
- Saving for retirement needs to start early. The church and pastor need to begin funding his retirement as soon as possible. But it should at no later than age 35 to 40 at 15 percent of salary, and then increase annually to meet specific targets. If he has opted out of Social Security, the contribution level may need to be higher.
- The 403(b) retirement plan seems to be the best choice. Although there are multiple options, the 403(b) plans are thought to be most advantageous. Pastors can contribute up to $18,000 a year ($24,000 including the “catch-up provision” if they are age 50 and over). The distinct advantages of the 403(b) are the church makes the deposit (which can be from salary or in addition to salary), the amount deposited is exempt from the self-employment tax, and the distributions are eligible for the housing allowance at retirement. Pastors should not be in IRA’s and rarely Roth IRA’s.
- Assist the pastor in making wise investment choices. He can invest in a 403(b) using in the same vehicles as any qualified or non-qualified retirement accounts (stocks, bonds, etc.). I strongly suggest no-load mutual funds and ETFs with low management fees. An experienced, financial planner/advisor can help. However, pastors should be wary of commission-based stock and insurances brokers and opt instead for fee-only planners/advisors that they trust. Also, pastors should be very cautious about investing with people in their congregations; it can quickly become a sensitive situation. If he’s not happy wants to make a change, he runs the risk of offending a member of his church. That said, seeking wise counsel from someone in the church is always a good idea.
- Pastors should only use a Roth IRA under certain circumstances. The Roth IRA is a very a popular retirement savings vehicle, but it should only be used by pastors who have opted out of Social Security and pay no federal income tax, or by pastors who are maximizing their 403(b) contributions and want to set aside an additional amount in a separate account.
- Opting out of Social Security is an individual, personal decision. The decision whether to opt out of Social Security should be an individual one with no right or wrong answer. If a pastor does opt out, it would be great if the church would be willing to add to his income the amount that would have contributed on the pastor’s behalf were he not employed in a non-profit organization. Then the pastor should add that to what he is already saving for retirement to get his total contribution up to the 12 to 15 percent range of gross income.
- Paid time away. Pastors need to have paid time away, just as most other professional salaried employees do. That would include time off for things like a family vacation, but also for conferences and other training and development opportunities. Many churches also provide for paid sabbaticals for their pastors.
- Consider helping retired pastors who are struggling. The IRS permits the giving of non-taxable gifts to retired pastors under certain circumstances. It is a unique provision that isn’t available in any other profession. But it is not the same as paying for part-time work or an agreed-upon retirement payment plan. Giving is based solely on the pastor’s need and the church’s willingness and ability to pay.
I realize some of these things can be difficult for some churches, especially smaller ones. However, the church has a responsibility to care for their pastors and families in a way that is fair and aligned with similar jobs in the business world. To “assume” that a pastor should be willing to accept anything less just because they are “in the ministry” is, in my opinion, inconsistent with what is outlined in scripture.