Walking on the hot sands of a tropical beach, feeling the breeze at your back as you watch the palm trees sway and hear the crystal clear water crashing as the waves hit the shore. Or maybe it’s packing up the essentials into an RV, filling up the tank, trekking across the country, and camping at every National Park in America. Or it could be indulging in that hobby put off for such a time as this. Ahhh retirement. For everyone, it means something different. It could be more time with family and friends, travel, hobbies, resting, or even picking up a new career or returning to school.
The Myth of Retirement
The reality of retirement is very different than the ideal offered when I was growing up. The myth given to me was to work hard until 65, and then you could retire and live on Social Security. It’s hard not to laugh while writing that because we all know that Social Security is not a retirement plan. The government knew this too and, in 1974, passed the ERISA (Employee Retirement Income Security Act), allowing workers to save money in tax-advantaged retirement plans like a 401(k) or 403(b). Retirement is not a rite of passage at a certain age; it’s an amount saved based on the lifestyle you want to live. Sadly, most Americans don’t have nearly enough to retire and maintain their current standard of living. According to a 2023 Yahoo! Finance report, only 14% of Americans have $100,000 or more saved for their retirement. The US Census Bureau reports a median income of $70,784 in 2022. An advanced finance degree isn’t necessary to understand that a retirement savings of $100,000 will not fund the dreams most have when dreaming about their golden years and, if not remedied, could lead to a major financial crisis.
Housing Allowance/Dual Status
Before discussing retirement for pastors, a quick understanding of pastoral pay is essential. Licensed or ordained pastors are allowed to designate a portion of their ministry income toward a housing allowance. When it comes time to file taxes, the predetermined housing allowance amount does not show as income as long as there are legitimate receipts to substantiate the expenses. This tax advantage deems the pastor dual status, meaning they become self-employed for FICA, but receive a W2 for Federal and State income. That means the church does not pay the employer portion (7.65%) for FICA.
Employer Contribution
As with every profession, even pastors reach a point when they must retire. But for many, the lack of finances in a retirement fund forces pastors to delay this essential life transition. The NAE (National Association of Evangelicals) cites 58% of pastors surveyed have less than $50,000 in a retirement fund. Churches must take better care of the ones called to lead the church. The Old and New Testaments are clear that the worker is worthy of his wages (Leviticus 19:13, Luke 10:7, and 1 Timothy 5:18). While for-profit organizations offer a 401(k) retirement plan, non-profit organizations, like churches, need to set up a 403(b) plan. These qualified plans provide tax-advantaged savings for the employee and allow the employer to contribute on the employee’s behalf. Since many pastors are dual status and the church does not pay the employer portion of FICA, it makes sense the church contributes 7.65% of the employee’s salary into a qualified plan. Of course, there are limits to the amount the employee and the employer (the church) can contribute in any given year, and churches must comply with these standards found on the IRS website.
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