4 Ways To Sabotage Your Financial Well-Being
January 2008
People who answer God’s call to the ministry don’t always consider financial know-how to be one of their job descriptions. But too little financial knowledge can cause ministers to make mistakes that can impact their future security. To avoid sabotaging your financial well-being, here’s a list of common mistakes you would be wise to avoid.
1. Failing to plan.
Planning doesn’t have to be complicated. The first step is the hardest — simply to realize the importance of planning. The next step is to create a habit of contributing to your retirement and savings accounts. And the last is to stay faithful. Consider your retirement contributions a tithe to yourself, second in importance only to your tithe to God.
It is important to remember that contributions made through salary-reduction agreements to the Church Retirement Plan are not subject to federal income tax until they are distributed after retirement. And ministers can receive housing allowance benefits from disbursements made from the Church Retirement Plan.
2. Accepting a “lump sum” compensation package.
With the “package” approach to financial support, you are given a lump-sum salary out of which you designate the amounts you need for salary and benefits. With this approach, you pay taxes on the lump-sum salary and then pay medical coverage and expenses out of the remainder. In short, you pay more taxes than necessary. On the other hand, if the church pays for medical coverage and life insurance directly, those premiums aren’t counted as taxable income. For more information about ministerial compensation plans, see the Planning Financial Support Workbook on GuideStone’s Web site, http://www.GuideStone.org.
3. Opting out of Social Security.
New ministers will sometimes be advised to opt out of Social Security to lower their tax burden. Unfortunately, they aren’t receiving all the facts. You can only opt out of Social Security if you have religious convictions against receiving any kind of publicly financed benefits. In most cases, ministers are not eligible for exemption and once exemption has been granted, the minister loses a major element of the retirement savings equation.
Income after retirement typically derives from three sources: Social Security, your employer-sponsored retirement plan and personal savings. Although Social Security cannot be considered the sole source of post-retirement income, it is a vital part of your retirement plan.
Opting out of Social Security means more than losing retirement benefits, however. Ministers who are exempt from Social Security will not be eligible for Social Security disability insurance and death benefits to minor children. While early disability may appear to be an unlikely event, according to Social Security Online, the 20-year-old worker has a three-in-ten chance of becoming disabled before retirement age.
4. Planning to earn income until God calls you home.
Ministers tend to view retirement in one of two ways. Either they plan not to retire, expecting to work until they die, or they look to retirement as an opportunity to pursue a new phase of ministry, namely mission opportunities. All too often they expect to fund their golden years through post-retirement ministry and, as a result, fail to plan ahead. But ministry dreams are no substitute for adequate financial preparation.
While God’s call to ministry doesn’t have an end date, it may be unrealistic to assume you will remain employable in your later years. Illness, family concerns or other unforeseen circumstances can interfere with plans to extend employment or pursue new ministry goals. Only wise financial planning will provide the necessary income to support you in your retirement, regardless of your retirement dream.
It doesn’t take too many wrong decisions to affect our financial well-being. But in the same way, it doesn’t take much know-how to build a strong financial foundation for the rest of your life. And remember, God is honored by good management of all our resources, including finances.
Kathryn Aragon is a marketing development writer at GuideStone Financial Resources of the Southern Baptist Convention.
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