Many pastors, like most Americans, are planning for retirement. When asked how much they have saved or set aside in their retirement plans, 21 percent responded “nothing”. This figure indicates too many are failing to take adequate steps toward making their transition smooth and fruitful.
Pastors can build substantial retirement funds through tax-deferred retirement plans. How much they save will depend upon three factors: annual contributions, rate of return achieved and duration of membership in their plan.
Churches should seek to maximize the retirement dollars that are invested for their pastors through church retirement plans. One effective method of doing this is providing clergy retirement plans tailored specifically for ordained ministers that include features like tax savings on contributions; tax-free growth of funds invested; and tax-free distributions from housing allowance.
An innovative structure called a trust account offers clergy retirement plans these special benefits. The church, rather than their pastor, establishes and manages this account and oversees investment decisions on its behalf, thus cutting administrative burdens while saving costs. Furthermore, each plan account can be carried over when changing jobs or retiring – another advantage.
Consider providing an annual fixed contribution for the pastor’s retirement fund. This could be either a flat dollar amount or percentage of salary that can increase as their income does. Furthermore, churches can offer gift giving options so members can directly donate directly towards his retirement fund.
Make sure your pastor takes advantage of any retirement contributions provided by Districts or Networks; these may represent substantial investments that form an important component of their retirement portfolio.
Discuss with your pastor the possibility of converting some or all of their housing allowance to regular salary so that retirement plan contribution calculations will reflect actual taxable income rather than housing allowance, increasing the amount invested in retirement accounts.
If your pastor is bi-vocational and works part-time in an industry offering them a 401k or pension plan, be sure to assess this option as well. Doing this will ensure all sources of retirement income are being assessed properly and enough savings have been set aside towards future security.
Given the dire prospects for Social Security, it is imperative that pastors consider alternative deferred compensation plans. While such an undertaking requires careful thought, it may be worth exploring in consultation with both an advisor and tax and legal professionals. It would also be advisable for pastors to share this plan with their bishop or leadership so as to alert the congregation of any additional support needed during these difficult times.