5 Steps to a Minister's Retirement Plan

(Unsplash/ Max Harlynking)

Everyone understands the concept of retirement on a general level: You save money while you are working, and when you turn 65, you stop working and have money in the bank to live off of until you are called to heaven.

While most people know this information, they don't apply the knowledge they have been given. I'm guilty of this myself!

When I was in school, my professor told the class, "If you put away $5,000 this year, by the time you're ready to retire, you will have over $3 million in the bank saved, and you can live your best life."

Of course, my fellow classmates and I were excited about the numbers! But in a class of around 30 students, only a handful of us took that advice to heart and applied it.

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From my experience speaking with hundreds of pastors, many do not have a retirement plan in place. Most churches only pay the operational expenses, which may only include a salary for the pastor and ministerial staff.

So how many churches actually build a retirement plan into their minister's compensation package?

When I started doing research on the topic, the information I found was shocking! I'd like to share beneficial resources that could make a world of difference for anyone in ministry who plans to retire one day.

My challenge to you is not only to read this blog but to apply it. In the end, we will show you how to get this plan started.

Are you ready to change your future? Great! Let's dig in.

5 Steps to a Successful Retirement Plan

The work pastors do is priceless—but many do not get paid what they are worth. While not every church can afford to pay its pastor their fair value, they can still set them up for success during and after their tenure. Ministers should have peace of mind knowing their families will be taken care of no matter what life may bring.

Here are five steps to consider taking to create a retirement plan for a clergyman:

—Create a compensation agreement.

—Calculate the retirement fund annual and end goal.

—Implement housing allowance and apply for self-employment tax exemption.

—Assess current investments.

—Execute the plan.

1. Create a compensation agreement. A compensation agreement is a contract between the pastor and the church. A retirement plan is put in place within this contract, which must be signed before any other items can go into effect.

The first important item to consider is whether or not your pastor has a compensation agreement as of today. If you answered no, don't worry. You can call us at StartCHURCH at 833-609-5687, and our specialists can create one for your pastor. If you answered yes, congratulations! You can check one item off your list.

In the compensation agreements that we create at StartCHURCH, several benefits are reviewed, including:

—Cafeteria plans.

—Time off.

—Taxable and nontaxable fringe benefits.

—Educational assistance.

—Dependent care assistance.

—Insurance and medical reimbursement.

—Housing allowance.

Our compensation agreement service also covers retirement, succession and even death plans. We cannot tell you what to do as it pertains specifically to your situation, but we can guide you on how to ensure the agreement contains the right language.

The compensation agreement also includes a table that will break down all of the benefits provided to the pastor. The one line we will really examine is the retirement plans (403(b), 457, SIP or IRA).

Types of Retirement Plans

There are many types of retirement plans that are popular among church employees. We will not go into great depth, but listed below are a few commonly found in financial portfolios:



—Non-qualified deferred compensation plans.

—Tax-sheltered annuities (403(b) plans).

—Church retirement income accounts.

—Qualified pension plans.

—401(k) plans.

—"Rabbi Trusts."

2. Calculate the Retirement Fund Annual and End-Goal

"Write the vision, and make it plain on tablets, that he who reads it may run" (Hab. 2:2).

The next step is to calculate the retirement fund annual and end goal. However, retirement income is not taxed until it is actually in a bank account and ready for use. So, how do you calculate the amount of money someone needs for retirement? The short answer is: You can't really know how much someone will need for retirement. The good news, though, is you can predict how much they will need.

My pastor has a large family. Theoretically, when he turns 65, all of his children will be out of his home, and it will just be him and his wife. There will be fewer expenses for them at the age of 65 than if he were to retire at 50. When he turns 65, my pastor and his wife could live in a two-bedroom home and be comfortable without the major expenditures of a five-bedroom house.

Here's an example: Let's say a five-bedroom home, two vehicles and all of his typical expenses add up to $5,000 per month. If I were planning a retirement fund for my pastor, I would budget a plan for at least $60,000 per year. We want our pastor to live long, so we take that $60,000 and multiply it by 20 years to get a goal that we can set by the time he retires. In this case, $1.2 million should cover him for 20 years. That's pretty good. I think the pastor and his wife would be very comfortable. Now, inflation does play a role in determining a retirement plan. Still, at least at this point, you have figured out a baseline goal for what your pastor needs annually. You have now laid the foundation and can build from there.

Please keep in mind this is just an example. If you really want to know how to determine the best retirement plan for yourself, please seek the advice of a financial expert. You can also reach out to a lawyer through the StartCHURCH Attorney Network, and they can provide some legal expertise.

Stevonne German is a church-planting specialist at StartCHURCH. She helps pastors learn what they need to create a firm foundation they can build on while making sure they are compliant in the process. Stevonne enjoys hearing the success stories of pastors and ministry leaders who have established or reestablished their organization.

For the rest of this article, visit startchurch.com.

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