If you’re reading this, you’re probably a licensed minister who has opted out of Social Security. I’ll bet you were thrilled at the opportunity to opt out of a system that is facing a perilous future and is quickly depleting its reserves. But was it really the right move for you? And are you maintaining your integrity by doing so?
Why Did You Opt Out?
I certify that I am conscientiously opposed to, or because of my religious principles I am opposed to, the acceptance (for services I perform as a minister, member of a religious order not under a vow of poverty, or Christian Science practitioner) of any public insurance that makes payments in the event of death, disability, old age, or retirement; or that makes payments toward the cost of, or provides services for, medical care. (Public insurance includes insurance systems established by the Social Security Act.)
I certify that as a duly ordained, commissioned, or licensed minister of a church or a member of a religious order not under a vow of poverty, I have informed the ordaining, commissioning, or licensing body of my church or order that I am conscientiously opposed to, or because of religious principles I am opposed to, the acceptance (for services I perform as a minister or as a member of a religious order) of any public insurance that makes payments in the event of death, disability, old age, or retirement; or that makes payments toward the cost of, or provides services for, medical care, including the benefits of any insurance system established by the Social Security Act.
I certify that I have never filed Form 2031 to revoke a previous exemption from social security coverage on earnings as a minister, member of a religious order not under a vow of poverty, or Christian Science practitioner.
I request to be exempted from paying self-employment tax on my earnings from services as a minister, member of a religious order not under a vow of poverty, or Christian Science practitioner, under section 1402(e) of the Internal Revenue Code. I understand that the exemption, if granted, will apply only to these earnings. Under penalties of perjury, I declare that I have examined this application and to the best of my knowledge and belief, it is true and correct.
Most pastors that I know opt out of Social Security based on the principle of biblical stewardship. They believe that the Bible commands them to be good stewards of their money, and giving it to the government to manage is not wise stewardship. Many people like to argue about this, but that is not the point of this article.
For the sake of this article, I am going to assume that you opted out of Social Security for the reason stated above. That means that you believe yourself to be a better financial steward than the government, right? Does your reality back up that belief? Are you really being a good steward of the money God has given you?
What The Government Offers Through Social Security
To see if you’re doing a better job than the government, we first have to see what it is they are doing. The big thing everyone thinks of with Social Security is retirement income, so let’s take a look at that first. This is not a precise and exact analysis, but it should be enough to show you how you’re doing.
For our calculations, we are going to assume you’re completely average when it comes to benefit amount and lifespan. At the end of 2015, the average Social Security payment to retired workers was $1,342. The life expectancy of a 65-year-old today is around 20 years. That means that you would get about $322,000 total in retirement benefits. Are you on track to do better than that?
How To Do Better Than The Government
What would it take you to match what the government is offering? If you’re starting young, at age 30, and earning a 6% return on your investments, you need to be saving about $200 a month.
What if you’re not quite as young? Starting at age 40 with the same return, you need to save double that, or $400 a month. I can just imagine you 50+ year-olds cringing right now. At 50, with the same return, you need to be saving $900 a month.
Those numbers don’t even factor in taxes. The above Social Security payments do not meet the minimum threshold to be taxed, so they would be tax-free. Depending on the type of retirement account you use, your savings may be taxable. A Roth IRA is not taxable upon withdrawal in retirement, so the numbers above would be accurate. With a traditional IRA, your withdrawals will be taxable, so you will have to save enough to pay your taxes in addition to the amounts listed above.
Additional Social Security Benefits
If you’re starting to get uncomfortable, brace yourself because there is more. Retirement income is not the only benefit that Social Security provides. They also provide disability benefits, survivor benefits, and free Medicare Part A (hospital insurance).
Therefore, to match the government’s stewardship, you need disability insurance, life insurance, and to be saving enough to pay for your health care in retirement. Read this article for a more in-depth look at the true cost of opting out of Social Security.
How Does Your Stewardship Compare To The Government’s?
So, do you have insurance in place? Are you saving enough? Pull up an investment calculator like this one and punch in your numbers. How do your projections compare with the numbers above?
Remember, the above numbers are just what it takes to match the government. If you honestly believe they are poor stewards and you take biblical stewardship seriously, you should be doing significantly better than them. This is the moment of truth. Do your numbers substantiate your stated convictions? Are you really being a better steward than the government?