Many pastors don’t have a solid understanding of how Social Security works and don’t think they need to because they have opted out. However, there are some things everyone should understand about Social Security, even pastors.
This year, an insurance company called MassMutual surveyed about 1,500 people between ages 55 and 65 to find out how well Americans nearing retirement understand Social Security. You probably won’t be surprised that 33% of the people could not pass the quiz and another 19% only passed with a D. Only 3% of the people surveyed answered all of the questions correctly. You should try your hand at the survey to see how well you do.
Most people don’t know a lot about how Social Security works and many pastors think they don’t need to because they have opted out. That is a big mistake. Even if you have opted out, you may be eligible for benefits and need to understand how the system works.
What Is Social Security?
Social Security is a safety net program enacted in 1935. It is a way by which society, through the government, financially assists older Americans, disabled workers, and families in which a spouse or parent dies.
Social Security was never designed to be a complete retirement program. On average, retirement benefits only replace about 40% of a worker’s income. Most retirees need at least 70% to maintain the same lifestyle.
How Does Social Security Work?
Social Security is not a savings program, where a worker gradually saves for retirement, like a 403(b) or IRA. As workers pay into the system, that same money goes out immediately in the form of benefit payments to others. The system is designed based on the assumption that there will always be enough workers contributing to cover the benefits that need to be paid out.
Who Is Eligible?
Eligibility is based on “credits” earned. Forty credits are necessary to be eligible for retirement benefits and you can earn up to a maximum of 4 credits a year. Therefore, you have to pay into the system a minimum of 10 years to receive retirement benefits. In 2020, one credit is earned for each $1,410 of wages, so you have to make at least $5,640 to earn the maximum credits. The numbers are adjusted every year due to inflation. In 2021, it will take $1,470 of earnings for each credit. Young people need fewer credits to be eligible for disability and survivors benefits.
How Are Benefits Calculated?
Retirement benefits are calculated based on your highest 35 years worth of wages. If you have less than 35 years, zeros are averaged in for the missing years. When you begin to receive benefits also affects the amount you will get. You can elect to receive retirement benefits any time between age 62 and 70. However, the longer you wait the higher your payment will be. Your actual benefit once you are retired will be adjusted periodically for cost-of-living increases.
You can set up an account online at ssa.gov to see your earnings history and estimated benefits. Their estimates are made assuming that you will continue earning at the current rate in future years. Unless you are retiring today, the numbers you will see are just estimates and can change. The closer you are to retirement, the more accurate the numbers will be.
Can You Still Receive Benefits If You’ve Opted Out?
Even if you have opted out of Social Security you can still receive benefits. If you have enough non-ministerial wages to have earned 40 credits, you will be entitled to benefits based on those earnings. Also, if your spouse has earned at least 40 credits you will be eligible for spousal benefits, which for retirement are up to half of the working spouse’s earned benefit.
Real Life Example
Let’s take a look at some real life numbers. I started working at 16 and stopped at 28 to raise a family. The numbers would look pretty similar if you started working at 16 and then became a licensed minister and opted out of Social Security at age 28. As such I will use my own numbers as an example.
Earnings History
This portion of my work history shows that I paid into the system for 13 years. My benefit is calculated based on my top 35 years’ worth of earnings. If these were my only earnings, my average annual income over that period is $5,325 (though wages are adjusted for inflation when calculating actual benefits). That’s not a whole lot. I don’t have to earn very much more between now and retirement to increase my retirement benefits.
Estimated Benefits
Based on the above earnings history and the assumption that I wouldn’t have any more earnings, these are my estimated benefits. Note that there are different estimated retirement benefits depending on when I begin receiving them. They are calculated based on life expectancy so that someone who lives the exact life expectancy for their age will receive the same total amount whether they begin early or wait for a larger payment.
Also, even though I had left the workforce, I was still eligible for disability benefits in 2016 (when I pulled the numbers), since I hadn’t been out of the workforce very long. Now, even though I have earned a few credits over the past couple of years, I am no longer eligible for disability benefits because of how they are calculated. Of course, if I continue to earn credits, I will be eligible again soon.
How It Affects Pastors Who Have Opted Out
Why does this all matter to pastors even if they’ve opted out? Well, you may not realize that you worked outside the ministry long enough to be eligible for benefits even after opting out. It’s good to know if Social Security disability payments are an option, too, if something happens to you.
Or what if you have 9 years’ worth of non-ministry work? Earning a few thousand on the side could push you over the line and make you and your family eligible for benefits. That could be huge if you’re nearing retirement age and haven’t saved.
It is important to know where you stand in regards to Social Security eligibility. A few small moves now could make a big difference for your family later in life.
To learn even more about Social Security, check out these articles:
How Do Pastors Opt Out Of Social Security
The True Cost Of Opting Out Of Social Security
What Social Security Spousal Benefits Can A Pastor Who Has Opted Out Receive?
25 Responses
Chris
June 18, 2018I opted out of social security at age 27, before I earned my 40-credits. I am about to begin work as an adjunct professor, and will earn $4,000/ semester. It sounds as though, for every $1,260/quarter I earn, I’ll accrue a credit. If I obtain my 40 credits in total, I’ll still vest my social security — regardless of having already opted out. Is that accurate?
Thank you!
Amy
June 20, 2018Yes, Chris, that is true. As long as you earn enough credits through secular work, you will receive Social Security benefits based on your secular work history, even if you’ve opted out for your ministerial income.
Dean Kennedy
September 26, 2018I opted out of Social Security in 1983, when I was first ordained. I had worked for several years prior to that and paid Social Security taxes. Since then I have worked in other jobs that were not exempt, so I have my 40+ credits.
I just applied to receive SS benefits, but my ministerial status was clearly unfamiliar to the people who reviewed my application, and it took them a couple of days to get back to me with the actual figure for my benefits. They concluded that all taxed earnings before 1983 did not count, so my benefits were calculated exclusively on earning since 1983. This has resulted in benefits several hundred dollars less than the benefit estimator had told me, which included earnings prior to 1983.
Question: is this a correct application of the law, or did they misunderstand something? I want to appeal the decision, but first I want to see for myself what the actual wording of the law is before I approach anybody about it.
Amy
October 1, 2018You are right. These kinds of issues are common because the ministerial exemption is unique and many Social Security Administration employees have no experience or training regarding it. The exemption only applies to ministerial earnings and has no effect on non-ministerial earnings regardless of when they were earned.
I personally know people who are living off of Social Security that they earned before entering the ministry. The Internal Revenue Code Section 1402(e)(4) states that the exemption from Social Security begins in the tax year that you have at least $400 of ministerial income. Clearly, it should not affect previous non-ministerial work. Here is a link to the text of the law:
https://www.law.cornell.edu/uscode/text/26/1402
Jim
October 2, 2018What do you do, hire an attorney? If your local social security office denies you (my spouse in this case)benefits from non-ministerial income because they say you opted out & signed form 4361, both of us did. How do we proceed?
Amy
October 5, 2018You can fill out this form: https://www.ssa.gov/forms/ssa-561.pdf to request a reconsideration of benefits. Have you checked the employment records on the Social Security Administration website that they have for you? If they are not accurate, you will have to show proof of what you paid into the system. Hopefully you have it in your records or can get it from a previous employer.
On the instructions for the form it says they can refer you to lawyers who handle this stuff, some for free.
Amy
October 8, 2018You can also insist on speaking with a “technical expert.” These are people that actually know the law regarding ministerial exemptions, unlike most Social Security employees.
Amy
October 22, 2018I now have a post on the subject: https://pastorswallet.com/how-to-appeal-a-social-security-benefits-decision/
Melanie
January 27, 2020I am a financial adviser trying to help a client with this issue. He opted out of social security but now that he is nearing retirement, he would like to be a “fill-in” pastor or an interim pastor and be paid through 1099 income for contracted work. Will he be able to pay into SS from that income of now being self employed so that he can get his credits built up?
Amy
January 27, 2020Melanie, for your client to start earning credits he would have to do secular work, not ministerial work. When a pastor opts out of Social Security it is for all of his ministerial work for his lifetime, not for a specific job.
Roymond
February 28, 2020While reading through this it occurred to me that as I understand it Medicare benefits depend on the same work credits as Social Security. Is this correct?
Amy
March 3, 2020Roymond, yes that is correct. The Social Security Administration determines eligibility for both SS benefits and Medicare and they use the same information for both.
Amanda
March 14, 2020If both my husband and I have opted out of social security, can our children not be on Medicaid?
Amy
March 16, 2020Amanda, your children should still be eligible for Medicaid even if you have opted out of Social Security.
B&B
June 11, 2020Hi Amy! THANK YOU! This is so helpful. My husband was encouraged to opt-out by our sending missionary organization in 1999. Now he is going to be hired by a church pastor with a different organization. Does this mean he is still opted out? Can he opt back in anyway? Or in order for him to qualify for any SS benefits he needs to earn those credits in a non-ministerial job (i.e. NOT the church?)? What about a seminary teaching? Thank you!
Amy
June 12, 2020B&B,
Once your husband opted out, that applies to all ministerial work regardless of the organization. That would also apply to seminary teaching, though it would not apply to a secular teaching position. The minister’s Social Security exemption is irrevocable unless it was made solely for economic reasons, which is not legal. If the decision was made solely for economic reasons, you can request that the exemption be revoked as explained here: https://www.irs.gov/irm/part4/irm_04-019-006r#idm140293839552944
Otherwise, to earn credits for Social Security eligibility he would have to do secular, non-ministerial work.
Andrea
November 30, 2020Thank you for this blog! So helpful when navigating SS. We opted out years ago, but looked into it recently and since my husband works as a painter we are working toward his credits now while we are still in our 30s. Very thankful for the posts you’ve written!
Amy
December 2, 2020Andrea, I’m glad you’ve found the blog helpful!
Rich Culp
October 23, 2021Hi Amy!
These posts have been helpful. I paid into SS for 19 years as a teenager and while in the military. Then went to seminary, started having kids, began pastoring a small church. In 2000, I was influenced by the treasurer of the small church to opt out of social security. 20 years later I have no idea if I signed 4361. It was a wonderful and busy time. 9 years later I was out of ministry for couple years and began paying into social security again. In 2013, I went back into full time ministry as a staff member of a large church and began paying into SS again. My SS earnings record clearly shows both the gap of 9 years and my return in 2013. Now that all the kids are out of the house and I am 56…I am not sure what will happen when I apply for SS in 10+ years
I imagine the easiest way to get answers about that question is to contact SS? But I want to seek some wisdom before I do that. In 2012…I did not take the time to know what I was getting into or perhaps getting away with.
rich
Amy
October 25, 2021Rich, I think the best thing is to contact SS directly. Opting out is supposed to be a lifetime choice, so I’m not sure how they handle it when someone starts paying in again. My only concern is that most people at SS won’t know the answer to your question. You will want to try to talk to a subject matter expert and it wouldn’t hurt to get their name and contact information just in case when you file in 10 years you are told something completely different.
Art
August 13, 2022Hello Amy,
The information you share is very, very helpful to many and I thank you for it!
Question: Could a pastor/minister who opted out of social security be hired by the church they pastor as an independent contractor and then pay their own social security income taxes and continue earning credits?
Daniel Tai
March 26, 2024Very helpful knowing about spousal benefits. My wife works while I’ve opted out. So I will receive half of what she gets for ss?
Curious for my situation. I have 36 years credits prior to opting out. Would there be any benefit for me to earn the remaining 4 to hit 40 or will the spousal benefits be better anyways?
Amy
March 27, 2024Daniel, it will depend on what your wife’s benefits are. I recommend setting up an account at ssa.gov for each of you so you can see your earnings history and estimated benefits. Many pastors I see are better off just claiming their spousal benefit, but that isn’t always the case.