Monday, November 26, 2018

Retirement Planning for Ministers and Churches – Part 2

Consider these statistics:
  • According to the CDC, life expectancy in the U.S. has climbed from 66 in 1940 to 79 in 2016. This means that, on average, Americans need to plan for many more years of retirement than in previous generations.
  • Northwestern Mutual’s 2018 Planning & Progress Study found that 21% of those surveyed have $0 retirement savings, 40% have less than $25K saved.
  • Michal Grinstein-Weiss / Washington University study found that 45% of those surveyed had no retirement savings; the median retirement account balance was $3K, and only $12K for households nearing retirement

Clearly, retirement planning is important, and for ministers, the church has a responsibility to care for ministers as their role changes. In the recent webinar, 8 Essentials of Retirement Planning for Ministers and Churches, and in an eBook by the same name, ECFA lays out the roles of both the church and the minister, best practices to do what is right before God and man, and important concepts for practical application.

This 2nd post in a 2 part series will highlight Essentials 5-8. (Click here to read Part 1 on Retirement Planning for Ministers and Churches.)

Essential 5: Encourage Contributions

It is important for churches to help staff to understand the realities of longevity, the necessity for savings, and the freedom to go and grow during the future. Churches are urged to make participation and retirement preparation an expectation of every minister and staff person. Some churches may choose to automatically enroll individuals, consider an auto escalation feature for employee contributions, and strongly encourage ministers and staff to take advantage of any matching by the church for “free” money. It is also important to advise staff members with ministerial status about special tax advantages.

Essential 6: Recognize the Uniqueness of Ministers

There are certain aspects of compensation and benefits that are different for ministers than for any other church staff members. Two special benefits for those with ministerial status are:
  • Nonelective and elective employer contributions are excludable from income and SECA tax
  • Minister’s housing exclusion can be applied to distributions from denomination or church-sponsored 403(b)(9)
Churches can honor their ministers by helping them maximize all the tax benefits offered by careful planning.

Essential 7: Consider Planning Insights and Key Issues

There are four planning insights that are beneficial to consider:
  1. Spousal income – leverage any spousal income by saving when possible, and participating in matching retirement plans
  2. Social Security – be aware that whichever spouse is eligible for social security benefits, the other spouse is automatically eligible for 50% of that amount or their earned amount, whichever is higher
  3. Bi-vocational income – participate in employer match plans, but make the church plan your primary saving vehicle
  4. Living trust - create a living trust to avoid probate court and allow you to direct how your estate will be handled

Essential 8: Continue Planning

For larger churches with ministers not already covered under a denominational plan, consider a Retirement Plan Oversight committee to expand the oversight to more than one person, provide fresh perspective, and expertise in various areas. It is also helpful to add a person with little retirement planning knowledge to represent a lay perspective.

To help ministers make timely decisions that ensure a comfortable retirement, check out this Countdown to Retirement, provided in ECFA’s Knowledge Center.