5 Costly Retirement Mistakes Pastors Make

As FaithStreet begins 2023, we are setting our focus on pastoral health. One of the areas that causes the most stress and confusion for pastors is finance, specifically retirement. So, we’ve partnered with the nation’s leading financial advisor for ministry professionals to bring you resources on retirement and other top pastor finance topics over the next few months.

Let's look at five costly retirement mistakes that pastors make.

#1 They opt out of Social Security.

The experts at Guardian tell us that this is quite common with pastors 50 to 70 years old, who are now looking at a big problem, specifically GIVING UP $3,000 to $4,500 a month for life in benefits.  Many pastors also opt-out of Medicare, which is very costly, if proper private insurance is available.

#2 They save for retirement with an IRA, or worse, Roth IRA, and not their 403(b)(9).

A 403(b)(9) account is unique to the ministry, and has powerful tax advantages rarely properly used by pastors to avoid unnecessary taxes working, which compounds in benefits at retirement.  Sadly, most pastors have never read the IRS Tax Codes, and this is usually not taught in seminary.

#3  They disinherit their spouse.

Pastors live in sacrifice, but they ought not sacrifice security for their spouse and family.  Knowing how to correctly get paid, retire and die without disinheriting their spouse is often misunderstood, leading to costly errors. Unfortunately, many times, this mistake is discovered too late.

#4 They rely on a local financial advisor.

Usually, the advisor is a well-meaning person from the congregation, with a local firm like Edward Jones.  This well-meaning advisor innocently moves their 403(b)(9) to an IRA, or worse, a Roth IRA, immediately costing the pastor all of his unique tax benefits and possibly hundreds of thousands of dollars.  

#5 They listen to Dave Ramsey for all their retirement advice.

Pastors have uniquely powerful financial advantages, if used properly.  One size fits all advice is costly for anyone, but can be financially catastrophic for clergy. Pastor retirement is different, but there’s hope, even if you’ve made a mistake or two.

Here’s the approach we recommend:

1) Learn the facts – educate yourself on the IRS Tax Code and Circulars.

2) Diagnose your mistakes – all too common. Even if you've made a mistake or two, you're in good company.  

3) Ask for guidance.

4) Make the necessary changes, guided by an expert in pastor retirement.

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Note: we created this post to help you learn more about finances, but it's not a substitute for professional advice. Before making decisions, be sure to talk to a financial expert. Although we do our best to keep the information accurate, we can't promise that everything is 100% accurate. So, use the information at your own risk.