Should Ministers Opt-Out of Social Security?

I have been asked many times from pastors, missionaries, and those in ministry about whether they should opt-out of social security. As a follower of Christ and financial planner, I have spent a lot of time researching, pondering, and praying over this question.

I will go through the problem, two points of view, some projections, and my perspective.

The Problem

Social Security and Medicare provide eligible participants with the following:

  1. Retirement benefits

  2. Disability benefits (if you become disabled before age 65)

  3. A death benefit to your survivors

  4. Medical care (Medicare)

Within the first two years of ministry, pastors can opt-out of paying the 15.3% self-employment tax. This is composed of a 12.4% Social Security tax and 2.9% Medicare tax. Employers typically pay half of these taxes (7.65%), but ministers and self-employed individuals must pay both halves.

The decision can be overwhelming. In the first two years of ministry, you may withdraw from the program. After that, you’re stuck with your choice for life, at least for all your ministry income.

However, this is not just a financial decision, it’s a moral one as well. Here is the language from IRS Form 4361, which is what you submit to opt-out:

I certify that I am conscientiously opposed to, or because of my religious principles I am opposed to, the acceptance 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.

The government made this provision exclusively for those who choose to withdraw on moral grounds, not financial ones. The language is the same as the conscientious objector provision in the military.

The Points of View

The decision is even more difficult when we get conflicting counsel. Well-respected Christian thought leaders differ in their opinions on what to do.

Dave Ramsey: Team Opt Out

Dave Ramsey has helped many people get out of debt and transform their household finances. Naturally, many people have sought his counsel on the matter. Here are a couple quotes from Dave’s site:

If I were in your shoes and still serving as a church pastor, I’d opt out in a nanosecond. That’s because sending money to the Social Security office is a bad way to manage your money for God.” (Here’s the link to the post)

There are certainly people within Christianity who think it's your moral obligation to give money to the government. I'm not one of them. (Link)

Dave recommends contributing your tax savings to a combination of retirement, life insurance, and long-term disability insurance. This is to make up for what Social Security would have provided.

Russell Moore: Team Stay In

Russell Moore, president of the Ethics and Religious Liberties Commission of the Southern Baptist Convention, provides an argument for remaining in Social Security. Many have sought his counsel on this subject as well. He wrote an article in 2010 expressing his views in depth. Here’s a quote from Moore:

Our Lord Jesus refuses to call his followers to withhold taxes from Caesar. “Render unto Caesar that which is Caesar’s,” Jesus announces (Matt. 22:21). This isn’t because Caesar is so monumentally important but because money is not. It isn’t worth subverting one’s witness or one’s God-ordained deference to authority.

The Projections

Although the decision to opt-out is supposed to be a moral one, it has huge financial implications as well. Let’s look at an example calculation for an individual making this decision.

For these calculations, we’ll use the following assumptions:

  • John, born in 1957

  • Works for 35 years (1989 – 2024)

  • Retires at 66 ½, his Social Security Full Retirement Age (FRA)

  • Average pay during working career = $50,000

Situation 1: Stay in Social Security

The projected Social Security benefit at age 66 ½ for John would be $2,311 per month. If you’re wondering how I calculated this, you can view the calculation process here. John’s spouse can also claim half of his Social Security benefit, or her own benefit, whichever is higher. So, if John had a non-working spouse, their total Social Security income would be $3,467 per month.

Situation 2: Opt Out of Social Security

What if John opts out of Social Security and invests the money he saves in taxes in a retirement account? I assumed that he made monthly investments into a retirement account with a 7% average annual return. The three scenarios below are if he invests all his tax savings (15.3%), most of his savings (10%), and some of his savings (7%). Keep in mind, you would not be able to invest all your tax savings since you would need to use some to pay for disability and life insurance to compensate for those lost Social Security benefits.

*The monthly income is based upon the principles of the  4% Safe Withdrawal Rule .

*The monthly income is based upon the principles of the 4% Safe Withdrawal Rule.

Comparison

Let’s compare the various retirement incomes for the different strategies:

NOTE: These calculations are estimates and actual Social Security and investment values will vary.

Based upon the comparison, it’s clear that in some situations, you can financially benefit by opting out.

My Perspective

Despite the projections above, I recommend remaining in Social Security. Here are 4 reasons why:

1.) Theologically and Ethically

I wholeheartedly agree with Russell Moore in his article. I love Dave Ramsey and the impact he’s had on so many people, but I think he’s wrong on this.

Ramsey’s argument is based on the accumulation and preservation of personal wealth. God wants us to steward his resources well, but his primary purpose is not our wealth, but his glory. Ramsey did not use a single scripture in either of his resources on the subject on his site. His statement that Christians do not have a moral obligation to pay taxes is directly contradicted in scripture.

It’s clear Jesus commanded his followers to pay taxes (Romans 13:7, Matthew 17:24-27, Matthew 22:17-21). We are supposed to pay even if the government is corrupt. Russell Moore noted that the Roman government was composed of polytheist dictator-worshipers. The taxes would have been used for many things contrary to Christian belief. Roman taxes would have been used to support a ruler who claimed to be a deity, as well as for crucifixion stakes. Jesus commanded his followers to pay taxes nonetheless. Jesus called for the payment of taxes, not because the government is so good or important, but because our money is not. The day that Christians are known for non-payment of taxes rather than the Gospel of Jesus will be a sad day indeed.

If you think paying taxes is so wrong, would you be willing to preach that in your congregation? Would you be willing to go to jail for it if it were not given as a choice? Are the members of your congregation sinning by paying into Social Security while you are not? If the answer to these questions is no, then you are not a “conscientious objector,” as the IRS exclusion states, and filling out that form would be a lie.

We can debate whether Social Security will be around when we retire all day. Even if you think it will not be, you should still contribute. Jesus knew the Temple wouldn’t be around for long, and he still paid the temple tax (Luke 21:15). Heck, the U.S. government may not even be around when we retire, but that doesn’t mean we shouldn’t pay any taxes. Fear of the future does not excuse us from the obligations of the present.

2.) Lack of Discipline

Although the decision to opt-out is supposed to be a moral one, it has huge financial implications as well. Based upon math alone, you should opt-out, right? Not so fast.

The projections assume that nearly all your tax savings get invested for retirement. You may think you are disciplined, dedicated, and committed for the long-haul. The truth is, you're probably not.

William Thornton, a retired Southern Baptist pastor, wrote an article exploring this topic. In it, he provides a quote from a member of the Mission: Dignity program, which helps retired ministers and spouses (emphasis mine):

In 20 years of assisting retired ministers on low incomes, I have met quite a few who opted out of Social Security at a young age. In spite of good intentions, savings were never set aside and these ministers reached retirement without sufficient resources. Not one of our Mission: Dignity recipients has ever told me, in retrospect, that opting out of Social Security was a good idea.

Put yourself in my shoes (those of a financial planner). Could you recommend that someone leave Social Security behind?

Imagine that you are a rock-climbing instructor. You are teaching students how to climb a 100-foot rock face. A student comes up to you and asks if he can climb without any safety ropes. The student insists that they can scale the wall faster without the hindrance of ropes. You know the skill of the student, but also the difficulty and duration of the climb. Would you permit the student his request? Of course not!

What if they get half-way up the wall and realize that they needed the ropes after all? What if they fall? What if the student isn’t as skilled as you thought?

In the same way, I can't bring myself to recommend opting-out of Social Security.  

3.) Risk

With investing comes risk. When you opt-out of Social Security, you exchange a fixed benefit for a variable one. Taking on investment risk for 35-years is not for the faint of heart. There are several factors that could reduce your retirement benefit if you choose to opt-out:

  • Being too conservatively invested – In the words of Young Jeezy, “Scared money don’t make no money.” An overly conservative portfolio can be a detriment to your long-term return potential. I’ve met too many people with retirement portfolios in cash or money market accounts to trust the average investor.

  • Making poor investment decisions – Although the market has averaged about 10% over the long-term, the average investor comes in at around 5%. Why? Because people make dumb decisions. They sell in fear at market lows and buy in overconfidence at market highs. Most of my job is keeping people from making dumb decisions.

  • Not investing enough – 74% of retirement success is based upon one thing: your savings rate. 1 in 3 Americans has less than $5,000 saved for retirement. Everyone loves to talk about investment risk, but the biggest risk is not saving enough.

  • Not investing soon enough – Compounded interest is no joke. Someone who starts saving at a younger age will have a much easier time saving for retirement than someone who delays. Too many people do not take retirement saving seriously until it’s too late.

In short, when you opt out of Social Security you give up one risk, government instability, for many more.

4.) Potentially Marginal Benefit

In the example above, John and his spouse would have a $3,467 monthly benefit together. Compare this with the $3,827 per month they would generate if they had invested all their tax savings instead. Is it worth the $360 extra income per month for 35 years of added risk and discipline?

Conclusion

In summary, I do not think ministers of the Gospel should opt out of Social Security. The theological and moral arguments against it are sound, the risks are many, and the financial impact can be marginal.



Resources

IRS Form 4361 (The Opt-Out Form)

Russel Moore’s Advice

Dave Ramsey’s Advice

Publication 517 (Detailed Info From IRS)

How Medicare Works for Pastors Who Have Opted-Out of Social Security