Should Ministers Opt Out of Social Security?

We talk with a lot of pastors around here, and one question always seems to pop up: Can I opt out of Social Security? It’s a good question! Now, we’re not accountants, but we do know a thing or two about how to best manage the money God has entrusted to you (and how to do it legally too—big bonus there).

We’ll give it to you straight and you can decide what’s right for you. Just be sure to keep up with the tax laws (they’re always changing) and go over the specifics of anything you do with a tax professional.

All right, now that we’ve got the disclaimer out of the way, let’s get to it.

What Is Social Security?

Social Security is an automatic deduction taken from your paycheck if you live in the United States. And the money taken out of your paycheck is based on the amount of income you bring in. Pretty straight forward, right? But even though most people are used to hearing about Social Security, lots of them don’t know how it really works.

Here’s the play by play: The Social Security Administration collects money from people who are currently in the workforce and uses it to cover those who are getting Social Security checks right now. That means that if you’re paying Social Security today, it’s not sitting in a savings account waiting for you to collect it when you retire. Nope. It’s paying benefits for retirees, surviving spouses, and surviving dependents right now. Part of the Social Security you pay also covers disability benefits for qualified Americans.

But get this: Social Security was never meant to be a complete retirement plan. It was only supposed to supplement other money you hopefully saved on your own. But too many people have fallen into the trap of trusting that a Social Security check alone will get them through their golden years. Hint: That’s not a good plan. We’ll dive into that more later.

How Do You Opt Out of Social Security?

Here’s the long and short of it: You can legally opt out of Social Security on religious grounds—but you need legit reasons—like being in ministry. You can’t just say, “Eh, I want out because I want to do it myself.” That won’t cut it. You’ll handle opting out of social security by filling out a specific government form known as Form 4361. Just remember that this only applies to the income you get as part of your vocational ministry. That includes your full-time ministry salary and any extra self-employment income you receive through your other duties, like performing a wedding or a funeral.

And you’re going to want to pick up a copy of something called Publication 517 from the IRS too. This document deals with Social Security and other tax information for members of the clergy and religious workers. Look, it’s definitely not the kind of thing you want to read on your beach vacation. In fact, it might even take you back to your seminary days, trying to decipher Greek and Hebrew. But it’s worth digging through it to get the answers you need.

But keep in mind that if you’re bivocational (meaning you have a regular nine-to-five job while also being a pastor), you’ll still have to pay Social Security on your income from the other job. So, if you work for the city’s water department Monday through Friday and pastor on Sunday, you’ll have Social Security benefits taken out of your paycheck from the city.

Advantages and Risks of Opting Out of Social Security

If we were in your shoes and serving as a church pastor, we’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. When you opt out of Social Security, it frees up more of your income so you can invest in your own retirement plan. Plus, it gives you the freedom to make your own biblically informed decision about how to manage that portion of your income, rather than leaving it up to Uncle Sam to decide for you.

How much will you need for retirement? Find out with this free tool!

Just keep in mind that if you don’t put any money into Social Security as you work, then you won’t be able to collect any Social Security money when you retire. In other words, if you opt out, then you’ll get zero Social Security or Medicare benefits from any ministry income.

Things You Need If You Opt Out of Social Security

If you’re going to opt out, there are some basic things you have to do for the rest of your life to make sure you and your family are taken care of. Now, you should do these things anyway—but especially if you’re opting out of Social Security. Otherwise, you’re signing up for major risks that just aren’t worth taking. So, be sure to have these four things in place:

• Term life insurance. You need a term policy that covers at least 10 times your income. (That’s the average amount, but check with an insurance professional who can take your age, income and specific situation into consideration.) That way, if something happens to you, your family will be taken care of. If you die with children younger than 18 and you’ve opted out, they won’t receive a Social Security check. That’s why you need a life insurance policy in place if you’re going to opt out—because your family won’t have Social Security to count on.
   
• Long-term disability insurance. If you become disabled and have opted out, you won’t receive any Supplemental Security Income at all, since that also comes out of the Social Security pool. Don’t opt out without having a good long-term disability policy in place.
   
• Long-term care insurance. The day you turn 60, buy yourself a little birthday present: long-term care insurance. Yeah—we’re serious. Now look, these policies can be pricey, but they’re not nearly as pricey as a couple years in a long-term care facility. If it turns out you do have to live in a facility later in life, it’s better to have an insurance policy to pay for it than to drain your life savings.
   
• Retirement savings. Remember, you won’t be getting a Social Security check at retirement if you opt out. But so what. If you take the thousands and thousands of dollars you’d be paying into Social Security and put that cash into a Roth IRA in a good growth stock mutual fund, you could retire with dignity! That’s because mutual funds can beat inflation, but Social Security doesn’t care about inflation at all. The same $100 you put into Social Security now might only buy you $50 worth of stuff by the time you can actually use it. Besides, there’s no guarantee Social Security will even be around at all when you need it.

Create a Retirement Plan Without Social Security

If you’re willing to take responsibility for yourself by having the right insurance and planning for retirement, you can reap the benefits of opting out of Social Security—and cut down on the risks. Work with a financial advisor to make sure you have a plan for your retirement years that doesn’t include depending on Social Security income.

Need to find a pro? Try our free SmartVestor program! It connects you with experienced financial advisors in your area who can help you reach your retirement goals.

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This article provides general guidelines about investing topics. Your situation may be unique. To discuss a plan for your situation, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros.