I’ve talked to quite a few pastors who were advised to opt out of the Social Security. While I don’t doubt the sincerity of those who gave that advice, I’ve yet to meet a single pastor who opted out of Social Security who is glad that they did!
How Social Security works
Social Security is a social safety net program that started in the 1930s. It’s designed to be a supplemental source of income in retirement (on average, Social Security benefits only pay about 40% of your previous income)[1].
Social Security and Medicare are both funded through a payroll tax of 15.3%. In order to qualify for Social Security, you must have at least 40 quarters (total of 10 years) in which you earned income and paid these taxes[2]. Most workers split the tax with their employer – they pay 7.65% and their employer pays 7.65%. However, for the purpose of this tax, pastors are considered self-employed and required to pay both the employee and employer side of this tax![3]
Your Social Security retirement benefit is calculated based on your 35 highest earning years. You can begin collecting Social Security anytime between the ages of 62-70. The longer you wait to claim, the higher the monthly benefit will be. To see your earnings history and estimated Social Security benefit you can visit ssa.gov.
Sample earnings statement from ssa.gov
Sample retirement benefit estimate from ssa.gov
Who can opt out of Social Security?
The IRS allows ministers who are ordained or licensed by a church to opt out of Social Security.[4]
To opt out of Social Security you must follow these steps:
1. File IRS Form 4361
2. Submit the form by the tax return deadline after your second year of receiving ministerial income (so if you’ve been a pastor for 3 years+ then you’re already past the deadline)
3. Attest that you are opposed to receiving public insurance based on religious principles (you can’t just opt out because you don’t want to pay a tax!)
4. Receive approved copy of Form 4361
As you can see, the requirements for opting out of Social Security are very narrow!
Benefits of opting out
The obvious benefit of opting out is that you will no longer have a large payroll tax at the end of the year. This could free up a substantial amount of money in their budget each year.
A pastor who has opted out now has more options/flexibility to use those excess funds to save for retirement, purchase appropriate insurance coverage, etc.
Because of the significant tax savings, it may seem that opting out is clearly more advantageous. But keep in mind all the benefits that you would be forgoing…
What you lose by opting out
Here are the benefits afforded to you once you have met your requirement of 40 quarters[5]:
1. Retirement benefits – collect any time between 62-70, cost-of-living adjustment each year, payments continue until your death
2. Spousal benefit – your spouse is entitled to 50% of your monthly benefit regardless of whether or not they have 40 quarters of income history
3. Survivor benefits – if you were to die, your widow and minor children would be able to collect a monthly benefit (average of $1557/mo per widow and $980/mo per child)
4. Disability benefits – if you become disabled and can’t work you are able to collect a monthly disability payment
5. Medicare – Another huge benefit is that Medicare Part A is covered. For those who have not paid into Social Security, the cost of Part A is $499/mo in 2022!
Sample survivor benefits estimate from ssa.gov
As you can see there are substantial benefits available through the Social Security program well beyond just payments in retirement.
Can you opt back in?
No. As of right now there is no possibility for a minister to opt back into Social Security.
In the past, there have been brief windows of time where pastors were allowed to opt back in and another one may be opened in the future.
However, there is a silver lining. If you have opted out, you can still get back into Social Security by earning income from a secular job. If you’ve worked a secular job in the past and want to know how many quarters you have you can check your earnings history on ssa.gov.
Bottom Line
In order to properly replace the benefits of Social Security, you would need to do the following: fund a sizable retirement account, buy life insurance, buy disability insurance, and buy long term care insurance.
While it’s certainly possible to use the savings from not paying Social Security taxes and do-it-yourself, in practical terms this almost never happens.
It’s for these reasons that I would recommend, in almost every case, that a pastor not opt out of Social Security.
Nate Skelly
Pensacola, FL
[1] https://www.ssa.gov/benefits/retirement/learn.html#:~:text=Social%20Security%20Should%20Be%20Just,retirement%20income%20from%20Social%20Security. [2] https://www.ssa.gov/benefits/retirement/planner/credits.html [3] https://help.guidestone.org/30267-social-security-for-ministers-faqs/do-ministers-have-to-pay-social-security-taxes [4] https://pastorswallet.com/step-step-guide-opting-social-security/ [5] https://www.ssa.gov/benefits/