Opting Out of Social Security

When an individual becomes a minister, one of the important decisions is whether to opt out of Social Security.

Remember, as a minister, you have a dual tax status. You are an employee for federal income taxes and self-employed for Social Security tax purposes.

The decision to opt out must be made within the first two years of ministry when you have ministerial earnings of $400/year.

But there’s more to the decision story.

Remember that opting out of Social Security is NOT a financial decision. It is a religious or theological objection. As outlined on IRS Form 4361 you are certifying under penalty of perjury that because of your religious beliefs, you’re opposed to the acceptance of public insurance that makes payments on your behalf.

Form 4361 reads:

“I am conscientiously opposed to, or because of my religious principles I am opposed to, the acceptance (for services I perform as a minister…) 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. Under penalties of perjury, I declare that I have examined this application and to the best of my knowledge and belief, it is true and correct.”

So, what are you giving up if you opt out of Social Security?

A lot!

• First, Social Security represents a large portion of your anticipated retirement income. If you opt out, you’re making the decision to save more on your own for retirement – without any kind of federal retirement benefits! While industry experts typically recommend setting aside 15% of your income for retirement, someone who opts out will need to save 25% or more to make up for the retirement income Social Security would have provided. In practical terms this would mean a new minister with a salary of $50,000 would need to contribute at least $12,500 annually to his retirement account.
• Second, you may not be eligible for the standard priced Medicare – unless your spouse through their Social Security and Medicare earnings qualifies for full coverage and you are covered as a spouse. Without Social Security, you can still purchase health care coverage, but it will come at a much higher rate.
• Third, you may not be eligible for Social Security disability benefits. That’s right – Social security provides more than just a retirement benefits – there are disability benefits, too. The average Social Security disability benefit is $1,234/month. If you opt out, you will need to purchase long-term disability coverage to have the protection that will not be provided by Social Security. Expect to pay between 1% to 3% of your salary for the premium for private disability coverage – equating to somewhere between $500 to $1500 annually.
• And finally, if you opt out, you are forfeiting potential survivor benefits for your spouse and family. While many realize that Social Security has a survivors benefit for a spouse, they are surprised to learn that there are survivor benefits for children of insured workers until they turn age 19. The average Social Security survivor benefit is $1,325/month. If you have opted out, then you will need to purchase adequate life insurance to provide for your survivors in the event of your early death This will require a significant amount of life insurance coverage – as much as 10 times your salary, with the associated premium, if you have young children.

So, what’s the bottom line regarding Social Security – Don’t Opt Out!

Social Security is the bedrock and foundation of a solid financial plan for your retirement. Without this extremely important benefit, you are going to need to contribute more to your retirement plan and purchase adequate levels of disability and life insurance to provide for benefits you and your family will forfeit. And remember, ultimately, it’s a religious decision, not a financial one.

Contact us if you would like to discuss your retirement plan and how social security factors into it.

If you’ve already opted out, we can help you understand what it means and how to save appropriately based on your decision.

Navigating ministerial financial planning can be complicated, but as part of GuideStone’s mission to enhance the financial security and resilience for those who serve the Lord, we have developed resources to make it easier for you. For more information about common financial and tax-related questions and considerations for ministers, please visit GuideStone.org/MinisterialResources or call us Monday through Friday, from 7 a.m. to 6 p.m. CT.

We look forward to serving you as you serve the Lord.