The Minister’s Retirement Plan
Since 2001, the International Office has offered a very good retirement plan for pastors, overseers, and any paid employee of the
The Ministerial Services Department has been combined with Stewardship Ministries. My office continually receives calls from pastors and others concerned for themselves or their pastor with regard to the lack of retirement. The pastor has an excellent retirement plan available through the Church and administered by the Stewardship Ministries Department.
We have chosen American Funds as the investment vehicle. Their funds are rated as some of the best. Because our participants’ combined balances have exceeded $1,000,000, the normal 5.75% sales charge is waived. The money contributed to this retirement account is non-taxable for both income tax and social security tax for ministers. This represents a significant reduction in the “real cost” of the contribution. The taxable salary of non-ministry church paid employees is reduced by the amount of their contribution for income tax purposes only—not social security.
An article entitled Sleep-at-night stock funds by Adam Schreck and Kristen Girard/AP gives support to the American Funds as a great choice for retirement funds.
Playing it safer in a volatile market research provided by Morningstar, a stock and mutual fund tracking company, lists 16 mutual funds that are among the best performers during market downturn over the past 5 and 10 year periods and have a 12-month dividend yield of about 2%.
A fund that is offered through American Funds for our participants in the 403(b) retirement plan is listed among the top 16 of more than 6,000 mutual funds. The Investment Company of America (AIVSX) returned 5.72% year to date. This fund has a 12.48% annualized return for the last 5 years and a 8.67% annualized return for the last 10 years. During that 10-year period, there were 3 very bad years in the market—the worst in 80 years—yet this fund still averaged 8.67% per year.
Morningstar analyst, Christine Benz, says Investment Company of
Another fund that is available to our 403(b) participants is Income Fund of America. Its loss during the market downturn in 2000-2002 was 0.7%—less than 1%! As a comparison, the average stock fund lost 35.2%, and the S&P 500 Index lost 47.4% during that time.
The 403(b) plan is designed for an employer match. We suggest that the local church match the pastor’s contribution at $.50 to $1 for the first 6% of salary. For base paying churches, that is $105 per month from the local church and $209 per month from the pastor. Based on past results, the combined monthly contributions invested over a period of 35 years should give a pastor approximately $2,019,321 for retirement. This is the “suggested” employer/employee match and contribution. However, a minimum contribution of $25 per month and a maximum contribution of $15,500 per year (for 2007, $20,500 for those 50+) is acceptable.
This is an example of the power of compounding. Note the difference 5 years makes!:
A withdrawal from your 403(b) account will become taxable. However, the amount of withdrawal may qualify as housing allowance based on the amount of actual housing expenses. A request to the finance committee of the last local church to designate your retirement funds as housing allowance is required.
If you are interested in starting now to prepare for your future in retirement, send an e-mail to liz@cogop.org or call 423.559.5109.