One of the hardest things for some pastors to think about is preparing for retirement. There are so many aspects to think about, it can boggle the mind. Yet, it is one of the most important life events many of us will ever experience from both a personal and financial perspective. Being prepared means more than a level of comfort, but also being able to decide amongst options like travel for vacations and family visits during your retirement years.
Planning for Retirement
The following thoughts about relying on Social Security and the five points on planning for retirement are provided by Bob Haymond, director of Finance for Wesleyan Pension Fund. They are key points he uses to discuss retirement planning with pastors.
Relying on Social Security alone will not provide an adequate retirement income. Social Security is just one of three sources for retirement income. The other two sources for retirement income are employer-sponsored plans and personal savings. Social Security was never intended to be a pension you could live on but rather a supplement. People are living longer and even though there is not immediate danger, we all know it’s not possible to continue in its current form. Evidence shows that younger people may even see a 23 percent cut in their Social Security soon. Employer and personal savings must play a bigger role in retirement.
1. THE PRICE OF PROCRASTINATION
Start early and be consistent.The longer you wait, the harder it becomes to reach your retirement goals. No matter your starting point, create the habit to consistently contribute to your retirement.The following is a chart by Morgan Stanley that shows the power of “Compounding.” The numbers tell the story.
2. COMPLETE A RETIREMENT BUDGET
In the U.S., 60 percent of the population has no idea how much they will need for retirement. A good starting point is to base your budget on a minimum of 60 – 80 percent to replace your current gross income. Many expenses decline in retirement: taxes, saving for retirement or work-related expenses. Your budget will determine what percentage is needed.
3. MAKE SURE INVESTMENTS ARE DIVERSIFIED
A diversified investment is a portfolio of various assets (stock, bonds, cash) that earn the highest return for the least risk. This is done so assets don’t correlate with each other (rise and fall together). No matter what the economy does, some asset classes will benefit. Wesleyan Pension Fund provides “Target Date” portfolios to help (a collection of investments that match your projected retirement date that automatically shift from equity-oriented to fixed-income oriented becoming more conservative over time to protect your capital as your retirement date approaches). And because inflation can impact your retirement, we don’t want to ever totally be out of stocks.
4. SPENDING YOUR RETIREMENT
Financial planners will tell you not to withdraw more than 4 – 5 annually from your account balance if we want the nest egg to be around as long as we are. Something for ordained/licensed ministers to keep in mind is that the housing allowance is still available in retirement—meaning you do not pay taxes on home-related expenses. I cannot express enough what an advantage this is in retirement.
No matter your financial situation, a successful retirement plan does not have to be daunting. It takes planning and persistence. We all know the Lord will provide for our needs and these are just some of the basic ways we can do our part in being good stewards.
Guest financial contributor: Bob Haymond
Executive editor: Russ Gunsalus
Curator of content: Dave Higle