No, I am not going to apologize for the title. We ministers are really knowledgeable about a variety of subjects; finance is not usually one of them. A recent seminary graduate asked me for financial advice as she begins her career in ministry. The following is what I offered her.
Make annuity contributions a priority. Set aside an amount equal to 10 -15% of your salary in a religious organization’s annuity program (SBC, CBF, MMBB).
Stick to a budget and take savings seriously, a little will go a long way. Saving a little money each month will keep you out of unnecessary debt. Put $50, $100, $500 a month in a savings account connected to your checking account. A mutual fund connected to your account is also a good option. Grow the balance over time to equal one year’s salary. Ideally you want one year’s salary in a mutual fund and another two-three months salary in a savings account for special and unforeseen needs. Don’t whine about how much money it is, just do it.
Debt is of the devil. You will borrow money to purchase a home and a car. Stay away from credit card debt. Credit card debt is an instrument of the devil to entrap saints of God, and those of us trying to become semi-saints. Ministers are never going to have significant income, thus, they must be particularly wary of debt.
If you will do these three things, you are on your way to a reasonable retirement.
Let’s talk a bit more about annuities. It is important to choose an annuity plan with a denominational agency or organization. Why? Because when you start pulling out the funds at retirement they can come to you as a “housing allowance” which is protected from income taxes in retirement. This is really important. This is a BIG deal!
In a religious annuity program you will have options of how you invest your money, from very conservative financial perspectives to higher yield/risk categories; and, it doesn’t cost to move your money from one category to another. This is a BIG deal. For most people who invest in the market (what you read about in the newspaper/web pages) it costs to move money (broker fees). Consequently, it can cost a lot of money to withdraw from the market, or change your investments; if you an in a religious annuity program you avoid both pitfalls.
In your annuity program choose to invest in a “balanced fund.” Typically this will be in the “middle” on a risk/return chart. You want growth without great risk. And then, just keeping sending monthly contributions and forget it.
On your 41st birthday, start reading the financial page of the newspaper/webpage; just stay aware of what the market is doing and the ups and downs of the economy. On the first day of every month look online at the value in your retirement account. Begin to pay attention to the growth of your funds. Read a few books on investments. A class on investing might make sense. Don’t do anything with your funds at this point because you don’t know enough to be helpful. Stay with the steady balanced fund approach.
On your 45th birthday begin to think about the allocation of your retirement account. “Balanced” has been good to you over the years. Now, I want to add another concept: reduce your losses.
As you get closer to retirement age it is going to be important to manage your account. Managing your account will allow better growth in your funds. What I am suggesting is a simple method to minimize your losses.
Sustained growth in the market (Dow) is referred to as a bull market while sustained loss in the market is known as a bear market. When you read in the newspaper/webpage about the downward trends in the market and the Dow is showing a significant decline over weeks, move your annuity money into fixed assets. In effect you are reducing your losses. Watch the market drop as the bear takes control. When you read about the bottom being reached and experts are talking about a bull market and the Dow is in a sustained path upward, move your money back to a balanced fund position to take advantage of the growth. If the growth is clearly upward, you may want to move your money to a more risky category to take advantage of the higher growth. Because you have been reading and educating yourself for five years now, you’ll be in a much better position to manage your own financial picture.
As you reduce your losses in the market you will substantially increase your potential retirement income. A little managing will be helpful in the last twenty years of your working career.
However, moving money in your retirement account ought to be a yearly matter; certainly not a weekly matter. I am suggesting you move into fixed assets as the bear emerges and then move back into the market after the bull shows up (six months, maybe a year later). Moving your money more than this will be over management for most of us, unless you have become very skilled in financial matters.
On your 55th birthday, it is time to begin thinking about when you want to retire. Go to a web page that specializes in retirement (AARP) and do the “retirement calculations” to see what sort of retirement account you are going to need for retirement income. Do the math and determine the amount you are going to need in your retirement account when you reach the age when you want to retire. Set new goals, possibly increasing your retirement contributions. Figure a way to own your home (if you don’t) by the date you intend to retire.
Because you have been disciplined through the years (actually mostly neglectful – you put the money aside and forgot it) you have options. Good for you!
It is really important that you press ahead with contributions in the last ten years of your working career. The contributions will lower your taxes and increase funds available in retirement. It is equally important that you reduce non-home debt and pay off car loans. When you cross the retirement finish line you want as little debt as possible in every regard. Taking a financial inventory at 55 years of age is critical to ensure you make an easy transition into retirement.
Begin to think about the level of risk of your annuity funds. Watch the market more closely guarding against significant losses.
On your 60th birthday set a retirement date, with an option not to retire. It is time. Sit down with the wonderful person who has put up with you through the years and decide on a tentative retirement date. Keep in mind you might work longer; but set a date anyway. Now, you have a target. Begin working toward that retirement date as you watch your annuity investments. The closer you get to the date the more conservative you want to be with your annuity funds. When you retire, if you have followed my advice, you’ll be in a position to move your funds into conservative fund categories and glide on into retirement knowing what to expect. Then, if you decide to work on after the set retirement date you are free to do it and significantly increase your retirement funds. Or you may want to semi-retire. You’ll have options.
This is the “quick and dirty” on retirement accounts.
Of course, you can ignore my advice. Just know: one of the worst feelings in life is to approach the end of your working career knowing you are going to be a financial burden on your children.
Follow the three principles I noted at the beginning of this blog and you’ll be fine.
Let me also add, I am not a financial expert. I am writing this blog for ministers who will not talk with a financial advisor but need a few simply straightforward principles to help them get off on the right foot.
Grace and Peace,