Renting vs. Buying: home considerations
Our family faced the impact of this when I accepted a call to serve in Tucson, AZ after four years in Tennessee: we had purchased a home in Tennessee in 2007 (just before the "housing bubble" burst), and refinanced it for incredibly low terms just a year before moving. Because of our refinanced loan, we saved a lot of money on our mortgage with a payment reduced by more than $200 a month—but we also had almost no equity, which gave us very little room for negotiation on the price. That, coupled with the fact that two very similar homes on our street were short-selling for more than $20K less than what we had to get as the final price meant that our efforts to sell our home failed miserably. We ended up staying in a small guest house in Arizona for eight months while we sought to rent our house instead, and then faced the challenges of renting (which are too many to address in this post).
I know another pastor who invested well in home after home (following one call to the next), and over the years established a great amount of equity—so much, in fact, that he and his wife were able to build the home they wanted shortly after accepting a new call in Florida in 2005. That home is now still more than $100K "under water" and every penny of equity they had gained over more than 30 years of ministry is gone. This is a perfect illustration of how home-buying is not the investment that it was for past generations.
This is just one example of why housing can be such a difficult matter of decision for a pastor in transition. For a pastor or candidate who is blessed with being unencumbered by an existing mortgage, important decisions about their future housing are afoot. A church that provides a manse or parsonage (which are fewer and fewer, sadly—and perhaps reviving this time-tested tradition would be a way around the problem entirely!) offers a deferment, of sorts, on the decision, but most pastors will eventually face a single important question: rent or buy?
There are more than mere fiscal considerations at play here. For example, about a year into my ministry at the church in Tennessee, one of the members affirmed that buying our house sent a clear signal to the congregation: we were coming to settle in and stay a while. That congregation had been through great turmoil in the years leading up to my pastorate, and the very existence of the church was precarious; this message was one small but vital piece of my ministry to them, and brought stability in ways I had not considered.
There may be other non-financial reasons to buy (or to rent), but the financial factor is a big part of the decision regardless. In our transition to Tucson, the reality was that buying another home was simply not a possibility (there may technically have been a way to do it once we had rented our home for a while, and the rent we received was seen as income—but we had neither the inclination nor the resources to own properties in two states).
In light of this, we recommend a new tool published in the New York Times website's "The Upshot" section offers a "rent vs. buy" calculator that allows multiple points of data input, with a very straightforward reporting of whether it makes more sense to rent or buy. (The report doesn't prescribe, but rather offers a recommendation along the lines of, "if you can rent for less than $xxxx / month, then renting is better.")
You can find—and use—this tool here: Is It Better To Rent Or To Buy?
There's no way to know how long the Times will keep this great resource available; for as long as it is, though, it will be very useful for pastors (and others).
In case it isn't (or if you want to look at other related information and calculators), we have a collection of Transition Tools on this website that will help you calculate:
- What your monthly payment would be
- How much home you can afford to buy
- How much you can borrow
- Rent vs. Buy (a different calculator)
Shadow economies in pastoral ministry
(Two very helpful sources in learning more about shadow economies are: a book entitled Working In The Shadows by Gabriel Thompson, and an episode from the radio program and podcast Freakonomics Radio, called "How Deep Is The Shadow Economy?")
Our economic structure is not exactly favorable to shadow economies, but it doesn't prevent them either. And they are very present in the church and Kingdom, as well. In some cultures (especially in highly churched cultures, such as the American south), pastors are particularly frequent recipients of the benefits of a shadow economy.
We could think of this in a Jeff Foxworthy-style way: if any of the following have ever happened to you, you might be part of a shadow economy!
- If you have ever been given a car...
- If you've ever received some cash with the encouragement to take your wife out to dinner...
- If you have been given a gift (for Christmas, pastor appreciation Sunday, or some other occasion) that was collected from all or most of the congregation...
- If someone from the church has volunteered to clean your house/mow your lawn/etc....
- If you've been given bags or boxes full of clothes for your children...
Again, let me qualify: these are not wrong or illegal, and in almost every case you don't need to worry about reporting them on your taxes as income. (See this FAQ from the IRS on gifts.) If your church—or individual members in your congregation—are able to be generous with you as their pastor in one of these ways (or dozens of others), you should be thankful!
Why bring it up? Because shadow economies can make a difference in how you understand your terms of call. I can think of at least four ways that this is true. All of these are real-life examples.
Example 1Pastor Bill is paid $xx,xxx annually by his congregation in housing and salary. In most years, this is barely enough for Bill and his family to get by on, and money is fairly tight for them. However, there are a couple of families in their church that are always on the watch for extraordinary expenses for Pastor Bill, and who step up and help out when these show up.
When Pastor Bill's wife delivered their baby, one of these families began to buy disposable diapers, wipes, and baby formula for Bill's family a couple of times a month. For the first couple of years of the baby's life, Pastor Bill never had to buy a single diaper or can of formula!
In this case, the shadow economy served Pastor Bill in a very beneficial way, including saving hundreds (or probably thousands) of dollars in regular expenses because of the diapers, wipes, and formula.
Example 2Pastor Joe is a minister for First Church, which pays him $xx,xxx annually in housing and salary. Much like Pastor Bill, Joe and his family find his salary enough—but barely so—and they are grateful that they, too, have a few families who are especially generous. In Joe's case, the elders at his church are attuned to his needs, and have given him very generous "bonuses" and other gifts through the years. In one case, they gave Joe $4,000 when the engine in his car needed to be replaced.
Joe and his wife want to buy a house close to First Church, but the real estate there is not inexpensive. Though they have saved enough for a down-payment, and are confident that they could afford the monthly payment, Joe and his wife cannot qualify for a home loan because the bank sees the amount of income claimed on his taxes as risky. Yet, when Joe explains this to his elders and requests that they consider a raise, they are reluctant—isn't their generosity enough? Hasn't the church taken good care of Joe and his family?
Of course the answer is that they have taken care of him and his family—and yet, this is an example of the shadow economy working against Joe.
Example 3Pastor Mike is a candidate for a new pastorate, and he feels called to serve them; likewise, the congregation has extended a call to Mike, and now he is negotiating the terms of his new call.
One elder in the church, Phil, works with a missionary agency. Phil and the others who work with that missionary agency all live nearby to the headquarters, and they have an elaborate volunteer structure. Phil and his fellow missionaries regularly have volunteers who fix their cars, repair their furniture, or do work on their homes. Even the homes in that neighborhood have been sold by one generation of missionaries to another at prices far below the market rate. Phil is a beneficiary to an extensive shadow economy—however, Phil has lived within that shadow economy for so long that he doesn't recognize how much he benefits.
Phil therefore cannot understand why Pastor Mike "needs" as much in salary and housing as Mike claims that he needs. Even though Mike has given full disclosure to the elders of his monthly expenses and most of the elders agree that his expenses are reasonable for a family like Mike's, Phil is insistent and votes against Mike's salary package being, as he says, "way too high."
Though Phil is out-voted, this puts Phil and Mike on rocky ground from the start and it is a long while before the tension of this rough start eases between them. Here's another example where a shadow economy can work against a pastor—and while this one is from outside the congregation, it is still within the local Christian community.
Example 4Pastor Jim was called to serve Community Church following a challenging season in the congregation's history. Jim brings a great stability to the church, and during his years of service he helps them regain a firm foundation in Christ and begin to rebuild.
Jim served as a navy chaplain for a full career before coming to Community Church, and consequently had a nice retirement pension from his military service. When Community Church called Jim to be their pastor, he agreed to take a minimal salary—far less than he could have afforded were it not for his military pension. Were it not for Jim's ability to do this, Community Church would probably not have been able to afford to pay any pastor, and this was one of the key factors in their turn-around.
When Pastor Jim retired from ministry at Community Church, they extended a call to Pastor Adam. However, because of a number of years without having to pay a full pastor's salary, Community Church struggled for several years of Pastor Adam's ministry to pay him enough to live on; they were forced to cut expenses elsewhere, and many in the church didn't understand why the church was cutting out what they perceived as "vital expenses." Consequently, some in the congregation suspected Pastor Adam of not being supportive of the same kinds of ministry that they were, and his early years of service there were difficult in a number of ways.
This example is more complex, because Pastor Jim's retirement pension from his chaplaincy was not part of a shadow economy, but in a sense it sort of created one within the church. Pastor Jim was essentially a bi-vocational pastor, but he neither acted like one nor was he treated like one—except when it came to his pay.
[I feel that I should mention this as a sort of disclaimer: in ALL of the examples above, the effects of the shadow economies were overcome and the pastors described had fruitful ministries in their congregations.]
Closing ThoughtsThe tricky part about shadow economies is that they are, by definition, almost impossible to quantify. You cannot "count" the financial benefits, nor can you easily calculate the financial costs, that shadow economies create.
This leaves me with very little advice on handling them. Mainly, you can be aware of them. There may be times when you can point them out to others in a way that lends clarity to a discussion (especially regarding terms of call). You might ask a search committee about them, though you will likely have to explain what you mean and what you are asking about (this will require extreme tact, lest you appear to be asking about "off the books" perks and/or how big your Christmas gift will be!).
But you can have your eyes open, at very least. Knowing that these are factors in many ministry circumstances can be enough, perhaps, to help you navigate these waters more carefully.
Moving far from home, part 2
Now let's consider a comment from "John" whose family is from Alabama, and who is now a pastor in California. Here's what John said:
"The best advice I received was from [a seminary professor] who said, 'you just need to negotiate into your terms of call that they will fly your whole family home once a year.' So we did-- and now there's a line-item in the church budget for $2,500 of airfare for my whole family to fly back!"
This is a great idea. Airfare is expensive enough for one or two, but John and his wife have several children. For most pastors, the cost would simply be prohibitive to think of paying for that every year, or even every other year. Or at very least, it might keep them from being able to afford other vacation time, as a couple or as a family.
With John's arrangement, however, they are free to simply not worry about the biggest part of the costs of visiting family. The first year they were there, John and his family flew back to Alabama around Christmas-- about six months after they had moved. Surely this was a great comfort, both to John's family and to their extended families.
The upside of this, among other things, is that the burden of traveling expenses is carried by neither John's family nor their parents or siblings. It's easy to think that extended family might simply travel out to see them in California, but that can get costly too (even if it is only one set of parents, with airfare for only two instead of five or six). This solution tempers that problem, at least a bit.
The downside, obviously, is that this represents a substantial financial commitment for the congregation. Some congregations may not be able to afford it. Others, while sympathetic, may not be willing to make such a large investment. (I would counter the latter, however, by pointing back to Brian's comment about how hard the decision can be to move so far from family, and suggesting that an unwilling approach in the short term may have unfavorable consequences in the longer term.)
This is a website and blog that is passionate about strengthening and informing pastors in their financial life in a similar way that this site is about pastoral transition. There is great help here about budgeting, debt, tax-related concerns, financial issues unique to pastors, bi-vocational ministry, and other topics.
The site is run by a pastor, and he is quick to disclaim any expertise, legal or otherwise, related to finances, tax law, or money management. Nevertheless, it is clear that this pastor has invested a lot of study, research, and thought toward this important category of information.
Good pieces on pastoral compensation
Shepherds Who Feed Only Themselves
Shortchanging for Jesus
Actually Count the Shekels
I recognize that Mr. Wilson tends to evoke strong reactions (favorably or not), and I certainly don't agree with everything he says. I do find that he sometimes puts his finger upon something exactly, and I think in this case he has done so. He lays out a careful consideration of an important topic, starting with a theological basis (in Double Honor), then discussing good and bad approaches to ministerial compensation (in Shepherds Who Feed Only Themselves and Shortchanging For Jesus) before frank discourse about how a congregation ought to think (and re-think) how they pay their pastor(s) (in Actually Count The Shekels).
Well worth reading if you are in some way involved in the process of evaluating what a new or existing pastor should be paid.
On bi-vocational ministry
Along that line of thought, here is a great post from a guy named Todd Hiestand, called "10 Suggestions/Thoughts on Bi-Vocational Ministry".
I don't know Todd or his circumstances, but as someone who has served in bi-vocational ministry myself (and who works with an Associate Pastor who is bi-vocational), his thoughts and suggestions all strike me as spot-on.
Here are his ideas:
1. Try and find a second job that feeds your gifting and passions in some way.
2. Try and have your second job be a career type job and not just a part-time placement where the only positive is that you make money.
3. Do what you have to while you search for that kind of second job.
4. You better really be ready to sacrifice a lot.
5. Be more committed to the Church than your career as a pastor.
6. If you aren't prepared for it to be hard, it's way to easy to become bitter and resentful.
7. You better be willing to admit that you can't do it all.
8. Make sure your spouse is on board.
9. Be ready to learn how to be self-disciplined.
10. Being bi-vocational isn't more spiritual or better than being a full-time pastor.
11. Being bi-vocational has both positive and negative aspects to it.
Todd expands on all of these in his post. Be sure to read the whole thing.
I'm a bit curious about a couple of the commenters who take issue with #10, and who seem to be cynical about pastoral ministry in many ways. I've never encountered that before, and at first I was surprised by the fact that such a viewpoint existed.
Otherwise, though, I highly commend this post to you.
What are their expectations?
Dr. Kenneth Swetland, from Gordon-Conwell, recommended a good practice for our students when they were candidating for church positions: that in the later stages of that process, whenever possible, the candidate meet with the appropriate committee and, with a chalkboard or whiteboard, ask the committee members what they expected a minister to do. Dr. Swetland recommended that after listing the variety of activities on the board, the candidate then ask the committee how much time it would take to perform these tasks, including the preparation time. Ordinarily, the result of this exercise is that the committee realizes that the minister is expected to work about seventy-five hours a week, and also to be a good example of a family man!
[T. David Gordon, Why Johnny Can't Preach (Phillipsburg, NJ: P & R Books, 2009), p. 107.]
Clergy tax preparation
Having access to a good CPA or tax preparer-- and one who is familiar with clergy tax law-- is a great help. The trouble is, they can sometimes be difficult to find.
I know of three:
- Deborah Lee, St. Louis, MO. 314-821-2560. email@example.com
- Doug Neal, Columbia, SC 29204. (803) 787-7017.
- Brenda Paoni, Cordova, TN 38018. (901) 757-8866.
Deborah recently wrote a short tax guide for seminary students for goingtoseminary.com. I don't know her personally, but she's a graduate of my seminary alma mater, and we know some people in common. I've known Doug for years, and he has prepared my taxes before. Brenda currently handles our taxes. All three should be able to help you with yours, if you find yourself in need of a tax preparer who is acquainted with the nuances of clergy tax law.
Two new resources
- Covenant Discipleship Communicant's Curriculum. My good friend and colleague, Richard Burguet, and I have been working on this together for years, and have finally seen it come to the point we've been hoping for. You can learn about about it, and order it, through Doulos Resources (which is a new ministry I'm involved with, and this blog is now co-hosted by Doulos Resources).
- PCA Housing Allowance Form. If you're a pastor in the PCA, this is the time of year to declare your housing allowance for tax and legal purposes. Here's a form I created to make this a neat and clean endeavor-- and I've even built a form into the PDF so you can enter the data before printing it out. (While you're there, check out the other Transition tools we've been posting-- and there are more coming soon!)
SBC Conpensation study for 2008
Frankly, most of the data on my blog (really, all of it until today) is drawn from the Presbyterian Church in America's (PCA's) stats. That's because, well, I'm in the PCA, so that is the data I have ready access to-- or have in the past, at least.
But recently Lifeway Research released study data on church compensation in the Southern Baptist Convention. (Lifeway Research is, obviously, the research arm of Lifeway Publications-- and THEY are the publishing wing of the Southern Baptist Convention.) The study data is interesting (to me), as most data of this sort can be.
The headliner find of the study is that raises and increases in SBC pastors' salaries beat inflation-- but barely. (This doesn't mean, by the way, that it covers a normal cost-of-living increase; inflation is simply when the value of the dollar-- or any other currency-- goes down, while the "cost-of-living" is what it costs to maintain a certain standard of living.) There is a lot of other data there-- and if you're in the process of negotiating your salary (especially if you're in the SBC!), then it will be a helpful tool.
One caveat that I would add: one friend (who was formerly an SBC pastor before coming into the PCA) told me bluntly, "Baptists are notorious for not paying their pastors well." I pressed to see if that was simply based on his own experience, and he assured me that it wasn't. This may be an unfair accusation, and I would welcome any Baptist readers to chime in about it-- but if he is right, then take this data with a grain of salt, as far as what is "fair" compensation for a pastor.
Here are some links:
- Read a summary of the study
- Visit the Compensation Study homepage, whee you can view the results of the study broken down by category.
- The study homepage also includes a "customized report" that will project what your salary should be, based on the parameters and findings of the study
Interesting salary research
While the article is geared toward businesses and the secular workforce (naturally), it did point to a few interesting resources:
- Salary.com posts the results of its own salary surveys.
- PayScale.com goes a different route, actually polling* individuals about what they get paid.
- A newcomer, PayScroll.com (still in the very early stages as of this writing) trolls online job listings to develop composite data.
*The polls conducted by PayScale are based on actual people citing the salaries for their jobs, whereas the surveys conducted by Salary.com result in generalizations. A minor difference, but it can have major impact on results.
Negotiating terms of call: retirement savings (part one)
That's good, because most of them have done a terrible job at building up any retirement savings. I actually know men in their 50s who have little or no retirement funds set aside.
The problem is, there may come a day when they do want to retire-- or when they need to do so. Like it or not, our fallen bodies fail us, and the time comes when we have to slow down. This may mean changes to our ministries: moving to a smaller church in a slower-paced community, accepting a role with less ministry responsibility, or moving into a part-time ministry position. Or it may require stopping ministry altogether, at least as a vocation-- and if that is the case, we must begin as soon as possible to prepare financially for that season.
In most cases, when a man is coming directly out of seminary into ministry he doesn't have his mind on how he will retire from that ministry. But unless you are in a circumstance where your financial future is already cared for (such as a classmate of mine who came to seminary after a 30-year military career, and his Army pension will cover his retirement), the negotiation of terms of call is the time to begin thinking about this.
I want to split this topic up between two posts. In this post I'll discuss the "what and why" of retirement savings, and in the next post I'll cover the "how"-- looking at some strategies for getting it done.
I shouldn't have to define "retirement savings" as a concept, but I will say this in terms of preliminary remarks: it would be naive or foolish, or both, for anyone to assume that their earning ability will only increase throughout life. Thus, think of retirement savings as preparation for the time when you are less willing or less able to maintain maximum workload. (Frankly, that day may come a lot sooner than what is typically considered "retirement" age.)
Many people have a lot to say about how to think about planning for retirement, and almost every one of these people is more knowledgeable than I am. Thus, I'll keep my remarks to a minimum, and instead refer you to better sources of information.
- For starters, be aware that Social Security is itself a retirement plan of sorts; I have already offered my comments (here and here) about whether an ordained pastor should exercise his legal right to apply for exemption from the Social Security system, and I'll simply follow those comments with this remark: it seems to me that opting out is far too individualistic for a Christian to be comfortable with.
- Rick Warren's Pastors.com has a great article on planning for retirement, written by a veteran pastor who is himself retired.
- Crown Financial Ministries offers good advice on planning for the future (including retirement) in their Pastor's Corner. They also have this article on retirement planning on their regular site. (Note: there is a lot of other helpful information in both areas.)
- The Wesleyan church's General Board of Higher Education and Ministry has a very thorough handbook for their Board of Ordained Ministry, which includes this chapter, "Retirement Planning and Relationships," which offers good food for thought on how a denomination is responsible for caring for its pastors.
- This article from Your Church magazine has some very helpful data on retirement planning based on good research.
- Naturally, Pastors in the Presbyterian Church in America will want to be in contact with the PCA's Retirement and Benefits office.
- Finally, you may want to see this NY Times piece on saving less for retirement!
A further comment on the housing allowance
Me: Does the portion of the pay package designated as "housing allowance" affect the Adjusted Gross Income (AGI)?
Maria: Yes-- it is not included as a part of the AGI.This is huge; the AGI is the primary determinant of the tax owed for Federal Income Tax. Since the housing allowance is not factored into the AGI, the AGI necessarily remains a lot lower than the total salary package. This, by the way, is THE way that the housing allowance is a tax benefit to ordained pastors.
Me: Is the AGI the primary determinant for tax brackets?
Maria: Yes. The amount you are taxed is based on your AGI.
Me: So a pastor's salary package will have to be pretty high to move him out of the 15% tax bracket?
Maria: Yes.This is also huge. For a typical pastor's family (married filing jointly), the AGI must be $61,300 or higher to shift up to the next tax bracket (the 25% bracket). But assuming that the housing allowance represents 1/4 to 1/3 of the total pay package, a pastor's housing + cash salary would have to total $76,000 (or more, depending on the amount of the housing allowance) to exceed this.
Depending on the circumstances (for example, in an area where housing costs are exceptionally high), it's possible for the package to be well over $100,000 and the pastor to remain in the 15% tax bracket.
Maria's comment sums it up well: "It's a really big benefit."
More on opting out
This is such a good question that it may account for why many have opted out even though they are not opposed to loan or disaster relief programs. My guess is that, when most people read the description on IRS form 4361, the government-guaranteed student loan that they are still paying off never enters their minds-- so naturally they don't think that such loans have direct impact on this decision.
In fact, however, it is helpful to understand what it means for a loan to be "government-guaranteed". This doesn't mean that they actually make the loans; this is done through a state-run or private organization such as Sallie Mae (private) or, in the case of my student loans from seminary, Mohela (Missouri Higher Education Loan Authority). Instead, a government-guaranteed loan is actually insured by the federal government; in the event of default on the loan, the government would pay the balance.
This is a benefit to borrowers, because the lenders do not have to increase interest rates to account for defaulters. Thus, students can borrow at very low interest rates because the government will guarantee repayment.
But it also fits under that category of "public insurance". If I were disabled and therefore unable to pay my credit card payments, I would have to declare bankruptcy unless I had taken out private insurance for my debts. If, on the other hand, I were unable to pay my student loans due to disability, the tax-payers (through federal taxes) would pay them for me.
The same applies to housing and disaster relief. And, while food stamps, welfare, and the WIC program I mentioned before are not exactly in the same category as loans, they are in the category of "public insurance" in the sense that the tax-paying public collectively insures against any individual member of the public not being able to provide for their own food and shelter.
Thus, the list I provided yesterday is perhaps more comprehensive than what is immediately suggested by the term "public insurance" on IRS form 4361, but it is nevertheless an accurate list.
On opting out of the Social Security system
Social Security, and other programs covered under the Federal Insurance Contributions Act (FICA), are normally divided in cost between employer and employee. In other words, if you are a standard employee working for any company or institution, your employer is required to pay half of your portion of this "tax". Ordained ministers, however, are considered self-employed when it comes to their status under tax law, and therefore aren't covered under FICA-- instead, they are under the Self Employment Contributions Act, or SECA.
This means that they pay the full amount of their contribution to these federal assistance programs. For instance, at the school where I work, 7.65% is deducted from my paycheck to cover my FICA contribution; another 7.65% is paid on my behalf by the school. The same rate, however, applied to an ordained pastor (or anyone else who was considered self-employed under tax code) would be twice that: 15.3%.
Because of this, many pastors consider it a strong financial move to opt out of their SECA contribution-- something that is allowed to ordained clergy almost exclusively (a few federal positions are afforded the same benefit). Many others choose to do so because they believe that the Social Security system is a "bad investment"-- in other words, they think the system will go bankrupt before they themselves are able to reap any benefit for it, and therefore prefer not to participate.
In order to apply for exemption from SECA contributions, ordained pastors must complete IRS form 4361, entitled Application for Exemption from Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners. This application must accompany tax returns no later than the second year in which you earned income under that status; if it is not received by then, you cannot apply for exemption. Also, the application is exactly that; it will be reviewed by the IRS and can be approved or rejected at their discretion. In other words, you aren't exempt simply because you filed an application. (Find out more about the IRS regulations concerning Social Security and other SECA constituencies through IRS Publication 517.)
The title of the application, however, should suggest to you that those who opt out of SECA contributions for purely financial reasons may be amiss in their decision. This option is provided to clergy for a very specific purpose: it acknowledges that some may have particular religious convictions that governmental financial assistance is wrong in all cases. It must be a conscientious objection to the very concept of governmental aid, not unlike conscientious objection to military service.
Thus, while it may certainly be the case that you object to governmentally-controlled healthcare, or that you think that a government-run retirement program is probably a bad idea, you must go further than that. Can you, in good conscience, claim that your conscience would be violated if you participate in any of these:
- Social Security assistance
- Disaster relief
- Government-guaranteed student loans
- Government-funded student grants (such as the PELL Grant)
- Food stamps
- Low-interest natural disaster-relief loans
- FHA or HUD housing loans
If, however, your opposition to these programs is not rooted in your faith-informed conscience, you are lying if you apply for exemption. In this case, you should not apply; if you do, you should be brought up on charges before the body that ordained you.
I'll go one step further: if you have received the benefit of any of these programs, I would challenge your decision to apply. Why? Because your receipt of benefit through a program that you now claim you have a conscientious objection to constitutes, if not hypocrisy, then at least an inconsistency that may hinder your credibility. It also suggests that your mindset is not the community-mindedness that Scripture requires of us.
Here's an example: while in seminary, Marcie and our children qualified for a program called WIC (Women, Infants, and Children) through which we received a lot of free food. The program was designed to ensure that those under a certain income level could provide their children with a healthy diet. We were one family of literally dozens in seminary with us who qualified for, and accepted, aid through this program. (By the way, we've also benefited from student loans, student grants, FHA housing loans, and Medicaid since we've been married.) If I were to now claim a conscientious objection, at very least I would be suggesting that other seminary families should not receive the same assistance that I received, even though they may have the same or greater need for assistance.
Opting out of the Social Security program is a good option for those who qualify. If, like me, you don't qualify, please don't taint your ministry or the option for future pastors by applying. In truth, very few will qualify, if we take seriously the legal implications (penalty of perjury) and ethical implications (deserves to be defrocked) of the restrictions stated on the application.
Housing allowances under threat?
They also discuss the option that ordained clergy have for opting out of the Social Security system, a topic that I plan to address in my "Negotiating Terms of Call" series soon.
What do you think? Should the housing allowance law be extended to include leaders of secular non-profits? Should tax benefits for clergy be eliminated altogether?
Negotiating Terms of Call: a final thought about housing
When churches provide housing for their pastor-- usually called a "manse" or "parsonage"-- it creates a peculiar situation for the pastor, as far as his salary package goes.
To begin with, this is technically income: a material benefit, in this case free housing, is offered as a part of his payment. However, whatever it represents as income is eligible to be sheltered as "housing allowance" and therefore isn't taxed. (To understand this more clearly, cross-reference the list of what is included as housing allowance with the list of limits on housing allowance.)
This is important when considering the common question, "which is better: a parsonage/manse or a larger salary package?" because in most cases the decrease in salary correlates to the value of the provided housing. In the immediate value, then, choosing whether to accept a manse or parsonage (if one is offered) or to buy or rent housing is a material wash.
One important factor, though, is the availability of housing in the area of your church. You will want to live relatively nearby to your church's property; there are a dozen reasons for this, which I won't go into here. If houses are for sale in an established area, however, they may be more expensive than what you can afford. If your church is in an expensive neighborhood and they have a parsonage available, you should seriously consider using it.
There is also the intangible relational capital that you'll spend if you refuse a manse or parsonage. By turning down the offer of housing, you are suggesting that it is in some way inadequate or no good. You may be rejecting a treasured piece of property with a significant history for your new congregation. And you may be putting the church in a difficult financial position, since they will have to maintain a property they own whether you occupy it or not. While you may have good reasons for wanting to live elsewhere-- you're afraid of being "too available", for example, or you like doing renovations and you doubt the congregation will allow it-- you should rethink these in light of the message you're sending by refusing such an offer.
Another consideration with regard to a parsonage is its long-term effect. The real advantage of owning your home instead of renting (or living in a parsonage) is that you build equity as you pay off the mortgage. The longer you own your own home, the more of it you own-- and eventually you will have paid it off. Traditionally, this has coincided roughly with retirement: you finish college or graduate school in your early to mid-twenties, then get married; after struggling through the early years of work for low pay, you finally begin to save up enough to buy a home in your late twenties or early thirties, taking out a 30-year mortgage to do so; perhaps a move to a larger home happens once or twice, and you eventually pay off your home in your mid-sixties, just in time to retire.
When you rent, you lose all sense of equity. And when you live in a manse, you also lose any equity that you might otherwise gain. So one of the things you should include in your negotiations, if you will be living in a church-provided home, is an increase in contribution to your retirement savings. (I'll be talking about retirement savings in broader terms in another post.) I would recommend calculating-- or having someone else calculate-- the per-year equity value of the housing provided and ask for that (after all, your church is gaining that amount, or already has, so they should be in a position to afford it).
In other words, if you were taking the cash instead of provided housing, and investing it into a mortgage, how much equity would you be accumulating? That is what you should work toward in your negotiation of the housing allowance portion of your salary package.
(I know this is a bit esoteric, but consider that the PCA is a growing evangelical denomination-- basically what conservative denominations WANT to be-- and so it therefore a "typical" example.)
The Administrative Committee of the PCA does a good job of tracking these stats on an annual basis, and they graciously provided me a copy of their data. I'm happy to provide a brief summary of that here.
For All PCA churches in the USA-- Senior/Solo Pastorates:
The mean (average) total compensation for 2005: $79,062
Mean cash salary: $41,944
Mean housing allowance: $21,642
Mean benefits: $15,476
The median (mid-point) total compensation for 2005: $76,201
Median cash salary: $23,760
Median housing allowance: $30,000
Median benefits: $22,441
Highest total compensation: $189,609
Lowest total compensation: $24,840
For All PCA churches in the USA-- Assistant/Associate Pastorates:
The mean total compensation for 2005: $74,341
Mean cash salary: $38,093
Mean housing allowance: $21,470
Mean benefits: $14,778
The median total compensation for 2005: $72,126
Median cash salary: $35,427
Median housing allowance: $19,200
Median benefits: $17,499
Highest total compensation: $132,275
Lowest total compensation: $21,000
Mean total compensation: $50,921
Directors of Christian Education:
Mean total compensation: $60,510
Church Business Administrators:
Mean total compensation: $53,107
Mean total compensation: $61,783
Stated Supply Preachers:
Mean total compensation: $48,183
Housing allowance (part 2)
First of all, there are some limits to what can qualify as legitimate Housing Allowance. According to IRS code, a Housing Allowance cannot be more than the smaller of any of the following:
- The fair market rental value of the home, including furnishings, repair, etc.
- The amount officially designated (in advance) as rental or housing allowance
- The actual amount spent to provide a home
When you set up your terms of call, you must designate in advance what will be construed as Housing Allowance. If you fail to do this at the beginning, you will lose the right to claim what you spend in the ensuing months until you do designate. That designation must be stated in writing in the terms of call (and subsequent annual changes must also be reflected in writing).
This is the reason behind the second limit: until the year is out, the amount designated in advance is automatically the smallest of the three. You won't know if the actual costs are more or less than the designation until you've paid them all; thus, you won't know how accurate your designation has been until you can't do much about it.
This represents a double-edged sword that can frustrate new pastors: on the one hand, if you designate too few dollars for Housing Allowance, you'll be taxed on money spent for housing when you didn't have to be. On the other hand, if you designate too much, you will be taxed for the difference (per the limits listed above), which may mean a significant tax burden next April 15.
(I'd like to point out that, after the first year or two, you should be able to determine fairly accurately what your costs will be for the coming year-- even with the substantial list of inclusions. If you've remained in the same home this is especially true. The only true variables, ordinarily, would be furnishings, repairs, or improvements such as additions or remodels.)
The key is to target your Housing Allowance to be just above what the actual amount will be; then you will cover all of your housing expenses, but your tax burden will not be substantially increased.
To do this, work through the list of inclusions for a Housing Allowance as carefully as possible, estimating each item based on your budget history (remember doing that exercise when you worked through the cash salary part of the terms of call?). Make adjustments where you know they will exist: perhaps your seminary housing was less expensive than the house you're buying, so the base costs will go up; if you have more square footage in your new place, calculate that your utility costs will increase; and so on. Total these numbers, then add 3-4% to the bottom line.
Don't forget to account for larger variables. If you know that you're going to add on a room, paint the whole house inside and out, and replace the gutters, get professional estimates for these jobs before you designate your Housing Allowance. (Even if you do the work yourself, you're allowed to claim full market value-- but only if you have a written estimate.) If you're going to re-finance your existing home (and thereby lower your payments), include that in your calculations.
Once you've computed what your Housing Allowance will be, you've largely determined your compensation package. Often, churches will view cash salary and Housing as the "payment" and the rest-- insurance, continuing education, expense account, etc.-- as benefits. We'll get to those next, but you should feel great about getting this far.
Terms of call: housing allowance (part 1)
If you're not ordained, everything you're about to read is irrelevant.
Since your tax status and employment status are different when you are ordained, you're able to designate a portion of your salary package as your "Housing Allowance" (according to IRS Code Section 107). If you don't know already, this should be one of the most exciting aspects of the terms of call-- maybe even more than the cash salary.
Why? Because, the housing allowance is tax-sheltered. The housing allowance is considered an "exclusion" for tax purposes (not a deduction), so it never enters the equation for computing gross income. So you will never pay income tax on your housing allowance.
Further, if you own your home, you are still allowed (through itemized deductions) to deduct interest paid on your mortgage and property taxes when you file your federal income taxes-- even though the interest was paid through the tax-sheltered housing allowance. In this way, the housing allowance represents a legal "double-dip" into a reduction of tax burden.
Still further, there is more to the housing allowance than just the money paid for mortgage or rent. A housing allowance includes a lot of aspects related to the house, all of which are legitimately tax-sheltered as well. Here is what is legally included in the housing allowance:
- The principle + interest on a home mortgage, OR rent on a leased home (including apartments, condos, or houses)
- Real estate taxes
- Costs of maintenance and repairs
- Insurance on the home and/or the contents of the home (i.e., renter's insurance or homeowner's insurance)
- Cost of all utilities, including electric, gas, local telephone, water, basic cable TV, and trash pickup
- Home furnishings and appliances (both the purchase and repair of them)
- Maintenance items, such as cleaning supplies, pest control, and light bulbs
- Yard maintenance and improvement costs
- Neighborhood or homeowner's association dues
Another important thing to know is that this is no limit of percentage when it comes to a housing allowance. In other words, it is possible for a housing allowance to be most or all of the amount of compensation, as long as the costs do not exceed the legal limits of what may be included (see the list above). The limit, however, comes with the costs themselves. (I'll discuss that in part 2 on housing allowance.)
Now that you know what a housing allowance is, next time I'll talk about how to calculate and negotiate it with your new church.
Cash Salary, part three
All of this forms a sort of calculus for establishing the cash salary that you need. Here are some suggested steps for determining the best numbers for you:
1. Re-evaluate your budget history. If you're good with this sort of thing, this step will probably take very little time. However, many will have to do some heavy processing to get this accurate. Don't fudge on this step-- this will become the cornerstone for the rest of this process, and the care you put into this part will determine the accuracy of your final numbers. Here's the key: the best way to re-evaluate your budget history is to simply determine whether it accurately reflects current practice. If it doesn't, then put in the numbers that do reflect it. This is no time to be timid, humble, or hopeful; don't state what you wish the numbers were, but what they actually are. And be sure to include EVERY aspect of income and expense you have-- even if you haven't budgeted for them in the past.
2. Calculate the effects of the changes and adjustments. The cost of living, ministry costs, and some housing costs discussed in Part Two effect this calculation. How will your spending patterns change between now and then? What will you add to your budget that you aren't paying for now? What will drop off of your budget entirely? You should go through your budget history line-by-line and calculate what should be adjusted.
3. Spend some time considering the future. What will likely change over the coming year or two? Will any household changes take place-- will you get married, have children, or take in a dependent relative? Will your car(s) survive the coming years-- and will they require any major repairs or maintenance? Will your children begin school or college? Will you begin another degree or educational program? Will your spouse start working, change jobs, or leave work? Now-- here's the key-- estimate how these changes will effect your needs in terms of cash salary?
4. Do the math. Take your budget history (step 1), adjust the numbers to accommodate the changes due to a move to a new ministry (step 2), and add in the projected changes for the next few years (step 3). The result should be a good starting point for a budget in your new ministry position.
5. Add in 1-3%. No matter how careful you've been, you have probably been off a little bit. Estimations are like that-- it's why they're called "estimations". To account for this, I recommend that you put in a fudge-factor of 1-3% additional in your budget. If you don't need it, you can always put it in savings.
6. Estimate your tax burden. You can roughly calculate take-home pay through a handful of calculators online, and you can also reverse them to see what your income must be to support a certain dollar-figure of take-home pay. It is worth the time fiddling with these, even though they can only give you rough amounts (remember, your tax status is probably different because of your status as a pastor-- more on this in another post). If you can estimate what total pay it requires to make budget from step 4, you're much closer to having a real number to present to the church you're negotiating with.
7. Don't forget to save. Probably the easiest part of the budget to cut-- or forget to add in to begin with-- is savings. When budgets are tight, it's hard to be disciplined about saving. But it is when budgets are tight that savings become the most important. I suggest that you set up an account with a bank like ING Direct, where you can set up an automatic draft into savings. It will pull out a pre-determined amount on a pre-determined schedule, and all you have to do is record the transaction. When you need your savings, it will be there for you.
8. Do the math-- again. Total up all of these, and you're done. Congratulations-- you now have a functional and accurate budget.
I know--actually asking for this amount is another thing altogether. You probably aren't certain if you even have a right to simply ask for whatever amount you believe you need. At the end of the series on "Negotiating your terms of call" I'll talk about how to muster up the courage to ask for what you need.
For now, just get the numbers on paper and move ahead. We'll get to the actual negotiation in time.
Cash Salary, part two
In some ways, the factors that hinder a seminarian from making a fair estimation of needed cash salary are removed. For example, those already in the ministry have adjusted to the absence of the many "perks" I mentioned that seminarians have to reduce the costs of living. They have established their work "wardrobes" and have, probably, upgraded their home furnishings. And, they have likely have grown used to "full-price" housing, having left the bargains of seminary housing behind some time before.
But other factors may remain: especially if they are younger (in life and in ministry), their families may continue to grow, so housing size may continue to be a concern. And for most established pastors, take-home pay is unlikely to be abundant; the sense of being "poor" doesn't stop after seminary for most pastors.
So the pastor in transition may be looking to the move as a chance to start fresh and tie up some financial loose-ends. This is probably a reasonable expectation: having a few more years of experience usually means that a move to a new ministry is a move "up" in church size and responsibility-- and therefore (hopefully) pay.
So what should a pastor keep in mind while transitioning?
- Household cost of living changes. How much has your life changed since you began the ministry where you are? Have you gotten married? Did you have a baby (or another one)? Has your ailing parent come to live with your family? All of these changes impact your household budget, of course-- costs for groceries, staples, clothes, and gas are probably higher now than before. So they should impact the negotiation of the cash salary in your terms of call, as well.
- Housing changes. If you had any changes in the household cost of living, you probably need a larger housing situation, as well. Maybe you've been able to manage in a small apartment, but now that you're married you've felt a bit cramped. Maybe the condo that suited your new marriage in the city won't quite serve your family of four in the suburbs. These will almost completely come under the heading of "Housing Allowance" but there are a very few things that won't. For example, if you are moving into a church-owned house, repairs you make to the house won't be covered under "Housing Allowance." (When I discuss "Housing Allowances" I'll go into more detail about this.)
- Ministry cost adjustments. Depending on what type of change you are making ministry-wise, your personally-born ministry costs may change. Are you moving from a rural area or small town to a larger town or city (or vice versa)? Then your mileage and vehicle costs will change. Moving from a solo pastorate to an assistant or associate pastor role? You may find yourself with fewer expenses than you had before-- or more. This is a pretty subjective adjustment, and will require experience, thought, and a heavy amount of guessing!
- Cost of living adjustments. Whenever you move from one town to another (or even from one area of a large city to another), there will be cost of living adjustments. These are the differences between the prices of gas, housing, groceries, taxes, and a lot of other things. The government maintains a cost of living index, and every city (and sometimes townships within a city) are measured against this index. Do some research to find out what the cost of living adjustments will be when you move from your current residence to a new place.
Cash salary (from the candidate-pastor's perspective) part one
He recently had another conversation-- this one with a current seminarian, a neighbor in seminary housing-- in which the other person assumed that my friend was now making "the big bucks" since he had graduated and found placement. Of course, this is fallacious-- at best, my friend is making the "medium bucks." But those medium bucks go only so far, and in some ways not as far as the "small bucks" of seminary went.
Take-home pay, or cash salary, is obviously of foundational importance in negotiating terms of call. How should a new seminary graduate (or one nearing graduation) approach it? How might a pastor seeking a change of call approach it?
For new graduates, there are two difficulties to overcome: first, your budget in seminary does not approximate what you will need after seminary. Do not be fooled.: what you are spending now is, in so many ways, nothing like what you will spend once you are placed.
Consider the following "perks" or money-savers that carried Marcie and me through our seminary years:
- The seminary's "free store"-- where any seminary student (or their family) could go to get free clothes, toys, even books and household items.
- "Free bread"-- our seminary had a deal with the local Panera Bread Company store to make day-old bread available to seminarians.
- The "Gulf Drive Exchange"-- basically a road-side trash pile, but there was an understanding that folks in our apartment complex would put things out on the street that they didn't want (whether it was broken or not) and others could feel free to take it.
- Low rent-- seminary housing is not free, but it certainly undercuts the rest of the market in St. Louis by a long shot.
- Cheap groceries-- we lived in a area of town where several "low end" grocery stores were nearby, affording us very low prices.
Now, (nearly) all of these are gone-- and rightly so. And while housing will be covered in another post, the rest of these make for a substantial increase in costs.
Add to that a handful of familial, social, psychological, and professional mindset changes:
- You're not in seminary anymore-- you really need to buy some grown-up furniture. That futon and papasan chair will hardly do for hosting Elders and other folks from your church. (This is only partly true: while it is reasonable to want better furniture for "entertaining", you don't have to do it all at once-- and it doesn't have to be straight out of House Beautiful.)
- You're not in seminary anymore-- so it's no longer okay to wear threadbare clothes all the time. (This one is mostly true-- though, if you've followed my earlier advice, you will already have some decent clothes in the closet.)
- You're not in seminary anymore-- that two-bedroom, 800 square-foot apartment that the two of you moved into four years ago was fine for then, but it doesn't bode well for the long-term health of your growing family of four or five. (Inevitably, you will need more space after seminary if you've gotten married, had children, or had more children. Maybe you've worked this out already, but it will still effect the size of your housing.)
- You're not in seminary anymore-- you can't count on the regular pooling of food with neighbors, the food co-op, or the frequent invites from wealthy fellow church members. (Again, only partly true: you might be able to count on all of these, especially if you are pro-active in organizing them-- but probably not right away.)
In short, your time in seminary has affected the way you view your finances more than you realize. It is easy (or at least easier) to be poor when all of your friends and neighbors are poor as well.
[An aside: when I say that seminarians are "poor" I do not mean to belittle the issue of poverty in our world; "poor" is a relative term, and for many seminarians it means, as it did for us, that income is substantially less than it was previously. Nevertheless, our family found ourselves as the beneficiaries of Medicaid and the WIC (Women, Infants, and Children) food programs-- and I knew other seminary families that were in much worse financial shape than us. "Poor" often applies more readily to seminary families than some would like to admit.]
But once you are a "ministry professional" then it becomes a lot harder to be "poor". There are expectations, requests, and demands involved in a pastor or ministry professional's life-- some unreasonable, others quite reasonable-- that require additional expense. And there are life choices that you made during seminary that were simply bad choices-- how many, after all, carry life insurance throughout seminary? (As if somehow, because we were seminary students, we were suddenly under Divine protection.)
Cash salary is about providing for the needs of your family-- and as difficult as it is to admit or accept, that provision falls more squarely on your shoulders after seminary than it does during it. There are not as many people around you who understand or care. It is more individualized and less communal.
Those approaching (or in the midst of) the negotiation of terms of call should be attentive to the needs of their family as they negotiate the cash salary portion. This is the prime goal.
Part two of this thread will discuss factors in changes from one ministry job to another, with applicable information for new graduates as well. Part three will discuss the actual negotiation. Stay tuned!
Negotiating terms of call, part 1
When I say "terms of call" I mean those things which would, in other fields, be included in the contract. For the most part, however, there is no "contract" in the pastorate. [In the PCA, there is typically a letter, stating the agreed-upon terms, which is sent to the presbytery for approval.] This list includes things like:
- Cash salary
- Housing allowance
- Salary-related benefits (including health insurance, life insurance, retirement savings, etc.)
- Other benefits (including continuing education or book allowances, ministry-related expense accounts, other similar benefits)
- Vacation and/or other paid time off
- Other quirky terms
(Notice I did not specify what perspective I want to reflect on; that's because I actually want to look at both sides of the negotiations-- the candidate-pastor's and the candidate-church's.)
Salary data, or "where do you get your starting point?"
CNN reports a summary of the results in a recent article. Even the lowly liberal arts folks (like myself!) show improvement: starting salaries are just below $31,000, which is a 2% increase from last year. Naturally, the hot careers are in media, technology, and engineering.
What does this imply for ministry professionals? Probably not much: sadly, too few churches base their salary packages on the averages of other fields, or even on the average income for the same age, life-stage, or other similar data.
Where do churches get their starting points? My experience is that they find out what other churches are paying for the same type of ministry professional.
Under normal circumstances, this would be a reasonable method. But ministry salaries have languished in the bottom tiers of the income bracket for so long that I fear this is a self-feeding cycle of mediocrity.
(Sometimes churches dare to look outside for information: one church I interviewed with years ago told me they based their Youth Minister's package on the average starting salary for teachers in the local schools, as if I should be relieved, or even impressed. After all, we know that teachers are so well-paid!)
I'm interested: what information sources do churches use to establish salaries? Let me know your experience.