Opted Out Of Social Security...What Next?

Austin is a full-time pastor, and he opted out of Social Security. What should he do with this extra money? Should he put it into retirement or throw it at the debt snowball?

QUESTION: Austin in Little Rock is a full-time pastor, and he opted out of Social Security. What should he do with this extra money? Should he put it into retirement or throw it at the debt snowball?

ANSWER: To start with, you’re not seen as self-employed. You’re just getting all of what would have been Social Security tax. The portion that would have been Social Security is now coming to you, which is substantial. Social Security provides horribly for three areas.

Number one, if you die and you have minor children and you’ve paid into the Social Security system, they would be getting a monthly check. You need to make sure you carry life insurance so that your family is taken care of in the event of your death—about 10 times your income—but you should be doing that anyway.

Social Security also pays, in the event of your permanent disability, a thing called SSI. You won’t be getting that if you become permanently disabled, so you need to be carrying long-term disability insurance, but you should’ve been doing that anyway. Long-term disability insurance is a basic insurance thing that you should have anyway.

The third big thing is retirement. I would just work the Baby Steps to get to retirement, but you need to know that you’ve got to do the retirement. You’ve got to get through Baby Steps 1, 2 and 3—get out of debt and have your emergency fund—so that you start saving in your Roth IRA 15% of your income towards retirement or in your 403(b) if they have a match at your church or whatever. You have got to save for retirement. You don’t have to do it today, and I would work the Baby Steps. If you’re working through getting yourself out of debt and getting your emergency fund in place so that you can then start Baby Step 4, which is 15% of your income going toward retirement, then pay off the house and save the kids’ college. I’d still work that program, but you’ve just got to know in the back of your head that you can’t just say, “Oh, I’m not going to do this,” because you’re going to have no money at retirement.

You’ll be just fine at 15% because the Baby Steps program considers that Social Security may not be there at all for anyone. And in your case, you’ve made that an absolute. It’s not going to be there. Thank goodness for you. You’ve got a huge amount of extra cash flow, and you’ll be able to do really good stuff for your family with that money that the government basically takes and gives you a negative rate of return. You don’t even get all the money back that you put in. Social Security is just a completely failed system.