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The question is, and has always been, do we need to actually do anything? Or did Jesus' death work for all of us regardless of anything we believe and\or do and we'll all get the same reward at the end?
The Scriptures clearly teach that it is Christ's atoning sacrifice alone that can save us. Good works, while they will accompany true faith, do not save, nor even contribute to our salvation. The credit for human salvation belongs to God alone, not to man.
Now a life of faith will involve good works, but even those good works are a gift from God, not something which we can claim independently of his work (Eph 2:10).
It is feasable to challenge a fellow Christian who is not living a Christian life, and even to challenge whether his/her faith is genuine. Lutheran theologians have always believed that Christians are obligated to good works--not for the sake of salvation, that is the work of God's grace alone--but rather for appreciation and thankgiving for the work God has done for us, and out of compassion for our fellow man. Someone who is deliberately not living a Christian life is only demonstrating that God's grace is not at work in them.
So do good works save? No, absolutely not. Only God's grace can save us. Will Christians do good works? Yes, absolutely, but not for the purpose of earning salvation, but rather as a demonstration of God's grace at work in their lives.