Retiring abroad is a popular option for many Americans. Some U.S. expat employees may spend their careers abroad and desire to remain in that foreign country for retirement. Other American expat retirees seek adventure by retiring abroad in a new country and culture. Regardless of the reason for retirement outside of the United States, a comprehensive U.S. expat retirement plan is essential.

An important part of an American expat financial plan is understanding U.S. Social Security benefits. The rules for qualifying and receiving U.S. Social Security benefits change when living in a foreign country. This article presents a short overview of several U.S. expat Social Security issues to consider as part of a long-term U.S. expat retirement plan.

Do American Expats Qualify to Receive U.S. Social Security Benefits?

American citizens living abroad may receive U.S. Social Security benefits if eligible. In order to qualify for U.S. Social Security benefits, American citizens are required to work and contribute to Social Security for at least 10 years (40 quarters). This may be difficult for some U.S. expats who spend a significant portion of their career working in another country where they do not contribute to the U.S. system. Fortunately, Social Security agreements exist between the United States and other countries to help individuals contributing to a non-U.S. social insurance system to qualify for U.S. Social Security benefits.

These agreements between the United States and foreign countries are known as totalization agreements. If there is a totalization agreement between the United States and a local country, contributions to a non-U.S. social insurance program may be partially credited to help U.S. expats qualify for their minimum Social Security benefits. The United States currently has totalization agreements with more than 25 countries that help coordinate government benefit payments.

How to Receive U.S. Social Security Benefits While Living Abroad

American citizens eligible to receive Social Security benefits may receive these payments when living in a foreign country. There is a long list of foreign countries eligible to receive direct deposits from the U.S. Social Security Administration. When evaluating money movement options, fees and convenience should be a key consideration in deciding how to receive Social Security payments.

Certain foreign banks may charge extra fees to receive foreign deposits. It may be beneficial to receive U.S. Social Security in a U.S. financial institution to control the timing and execution of a conversion to a local currency. Many providers of U.S. brokerage accounts for American expats provide excellent exchange rates and currency conversion services.

Other Important U.S. Expat Social Security Issues to Consider

Beyond qualifying for and receiving U.S. Social Security benefits, additional factors exist that American expats retiring abroad must consider. Below are several of the more common international U.S. Social Security issues encountered by Americans living abroad:

Windfall Elimination Provision – The Windfall Elimination Provision (WEP) is an obscure provision of U.S. Social Security law. The WEP was originally designed to prevent public service employees who did not pay into Social Security from receiving two pensions, one from their public service employer and one from Social Security. The same provision is applied to U.S. expats receiving a foreign pension in addition to U.S. Social Security. WEP may cause a U.S. expat’s Social Security benefit to decrease. There is a WEP calculator on the Social Security Administration website that will help determine if an American expat’s Social Security benefit may be reduced due to receiving a public foreign pension.

Non-American Spouses May Receive Social Security Benefits – A non-U.S. citizen spouse may be entitled to receive U.S. Social Security spousal benefits. For any spouse who is not a U.S. citizen or green card holder, the general rule is that Social Security payments must stop if the spouse lives outside of the United States for six consecutive months. However, there are many exceptions based on either the receiver’s country of citizenship or residence that allow payments outside of the United States to continue. Many international families do not realize that most non-American spouses may receive U.S. Social Security when living abroad under many circumstances.

Local Country Taxes on Social Security – A U.S. expat receiving Social Security faces unique taxation. An individual may owe U.S. tax on Social Security income but may not be liable for tax in the country where they are living. Other countries have a tax treaty with the United States that specifies that the United States will not tax Social Security and payments are only subject to local country taxes. U.S. expat retirees must review a double tax treaty between the United States and a local country to determine which country has primary rights to tax Social Security payments.

U.S. Expat Medicare and Health Insurance – Most expats qualifying for Social Security also qualify for Medicare Part A with no additional premium. However, Part A does not cover health care outside of the United States. Many retirees also typically elect Medicare Part B, which has a monthly premium and covers regular doctors’ visits. Medicare Part B also does not provide coverage outside of the United States. The Medicare Part B premium could be 10% higher for each 12-month period that a person could have been enrolled but was not. If there is a strong likelihood of returning to the United States during a later part of retirement, American expats should do a cost-benefit analysis to determine if it makes sense to pay a Medicare Part B premium when first eligible.

Incorporating Social Security Into a Long-Term U.S. Expat Financial Plan

Maximizing expat Social Security is only one part of an integrated U.S. expat financial plan. A comprehensive American expat plan considers a multitude of other unique investments and tax issues faced by American expats. Cerity Partners provides global families with holistic financial management. As an experienced American expat financial advisor, our clients include many U.S. expats and multinational families residing both in the U.S. and abroad. We serve our clients with complete objectivity and manage conflicts of interest effectively to ensure financial peace of mind.

Cerity Partners LLC (“Cerity Partners”) is an SEC-registered investment adviser with offices in throughout the United States. Registration of an Investment Advisor does not imply any level of skill or training. The foregoing is limited to general information about Cerity Partners’ services, which may not be suitable for everyone. You should not construe the information contained herein as personalized investment, insurance, tax, or legal advice. There is no guarantee that the views and opinions expressed in this presentation will come to pass. Before making any decision or taking any action that may affect your finances or your company’s finances, you should consult a qualified professional adviser. The information presented is subject to change without notice and is deemed reliable but is not guaranteed. For information pertaining to the registration status of Cerity Partners, please contact us or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). For additional information about Cerity Partners, including fees and services, send for our disclosure statement as set forth on Form CRS and ADV Part 2 using the contact information herein. Please read the disclosure statement carefully before you invest or send money.

Please read important disclosures here.