Retiring Abroad: Social Security Benefits for Expats

Before you pack your bags to retire abroad, learn more about access to Social Security benefits when retiring overseas as an expatriate. 

Published May 5th, 2021

Reading Time: 3 minutes

Where do you envision spending your golden years? Depending on your stage of retirement planning, you may be dreaming about daily walks on the sand or finally living in your favorite city. For many Americans, retiring overseas remains an attainable goal. In fact, there are currently around 700,000 American retirees abroad, according to data from the Social Security Administration (SSA). 

Living abroad can be appealing to those who don’t believe their retirement funds will be enough to live comfortably in the US. Lower costs of living and better weather have led more soon-to-be  retirees to consider retiring abroad. That said, Social Security is for many an important source of retirement income that may not always be accesible if retiring abroad. Americans that retire abroad can only receive social security benefits if they are determined to be eligible. 

Social Security Benefits for Retirees Abroad

You may be eligible for both Social Security and Medicare benefits if you were born outside of the US, but resided there for at least five years as a permanent resident before turning 22 years old. Expats who are employed by an American company or work in a position that is not covered by social security can also be entitled to retirement benefits. However, it’s crucial to know US citizens are not entitled to Social Security benefits unless they have paid into them for at least ten years before retirement. The best way to learn whether you are eligible is to contact the SSA and request that they send you a benefit verification letter which will provide specific information about your eligibility. 

Are Social Security Benefits for Retirees Abroad Taxable?

A retired woman from Midland, Texas decided to relocate to Italy last year. She was pleasantly surprised with the “generous” payment from her Social Security benefits: a nice retirement income of $5,000 annually plus additional benefits if she’s ready to go back to work and long as she continues working in Italy. The problem was that she hasdno idea how much Italy expects her to pay in taxes. Worrying about this was a real challenge for the retired American who thought she would live out her golden years in sunny Capri. 

There’s a significant tax question when considering social security benefits for retired expats. Social Security benefits are taxable in some cases. Keep in mind that regardless of where you live as a retiree, you must still comply with U.S. tax reporting requirements annually, and must include all of the sources of income including pensions and retirement plans. However, there are Bi-Lateral Social Security and Totalization Agreements that allow retirees to not pay taxes on social security benefits received abroad.

What are Bi-Lateral Totalization Agreements

The US, Canada, Germany, Poland and Romania have reached an agreement which allows for the elimination of duplicate social security contributions in the event that two or more countries are responsible for paying benefits. This is possible since both countries will base their social security payments on the period of residency in one country plus relevant amounts from each respective country. The result is only one social security benefit based on total years worked, and no additional taxes to be paid. 

If you are a citizen of one of the 26 countries that have an active totalization agreement with the United States, you will continue to receive benefits as long as you are entitled to social benefits. You may not receive Social Security payments as a dependent or survivor, but you must receive payments as if you were in the US.

Retiring Abroad: Social Security Benefits 

One of the most confusing topics in retirement planning is understanding the basics of Social Security, so adding in totalization agreements and taxation abroad can make navigating social security benefits overseas even more confusing. You will be able to access social security benefits abroad if you are eligible meaning you have 40 quarters (10 years) of work-related income credits and have reached retirement age you will not be eligible to receive Social Security benefits.

To avoid having to deal with the IRS from an idyllic retirement getaway, keep in mind that social security benefits are taxable in some cases. Depending on the overseas country in which you are residing, the totalization agreement will ultimately determine the taxes you owe. Working with fiduciary financial advisor based in the U.S. when retiring abroad is essential, as they can help you navigate the complexity that comes with Social Security Benefits and taxation abroad.  

Disclosure: This blog is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.

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