Retire abroad? Here’s what to know about your Social Security benefits

Retiring abroad is a dream for many Americans. As many as one in six people aged 55 or older say they want to spend their golden years in another country. Not only does it give you a great cultural experience, but it can also lower your cost of living if you choose the right place.

However, before taking this step, make sure you understand how factors such as your citizenship, length of absence from the United States, and country of residence can affect your Social Security benefits.

Social Security Benefits Abroad: Who Is Eligible?

You can get Social Security benefits if you live abroad as long as you meet certain eligibility requirements. The most notable ones are your nationality and where you choose to live. Let’s take a look at how to apply these.

Citizenship

The rules vary depending on whether you are a citizen or not.

• Citizens: You can get Social Security benefits if you are a US citizen living abroad. Remember, you must qualify for benefits by working and contributing to Social Security for at least 40 quarters, which is 10 years.
• Non-citizens: As a green card holder, you can only receive benefits if you are out of the country for six consecutive calendar months. This means that you will have to return to the United States for an entire calendar month to restart your benefits. You can bypass this restriction if you live in a country that has a Total Compact with the United States, which allows you to combine work credits from both countries to qualify for benefits while living in that country. Some of these countries include Australia, Brazil, Canada, France, Ireland, Italy, Portugal, Spain, and Uruguay.

Banned countries

“Payments are restricted in some countries,” said Luke Harder, certified financial planner (CFP) at Claro Advisors. “So it is important to confirm eligibility before moving.”

The Treasury Department does not send Social Security payments to people living in Cuba or North Korea. You can claim any withheld payments if you live in either country, as long as you are a US citizen and move to a country where you can collect payments. This rule does not apply if you have a green card, even if you move to another country.

Restrictions also apply to Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. You can apply for an exception as long as you meet the restricted payment requirements, which you can obtain from the Social Security Administration (SSA). You can collect any withheld payments if you move to a country where payments can be issued.

Your Social Security payments may also be affected if you live in a country sanctioned by the U.S. government.

Claiming Social Security benefits as an expatriate

How to apply

You can apply for your benefits online or in person at a Social Security office before you start packing.

“The most important thing to do here is to start a couple of months before you decide to start assembling,” Harder said. This ensures that there are no delays in your application and that you receive your benefits on time. It also results in a seamless transition, so there is no interruption in benefits between the United States and your new country of origin.

This does not mean that you cannot apply for benefits while abroad. You can still do this online or at an embassy or consulate. But you may need to provide documents proving your identity, such as a passport or birth certificate.

Get the benefits

Social Security benefits are paid via direct deposit. This can be done through financial institutions that are based in the United States or that have direct deposit agreements with the United States Some countries include Argentina, Bhutan, Egypt, India, Morocco, Panama, Rwanda, and Singapore.

Direct deposit is generally considered the safest and most reliable way to receive your benefits, especially when you are abroad. You can get a check if you live in a country where a direct deposit option is not available.

Reporting requirements

The Social Security Administration (SSA) will send you a questionnaire every year or two to determine if you are still eligible for benefits. Failure to complete and return this form could result in your payment being voided.

You must report any changes to your information, including your address, marital status, employment status, dependents, disability status, and other major life events, such as the death of a beneficiary. You can make updates online, by phone, by mail, or by visiting the benefits unit at an embassy or consulate.

How taxes and exchange rates affect your Social Security abroad

Make sure you are financially prepared before making the big move abroad.

Michelle J said: “Make sure you have accurate financial plan projections and test scenarios using applicable local expenses in the foreign country,” says Gessner, CFP, owner and founder of Gessner Wealth Strategies. “Do your homework so there are no unpleasant financial surprises.”

Some of the key considerations that Jessner suggests researching are tax implications and exchange rates.

Taxes

You must report any income you receive while living abroad, including Social Security benefits, to the Internal Revenue Service (IRS). This applies to US citizens and green card holders. If you’re a nonresident, the Social Security Administration (SSA) withholds a flat 30% tax from 85% of your benefits, which ultimately ends up being 25.5% of your monthly benefits.

Social Security may also be taxed by the country you live in, so be sure to understand the tax laws related to how your benefits are handled.

“Check if the foreign country you expect to live in has a tax treaty with the United States to prevent double taxation, in which case there will only be the additional difference in tax owed to the foreign government,” Gessner said.

US citizens are exempt from paying Social Security taxes in Canada, Egypt, Germany, Ireland, Israel, Italy, Romania, and the United Kingdom. Benefits are not taxed for residents of these countries and Japan for non-US citizens.

Currency fluctuations

Your benefits may be calculated in U.S. dollars, but will be spent in local currency, which can be a challenge when exchange rates fluctuate.

“Living abroad means that Social Security benefits will be spent abroad in foreign currency, so the exchange rate matters,” Gessner said.

Simply put, your purchasing power is affected by the exchange rate between the US dollar and the currency of your new country. If the value of the US dollar falls against the local currency, everything becomes more expensive. This can make it difficult to estimate and manage your monthly budget, so it’s wise to consider where you’ll be living to get the most out of your money.

Bottom line

You can collect Social Security benefits while you live abroad if you are a U.S. citizen, but there are restrictions if you are a green card holder. Make sure to do your research on the cost of living, tax rules, and exchange rates, as all of these factors will affect you once you make the big move. To ensure your benefits are paid on time, be sure to submit your application before leaving the United States