Many future retirees look into retiring outside of the United States. In some cases, it's because the lower cost of living in certain foreign countries can stretch their retirement savings. If you plan to live abroad during your retirement years, you may be wondering whether you will have enough income to live the life you want.
With Social Security payments making up 33% of a retired person's income on average, it's not money that most people can afford to lose. The good news is that you can receive Social Security benefits while you live abroad if you meet certain criteria.
Would-be expats should keep in mind that there are additional financial and tax implications to living overseas.
Receiving Benefits as a U.S. Citizen Living Abroad
While Social Security wasn’t designed to be the sole source of income for retirees, it does make accommodations for those living abroad. If you are a U.S. citizen, you may continue to receive Social Security payments while you live abroad if you meet two conditions.
You are eligible for payment. This means that you qualify for Social Security benefits based on your earnings record.
When you work and pay Social Security taxes, you earn “credits” toward Social Security benefits. The number of credits you need in order to receive retirement benefits depends on when you were born. If you were born in 1929 or later, you need 40 credits (10 years of work).
If you left the workforce (or the country) before you had enough credits to qualify for benefits, the credits will remain on your Social Security record. If you return to work later, you can add more credits to qualify.
The bottom line: The Social Security Administration (SSA) cannot pay you any retirement benefits until you have the required number of credits.
You are in a country where the Social Security Administration can send payments. To find out whether the SSA can send payments to the country where you plan to spend your retirement, use the Social Security Administration's Payment Abroad Screening Tool.
You will be notified of your eligibility based on the country you specify as your new residence.
The SSA doesn't make payments to Cuba or North Korea. If you plan to live in one of those countries during retirement, your payments will be withheld and distributed to you when you move to a country where you can receive payments.
Similarly, you generally can't receive Social Security payments while living abroad in Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine, or Uzbekistan.
In some cases, there may be exceptions for those retirees living in those countries to receive limited benefits. If you don't qualify, your payments will be withheld until you move to a country without payment restrictions.
The Social Security Administration defines a person who lives "outside the United States" as one who has not been in one of the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands, or American Samoa for at least 30 days in a row.
Claiming Benefits as a Non-Citizen
If you aren’t a U.S. citizen, you must be eligible for benefits and reside in a country where you can receive payments. You also must meet one of the following conditions to receive Social Security payments while you live abroad.
- You qualified for monthly Social Security benefits in December 1956, or the person on whose record your payments are based died or became disabled while in the U.S. military service and was not dishonorably discharged.
- You qualify for benefits based on your earnings and are in active military service or had covered railroad employment.
- You are a citizen of a limited set of countries including Canada, the United Kingdom, South Korea, and Israel.
- You qualify for benefits based on your earnings and are a citizen of a broader set of countries including Mexico, Turkey, Costa Rica, and Jamaica.
- You are a citizen of countries such as China, India, Haiti, and South Africa, and earned at least 40 Social Security credits or lived in the U.S for a decade.
- You are a resident of a country that has a U.S. Social Security agreement, such as Canada, Australia, Sweden, and Spain.
If you're not sure whether you meet the criteria, use the Payment Abroad Screening Tool. Once you specify that you are a non-citizen, the tool will ask you some questions to figure out whether you can receive Social Security if you live abroad.
If you aren't a U.S. citizen or don't meet one of the conditions for receiving payment abroad, the SSA will stop making payments to you after you have been abroad for six months. The payments will resume when you have stayed in the U.S. for one full month.
How to Deposit Social Security Benefit Checks
If the SSA is able to send payments to the foreign country where you plan to spend retirement, you have a few options. You can have the checks sent to that country, or you can have them deposited into either a U.S.-based bank account or a foreign account held in a country with an international direct deposit agreement.
Direct deposit is the fastest, most secure way to receive payments. Keep in mind that it will often take longer to receive paper Social Security checks outside the U.S.
Managing Medicare While Living Abroad
Medicare benefits are only available in the U.S. For that reason, it may not be a good idea to sign up and pay premiums for the program if you will be out of the country for a long period of time.
But if you do not sign up for Medicare, and you later do so, you will pay a 10% higher premium for each year you could have been enrolled but were not. If you have Medicare Part B coverage and want to cancel it, contact the SSA and request it to be canceled.
Expect premiums for Part B to continue for another month after the month you notify the SSA.
Filing a Tax Return
If you're a U.S. citizen or resident of the U.S., the IRS will still follow you around after you retire abroad. Your worldwide income, including up to 85% of your Social Security benefits, is subject to federal income tax.
You will need to file a U.S. tax return each year, and you may also need to file a state tax return. You also will need toreport any non-U.S. bank and securities accounts to the Treasury Department each year.
Even if you’re moving to one of the fewcountries without an income tax, such as Bermuda or the Bahamas, you’ll have to pay income taxes in the U.S.
Don't Forget About Foreign Taxes
Even if you don'thave any earned income, you will be subject to the tax laws of the country you're living in. That means you may have to file taxes there in addition to your U.S. return if you receive distributions from your 401(k), IRA, or pension.
Some foreign governments tax U.S. Social Security benefits, so it's a good idea to contact the country’s embassy or an international tax lawyer for tax advice. Deductions and creditscan sometimes soften or eliminate the impact of foreign tax payments.
Frequently Asked Questions (FAQs)
When can you start collecting Social Security?
You can start collecting Social Security at age 62 unless you are a widow or widower, in which case, you can collect Social Security at age 60. However, collecting Social Security at 62 will reduce your benefits. To receive full benefits, you must wait until age 65. You can receive extra benefits if you wait even longer to start collecting Social Security.
How much can you earn while collecting Social Security?
You can earn as much as you want while collecting Social Security, but you will owe more taxes if your income crosses a certain threshold. Your income and the age at which you started collecting Social Security will affect your specific rate. In 2021, the annual income threshold to avoid additional taxes is $18,960.