Things to Consider About US Social Security When Retiring Abroad
There are several things to consider when you plan to spend the rest of your elderly years in another country. You will make your decision upon culture differences, cost of living, weather adjustments, healthcare services, and international relationships. Aside from these factors, you also have to take into account the Social Security payments, benefits, and tax rates related to your retirement.
Read on to discover other key information relevant to your retirement offshore as a US expat. Take note that the information presented here are only applicable for US citizens and Resident Aliens who receive benefits through their employment.
The ideal foreign country to retire
The first thing to consider is which country to retire. Remember that during these years, your income depends solely on your retirement benefits such as your US Social Security benefits.
Most countries have good financial relationships with the United States which mean you can use your benefits without any problems. There are, however, several countries where restrictions can be imposed, denying you of your retirement benefits as a US expat. At present, the countries of Cuba and North Korea receives certain sanctions from the US government. Living here will withhold your US Social Security payments and benefits.
If you decide to transfer to a “friendlier” country, the US Treasury Department will give the withheld security payments in full. But as long as you reside in the above-mentioned countries, your benefits are prohibited.
Other countries will allow you to receive your Social Security retirement benefits but with accompanying conditions. An example of a condition is you have to report in person every month at the US Embassy of the country where you are residing. Other countries have other requirements but they also offer certain exemptions to these criteria.
The following countries impose few requirements for US expat retirees before they can receive their US Social Security benefits:
Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.
If for certain situations you were not able to meet the requirements set by these countries, and you would rather move into another country offering less strict rules, the US Treasury will allow you to receive all the withheld retirement payments once you settle into the new country.
US territories include the 50 states, Puerto Rico, Guam, Northern Mariana Islands, Virgin Islands, District of Columbia, Palau, Marshall Islands, Federates States of Micronesia, and several other islands. Your residence in these places will give you the same benefits as a US resident, but once you stay “outside of the United States”, the conditions for taking advantage of your US Social Security benefits change.
To be in other places aside from those mentioned above for 30 consecutive days means you are already “outside the United States” and your benefits as a US expat retiree may be withheld. You may return to the United States for at least 30 days in a row and once you are considered as returned, you can start receiving the withheld retirement payments.
The ideal means to get your payments
Once your residence in a country where no restrictions for US retirement benefits are imposed, there are two ways to choose how you want to receive your benefits.
Receiving payments through a paper check
This is the most common way to receive benefits. Consider the postal service available in your foreign country of residence. If the postal services are not reliable, this may not be the best option.
You also have to consider the requirements regarding your local bank when you want to cash these checks. The process requires verification by the US Treasury Department. Documents have to be mailed to the United States for this process. After verification, the papers will be mailed back to your local bank. The moving of papers may go for a certain amount of time, say a few weeks, and this is another factor to consider if you want to get hold of your money in a faster time frame.
There is also the risk of losing the check during the forwarding processes. Although the US Social Security Administration allows replacement of lost or stolen checks, this still needs more time and may need more patience on your end.
Receiving payments through an electronic payment service
The innovations of technology allow for the fast and easy transfer of money. The first time you apply for your Social Security retirement benefits, you can already sign up for electronic payments. You can still enroll in an electronic payment service even after you start receiving your benefits through paper checks.
The benefits of receiving your payments through the electronic means are as follows:
- faster money transfer (from one to three weeks faster)
- no more cashing fees and procedures
- no more conversion fees
While residing offshore, you may choose the organization where you want your payments to be deposited directly and electronically. The only restriction is if you are residing in one of the mentioned countries above where even electronic payments are not allowed.
You may be charged a certain amount for wire transfer purposes. This is possible when you deposit your money in a bank account within the United States and then decide to transfer it to your foreign bank account. The good news is there are countries with an international direct deposit agreement with the United States wherein the Social Security Administration will cover the cost of the fees. That means you get your money without any additional charges.
Receiving payments through Social Security Administration’s debit card
The Direct Express debit card is where your payments can be directly deposited. You can also use it to pay bills, make purchases, or withdraw money. You can sign up for this card at USDirectExpress.com
Benefits and taxes
If you receive income aside from your Social Security, you have to tax your benefits on your US tax returns. The procedure is the same as if you are a US resident. Other income may be tax-exempt depending on the provision and tax treaty. If the income is taxable in a foreign country, you may take credit from it for an offset on your tax bill.
Things to report
Every six months or every two years (depending on which foreign country you reside), the Social Security will be sending a questionnaire to find out your eligibility for the benefits as US expat retiree. The following things will have to be reported to them:
- Change of address
- Work outside the United States
- If you return to work or your disability improves
- Divorce or annulment
- Adoption of a child
- Child leaves the care of a spouse or surviving spouse
- Child nearing age 18 is a full-time student or disabled
- Inability to manage funds
- Deportation or removal from the United States
- Changes in parental circumstances
- Eligibility for a pension from work not covered by Social Security