Retiring Overseas? 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 ages 55 and older say they want to spend their golden years in another country. Not only can it give you a great cultural experience, but it can also lower your cost of living if you choose the right place.

Before you make the move, however, make sure you understand how factors like your citizenship, length of absence from the United States, and country of residency can impact your Social Security benefits.

Social Security Benefits Abroad: Who’s Eligible?

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

Citizenship

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

• Citizens: You can receive Social Security benefits if you’re a U.S. citizen living overseas. Remember, you must qualify for benefits by working and contributing to Social Security for at least 40 quarters, which is 10 years.
• Noncitizens: As a green card holder, you can only receive benefits if you’re out of the country for six consecutive calendar months. This means you’ll have to return to the U.S. for one full calendar month to restart your benefits. You can bypass this restriction if you live in a country with a totalization agreement with the U.S., 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.

Restricted Countries

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

The Treasury Department doesn’t send Social Security payments to people living in Cuba or North Korea. You can claim any withheld payments if you lived in either country, as long as you’re a U.S. citizen and you 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 restricted payment conditions, which you can get 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 payment may also be affected if you live in a country sanctioned by the U.S. government.

Claiming Social Security Benefits As an Expat

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 get a couple of months’ head start before you decide to start collecting,” Harder said. This ensures there are no delays with your application and you receive your benefits on time. It also leads to a seamless transition, so there’s no interruption in benefits between the U.S. and your new home country.

This doesn’t mean that you can’t apply for benefits while you’re abroad. You can still do so online or at an embassy or consulate. But you may need to provide documents to prove your identity, such as a passport or a birth certificate.

Getting Benefits

Social Security benefits are paid via direct deposit. This can be done through U.S.-based financial institutions or those that have direct deposit agreements with the U.S. Some of the 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’re overseas. You can get a check if you live in a country where direct deposit isn’t an option.

Reporting Requirements

The SSA will send you a questionnaire every one to two years to determine whether you’re still eligible for benefits. Failure to complete and return this form can result in the cancellation of your payments.

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, over the phone, by mail, or by visiting a benefits unit at an embassy or consulate.

How Taxes and Exchange Rates Impact Your Social Security Abroad

Make sure you’re financially prepared before you make the big move abroad.

“Be sure you have an accurate financial plan projection and scenario testing using the local expenses at play in the foreign country,” said Michelle J. Gessner, CFP, owner and founder of Gessner Wealth Strategies. “Do your homework so that there are no unpleasant financial surprises.”

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

Taxation

You have to report any income you receive while living abroad, including your Social Security benefits, to the Internal Revenue Service (IRS). This applies to U.S. citizens and green card holders. If you are a nonresident, the SSA withholds a 30% flat tax from 85% of your benefits, which ends up as 25.5% withheld from your monthly benefits.

Social Security may also be taxed by the country you live in, so make sure you understand the tax laws of how your benefits are treated.

“Check whether the foreign country where you expect to live has a tax treaty in place with the U.S. to prevent double taxation, in which case only the incremental difference in tax would be owed to the foreign government,” Gessner said.

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

Currency Fluctuations

Your benefits may be calculated in U.S. dollars, but they’ll be spent in the local currency, which may be a challenge when exchange rates fluctuate.

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

Put simply, your purchasing power is affected by the exchange rate between the U.S. dollar and your new home country’s currency. If the U.S. dollar drops in value 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 think about where you’re going to live to get the most bang for your buck.

The Bottom Line

You can collect Social Security benefits while you’re living abroad if you’re a U.S. citizen, but there are restrictions if you’re a green card holder. Make sure you do your research about 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 that your benefits are paid on time, make sure you apply before you leave the U.S.