Social Security for American Expats and Retirement Abroad

By Frederic Behrens, Thun Financial Advisors, Copyright 2015

December 2014

Introduction: American Expat Social Security

and Retirement Abroad
Social Security is an important source
of retirement income for many Americans. Workers pay into the system
while they are employed and employers pay matching contributions.

Thun Financial Advisors, L.L.C.

is a U.S.-based, fee-only,
Registered Investment
Advisor that provides
investment management and
financial planning services to
Americans residing in the U.S.
and overseas.

Social Securitys guaranteed benefits

are then available to support workers and their families in retirement.
The size of a monthly retirement benefit largely depends on a retirees
earnings history, and how old a retiree is when they first begin taking
benefits. Benefits alone generally do not provide a comfortable standard
of living, but can be a vital supplementary income stream in addition to
other pensions and retirement accounts.
American expats working and retiring abroad may receive U.S. Social Se-

We maximize long-term
wealth accumulation for our
clients by combining an index
allocation investment model
with strategic tax, currency,
retirement and estate
planning. We guard our
clients wealth as though it
was our own by emphasizing
prudent diversification with a
focus on wealth preservation
and growth.

curity benefits if they are eligible. However, there are several special is-

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Madison, WI 53705
608-237-1318
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sues that American expats must first consider such as er, it is possible to begin benefits at any time between
bilateral social security agreements and foreign pen- age 62 and age 70. If a decision is made to receive bension plans that can impact the total amount of benefits efits early, benefits are reduced a fraction of a percent
received. This Thun Research note addresses common for each month before full retirement age. When a deissues American expats and their foreign spouses en- cision is made to receive benefits later, the benefits are
counter when receiving U.S. Social Security benefits increased each month after the retirement age of 65.
abroad. Furthermore, Social Security strategies to max- Thus, even though someone is eligible for Social Securiimize wealth accumulation with this important retire- ty benefits, an overall analysis of a retirees finances is
ment asset are also discussed.

required to decide when it is best begin receiving payments. This topic is further discussed in the last section

Receiving U.S. Social Security as an

American Living Abroad

of this article.

Americans retiring

American expats must consider several other issues

abroad may receive

before taking Social Security payments. If a retiree

Social Security ben-

worked part of their career in another country, under-

efits

the

standing bi-lateral social security treaties is essential.

as

These treaties will indicate if time working abroad will

long as they are

count toward the 40 credits required to receive Social

eligible. In addition,

Security system benefits. Additionally, American expats

United

outside

States

Americans who spend parts of their careers working in may find that their benefits are reduced because of
another country may also be eligible to receive U.S. contributions made to foreign pension systems while
Social Security benefits and foreign government pen- working abroad through Social Securitys Windfall Elimsions. To receive Social Security retirement benefits, a ination Provision (WEP). The next two sections provide
worker must have contributed to the Social Security a brief overview of these two major issues and how
system for a minimum cumulative total of at least 40 they affect retirement planning for Americans abroad.
quarters (10 years).
Most people apply for Social Security retirement bene-

Bi-Lateral Social Security Agreements and Totalization Agreements

fits when they reach full retirement age, which is 65 Many American expats find themselves working a large
years for people born before 1937, and gradually in- portion of their careers abroad. If an expat worked less
creases to 67 years for people born after 1960. Howev- than 40 quarters under Social Security in the United

Thun Financial Advisors Research | 2015

States, but also contributed to an equivalent social pro- cient time is put into either system to qualify exclusivegram in a country with which the United States has a ly for its social insurance program, but enough combilateral social security agreement, they may still be bined time would qualify for one countrys social secuable to obtain Social Security retirement benefits. The rity program, then each country will pay out its proporbilateral agreements that permit this are specifically tionate share in retirement of the benefits that the emreferred to as Totalization Agreements.

ployee earned. This is very beneficial for an American

expat who works in one of the 25 countries (mainly

As of 2014, the United States had entered into Totaliza- Western Europe) with such Totalization Agreements.
tion Agreements with 25 countries. Totalization Agree-

dual Social Security taxation, the situation that occurs

Windfall Elimination Provision (WEP)

Could Change Social Security Benefit

when a worker from one country works in another

The Windfall Elimination Provision (WEP) is also some-

ments have two main purposes. First, they eliminate

country and is required to pay social insurance taxes to thing that American expats working abroad and exboth countries. Second, the agreements fill gaps in ben- pecting to receive Social Security benefits must become
efit protection for workers who have divided their ca- familiar with. The WEP affects American expats if they
reers between the United States and another country.

earned a pension in any job where they did not pay

U.S. Social Security taxes and also worked in other jobs

The Social Security benefit gap can occur if an expat is long enough to qualify for U.S. Social Security benefits.
working in certain countries with no Totalization Agree- Typically, this would be Americans who work abroad
ments. For example, if the U.S. citizen is working in a for a foreign employer, but also contributed to the U.S.
country without a Totalization Agreement, they may Social Security System in the past. Without the WEP,
not work enough quarters to qualify for the social in- the worker would effectively be double-dipping by resurance benefits of either the United States or the for- ceiving full benefits from both plans. In an extreme
eign country. They will be denied the benefits from case, a retiree could work two-half careers and get al-

both countries, although they paid into both of them. most two full pensions. The WEP is used in determining
This occurs even though their total combined years in all benefits on the record, both for the primary benefiboth countries would meet the requirements for one or ciary and any auxiliaries. This includes an effect upon
both countries retirement systems.

the maximum total benefits paid on the record as well.

Since the WEP does not apply after the death of the

A Totalization Agreement, on the other hand, tracks primary beneficiary, it is never used for Social Security
the total quarters worked in both countries. If insuffi- survivor benefits.
Thun Financial Advisors Research | 2015

The Social Security Administration has a website that benefits. First, non-citizens may receive social security
will allow an American expat to enter their earning his- benefits abroad if they lived in the United States for at
tory into a calculator to derive the potential deduction least five years as a married couple. Second, if your
that might occur due to the Windfall Elimination Provi- spouse is a resident or citizen of certain countries that
sion. However, the resulting reduction cannot be more have social security agreements, then they can receive
than 50% of your pension based on earnings after 1956 benefits. Importantly, foreign spouse will generally be
on which you did not pay Social Security taxes. For able to receive Social Security survivor benefits. For
comprehensive retirement planning, American expats more information, including a full list of countries exmust calculate how the Windfall Elimination Provision empt from the residency requirement and the Social
will affect retirement plans and adjust accordingly.

Security office you can contact with more questions, go

to the Social Security Administrations online publica-

Can Foreign Spouses Receive U.S.

Social Security?

tion entitled Your Payments While You are Outside the

United States.

Many American expats end up marrying a foreign

spouse. Depending on the situation, the foreign spouse
may be eligible for spousal and survivor social Security

Maximizing Retirement Wealth

with Social Security Planning

Benefits. The next section gives a brief overview of gen- Deciding when to start Social Security payments reeral rules regarding the treatment of foreign spouses quires a comprehensive analysis of all retirement asfor determining Social Security benefits. For more

sets. Many workers decide to claim Social Security as

detailed information concerning a specific situation, it soon as possible, but they may regret that decision latwill be essential to visit the Social Security Administra- er in retirement. Claiming benefits early at age 62 protion website to check for regularly updated policy and vides valuable retirement income, but it also triggers a
tax treaty changes.

reduction in monthly payments because retirees collect

them over a longer period of time. As of 2014, some-

The general rule is that with any spouse who is not a one who begins to take Social Security benefits at age
U.S. citizen or green-card holder, Social Security pay- 62 will receive a full 25% less per month than they
ments to them must stop if the spouse has been out- would if they waited until age 66, the full retirement
side of the U.S. for six consecutive calendar months. age. After paying into the system for decades, it is
However, there are many exceptions that could easily tempting to start your Social Security payments as soon
qualify a non-American spouse to receive Social Securi- as you can, but the decision to sign up for benefits dety if the American spouse is receiving Social Security serves careful consideration.
Thun Financial Advisors Research | 2015

Taking the money early might seem attractive, but it

Conclusion

means settling for a lower monthly payment, which The Social Security Administration is not a financial adcould lead to lower overall social security payments visor and will not provide detailed information on stratduring a retirees lifetime. The optimal claiming deci- egies for maximizing Social Security benefits. To make
sion for each individual depends on many factors, such an informed choice about beginning Social Security
as total liquid assets, expected mortality, employment benefits, it is essential to review a retirees household
opportunities, and health concerns.

budget, health, financial savings, life insurance, and

plans to work in retirement. With a complete financial

As a general rule, early or late retirement will give you picture in mind, strategies to maximize Social Security
about the same total Social Security benefits over your benefits can be made.
lifetime. If you retire early, the monthly benefit
amounts will be smaller to take into account the longer In addition to these basic concerns, Thun Financial Adperiod you will receive them. If you retire later, you will visors understands the unique challenges faced by
get benefits for a shorter period of time but the month- Americans living outside the United States. We underly amounts will be larger to make up for the months take comprehensive analyses for our clients as to the
when you did not receive anything.

best time for them to being taking Social Security payments, including the effects of Totalization Agreements

After deciding when to begin benefits, receiving social and relevant Windfall Elimination Provisions. The resecurity payments largely depends on country of resi- sults will be incorporated into an overall integrated fidence and the method used to set up the payment with nancial plan and investment strategy.
the U.S. government. Since there are some restrictions
on using a foreign bank account, the best solution is to
use an American bank account to receive these payments. Money can then be withdrawn in a foreign

country or transferred to a local country bank account

via wire transfer.

Thun Financial Advisors Research | 2015

DISCLAIMER FOR THUN FINANCIAL ADVISORS, L.L.C., THE INVESTMENT

ADVISOR
Thun Financial Advisors L.L.C. (the Advisor) is an investment adviser licensed with
the State of Wisconsin, Department of Financial Institutions, Division of Securities. Such licensure does not imply that the State of Wisconsin has sponsored, recommended or approved of the Advisor. Information contained in this brochure is for
informational purposes only, does not constitute investment advice, and is not an
advertisement or an offer of investment advisory services or a solicitation to become
a client of the Advisor. The information is obtained from sources believed to be reliable, however, accuracy and completeness are not guaranteed by the Advisor.

Contact Us
Frederic Behrens
Thun Financial Advisors
3310 University Ave
Madison, WI 53705
608-237-1318
Visit us on the web at
www.thunfinancial.com

The representations herein reflect model performance and are therefore not a record
of any actual investment result. Past performance does not guarantee future performance will be similar. Future results may be affected by changing market circumstances, economic and business conditions, fees, taxes, and other factors. Investors
should not make any investment decision based solely on this presentation. Actual
investor results may vary. Similar investments may result in a loss of in investment
capital.

Copyright 2015 Thun Financial Advisors