What Americans Living Abroad Need to Know
The Social Security Administration has announced its 2024 cost-of-living adjustment (COLA), which includes a 3.2% increase in benefits beginning in January 2024. While this adjustment is well below 2023’s increase of 8.7%, it still represents a healthy boost for Social Security beneficiaries.
As a U.S. expat, here’s what you need to know about the 2024 COLA.
This year’s COLA vs. past years’ adjustments
The following table highlights the biggest and smallest COLAs to give you an idea of how this year’s increase ranks.
|Biggest Increases||Smallest Increases|
Source: Social Security Administration.
COLA’s impact on American retirees living abroad
As a U.S. citizen living abroad, you may be eligible for Social Security benefits and related COLAs. Just as if you lived in the United States, your benefit amount will likely be influenced by several factors, such as your work and earnings history, your birth year, your marital status, the age at which you begin claiming benefits, etc.
If you’re already receiving Social Security benefits as a U.S. expat, the COLA will be automatically applied to your benefits beginning in January. For example, if you received $2,500 in monthly benefits in 2023, your 2024 benefit will automatically increase to $2,580.
The calculation method is a bit different for those who have reached age 62 but not yet filed for benefits. In that case, the COLA applies to the primary insurance amount (PIA), which is the benefit amount you would be eligible to receive at full retirement age. (For example, full retirement age for an individual born in 1960 or later is 67.) Your monthly benefits would then be based on your updated, COLA-adjusted PIA.
COLA’s impact on foreign pension payments
If you qualify for Social Security retirement benefits and a retirement pension from a job in which you didn’t pay into Social Security, you may be impacted by the Windfall Elimination Provision (WEP). Under this provision, your pension would be considered “non-covered.” Many foreign pensions fall into this category. Generally, the WEP reduces your PIA based on your years of substantial Social Security earnings. In addition, if your spouse is claiming a spousal Social Security benefit (up to 50% of the primary worker’s benefit), his or her spousal benefit would be based on your benefit after the WEP has been factored in.
The good news is, even if you’re subject to the WEP, you’re still eligible to receive Social Security COLAs. Also, survivor benefits aren’t affected by the WEP, which would be removed for your spouse or other family members if you were to pass away. Finally, if you have 30 or more years of substantial Social Security earnings, you aren’t subject to the WEP and remain eligible to receive your full benefit.
COLA and Medicare Part B
Monthly premiums for Medicare Part B will increase by 6% in 2024, which equals $9.80 per month for the average retiree. That means the majority of Medicare Part B beneficiaries will pay $174.70 per month for benefits. Individuals with a modified adjusted gross income (MAGI) that exceeds $103,000 and married couples with a MAGI that exceeds $206,000 are subject to higher monthly premiums that progressively increase, as indicated in the table below.
|Full Part B Coverage|
|Beneficiaries who file individual tax returns with modified adjusted gross income:||Beneficiaries who file joint tax returns with modified adjusted gross income:||Income-Related Monthly Adjustment Amount||Total Monthly Premium Amount|
|Less than or equal to $103,000||Less than or equal to $206,000||$0.00||$174.70|
|Greater than $103,000 and less than or equal to $129,000||Greater than $206,000 and less than or equal to $258,000||$69.90||$244.60|
|Greater than $129,000 and less than or equal to $161,000||Greater than $258,000 and less than or equal to $322,000||$174.70||$349.40|
|Greater than $161,000 and less than or equal to $193,000||Greater than $322,000 and less than or equal to $386,000||$279.50||$454.20|
|Greater than $193,000 and less than $500,000||Greater than $386,000 and less than $750,000||$384.30||$559.00|
|Greater than or equal to $500,000||Greater than or equal to $750,000||$419.30||$594.00|
Because Medicare Part B premiums are deducted from your Social Security benefits, the premium increase will reduce the net Social Security benefit you receive. The good news is that federal law prohibits a rise in Medicare premiums that is greater than the COLA. That means you’ll never see a reduction in net Social Security benefits due to rising healthcare expenses.
Medicare considerations for U.S. expats
Keep in mind that Medicare typically doesn’t provide coverage for healthcare expenses incurred overseas. However, it may still make sense to remain up to date on your Medicare Part B premiums, especially if you plan to return to the United States at some point in the future. Retirees who drop Part B and don’t qualify for a special enrollment period may be subject to permanent penalties and/or be ineligible for Part B coverage when they return to the United States.
If you live outside the United States and are tempted to drop your Medicare coverage and, as a result, no longer pay the premiums, be sure to consult with an expat fiduciary advisor before doing so. Your advisor can help ensure this strategy makes sense based on your current situation and goals.
Could you use some help navigating your Social Security and Medicare options as a retiree abroad? Creative Planning International is here for you. We work with cross-border families and non-citizens to help maximize their wealth and avoid costly mistakes. As expat fiduciary advisors, we understand the complexities faced by U.S. citizens living abroad. For help navigating your Social Security and Medicare options, request a meeting with a member of our team.
This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.