Key Takeaways
- Social Security benefits remain U.S. taxable income even when you live abroad, and they can’t be sheltered with the foreign earned income exclusion (FEIE).
- Totalization agreements and foreign pensions can affect your Social Security eligibility and the net value you ultimately receive as an expat.
- Where you live, how you’re paid, and your spouse’s citizenship and residency status can influence whether, how and in what currency your Social Security benefits are paid.
U.S. expats face many financial challenges when living overseas, and planning for Social Security benefits is no exception. If you’re thinking about Social Security for American expats and retirement abroad, it’s important to understand how benefit payments work once you leave the United States, how they’re taxed and how they interact with foreign systems and currencies.
For a broader overview of how Social Security fits into your overall retirement income as an expat, see Social Security for American expats and retirement abroad.
Social Security Tax Liability
Because they’re U.S.-sourced, Social Security payments can’t be excluded from taxation using the foreign earned income exclusion (FEIE), which only applies to foreign-sourced income. Once you begin receiving Social Security benefits, up to 85% of your payments may be subject to U.S. income tax at ordinary rates, depending on your other income and filing status.
For some American expats, the foreign tax credit (FTC) can help reduce the risk of double taxation on worldwide income, but it doesn’t change the fact that Social Security is treated as U.S. taxable income. If you’re considering retiring abroad, review how your expat taxes will work overall, including how the FEIE, the FTC and any applicable tax treaty might affect your combined retirement benefits and other income sources.
Dual Coverage and Totalization Agreements
If you worked overseas for a portion of your career and also contributed to the U.S. Social Security system for at least 40 quarters (10 years), you may be eligible to receive both a foreign pension and U.S. Social Security retirement benefits. Before starting benefits, it’s essential to understand how bilateral Social Security totalization agreements may impact your eligibility.
The United States maintains Social Security totalization agreements with a number of foreign countries. These agreements are designed to avoid dual Social Security tax coverage and help workers combine Social Security credits from both systems if they fall short in one or the other. If you’ve worked fewer than 40 quarters in the United States but have also contributed to a comparable program in a country that has an agreement, you may still qualify for U.S. Social Security benefits.
You can review the current country list and agreement details at the Social Security Administration’s (SSA’s) International Programs and Resources page and U.S. International Social Security Agreements page.
Currency Challenges, Benefit Payments and Direct Deposit
Social Security benefit payments are calculated in U.S. dollars but can often be paid in a foreign country and converted into local currency, which can lead to significant variations in your purchasing power driven by exchange rate fluctuations. It can be difficult to count on a specific payment amount each month when exchange rates are in constant flux, and this can affect your day-to-day retirement income and budgeting.
In many countries, you can receive your Social Security payments via international direct deposit to a local bank account, which may reduce transfer delays and currency conversion costs. The SSA provides a Payments Abroad Screening Tool to help you determine whether your benefit payments can continue if you retire in a particular country — and whether any restrictions apply.
Your international wealth manager can help you plan for currency swings and banking logistics, including how best to structure your accounts and direct deposit arrangements to support your long-term spending plan in retirement.
Spousal Benefits for Foreign Spouses and American Expats
A foreign spouse may qualify for spousal or survivor Social Security benefits based on their spouse’s U.S. Social Security contributions. However, the rules for American expats and their families can be complex, and they vary based on the spouse’s citizenship, where they live and whether the country is on one of the SSA’s payment lists.
In many cases, a non‑U.S. spouse can claim a Social Security benefit as a spousal or survivor benefit, but some non‑U.S. citizens may see their benefit payments suspended if they live outside the United States for more than six consecutive months unless an exception applies under SSA rules or a Social Security agreement. Our article on Social Security benefits for non-U.S. citizens living abroad covers these nuances in more detail.
If you or your spouse also expect a foreign pension, it’s still important to understand how that benefit will interact with your U.S. Social Security benefits, local tax rules and any applicable tax treaty as part of your overall retirement planning.
Action Items for U.S. Retirees Abroad
As a U.S. expat, your Social Security retirement benefits are just one part of a broader cross-border plan that also includes expat taxes, foreign pensions, investment accounts and estate planning. Make sure to:
- Understand where and how you can be paid. Use the SSA’s Payments Abroad Screening Tool to confirm that your benefits can continue in your destination country and determine whether you can use local direct deposit.
- Plan for tax and treaty impacts. Social Security is taxable U.S. income, even abroad, so evaluate the tax implications with respect to the FEIE, the FTC, expat tax rules and any applicable tax treaty before you claim, using resources like the IRS guide for U.S. citizens and resident aliens abroad.
- Check your credits and coordinate with foreign systems. Review your Social Security credits, any Social Security totalization agreement and how your foreign pension interacts with U.S. rules so that you’re not surprised by benefit reductions or gaps.
Could you use help navigating the Social Security challenges you face as a U.S. expat? Creative Planning International is here for you. Our fiduciary wealth managers work with Americans living abroad and cross-border families to help them maximize their wealth and avoid costly mistakes. We understand the complex interaction of multi-jurisdiction tax and regulatory regimes and take into account currency, diversification, tax and other portfolio considerations as we help you plan and invest for the future.
