For many American retirees, living abroad can be ideal. It can be cheaper and let you spend your later years relaxing on a sunny beach or exploring ancient ruins. But there are many rules—related to what country you live in and other conditions—that affect your eligibility for Social Security retirement benefits and Medicare health coverage.
Here’s how to protect and maximize your Social Security and Medicare benefits if you retire outside the US…
If you are are US citizen who worked in the US, claiming Social Security retirement benefits while living in most foreign countries generally is similar to claiming if you live in the US, and you can complete the application online. If you’re a dual citizen, you generally can claim benefits in most countries as long as you can prove continued US citizenship.
And if you are not a US citizen but you are a citizen of any of several dozen foreign countries, including Chile, the Czech Republic, Israel, France, Germany and Spain, you generally can continue to receive retirement benefits. (For some of those countries, you must meet additional residency requirements if you are receiving payments as a dependent of survivor.)
You must accept benefit payments electronically, but the process is otherwise the same as if you were living in the US. You must meet Social Security eligibility requirements, which you can determine with the Social Security Administration Benefit Eligibility Screening Tool, and live in a country where the US government can send payments. Check another Social Security screening tool, the Payments Abroad Screening Tool, which will tell you whether the country that you are moving to qualifies. The US Treasury Department does not allow payments to be sent to Cuba, or North Korea, although if you are a US citizen, you can recover those missed payments once you move to a qualifying country. And generally, the government won’t send payments to Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine or Uzbekistan because orderly distribution of the money cannot be guaranteed in those countries—but if you will be living in any of these, check with your nearest foreign Social Security office or Federal Benefits Unit in the foreign country about whether you might qualify for an exception and how. One typical condition is that you must appear at a US embassy or consulate every six months while you are living in that country. Otherwise, your benefits will be withheld until you move to a country where payments can be sent.
If you do not qualify for continued payments, the Social Security Administration will stop payments after you have been outside the US for six full calendar months. Payments can restart when you come back to the US and stay for a full calendar month.
How to Choose the Right Bank
The Social Security Administration can send your payments electronically directly to your account at a foreign bank. Just as with many banks in the US, these automatic monthly deposits may help you avoid maintenance, ATM and transaction fees from the bank.
On the other hand, it can be easier, and worthwhile, to maintain a US bank account and have your benefits sent there. For example, some foreign banks may charge large wire-transfer fees and international-exchange fees when accepting your Social Security benefits. Best: Compare the total costs of various services from your existing US bank versus a bank in your new, foreign location. Also, make sure that the credit cards and debit cards you use will not charge any transaction fees, including foreign currency–conversion fees.
You Still Will Owe Income Tax
No matter where you live, if you’re a US citizen or a green card holder, you’re subject to US income tax. For an individual with income of $34,000 or more or a married couple with combined income of $44,000 or more, up to 85% of your Social Security benefits may be subject to federal income tax. You should file a federal income tax return every year…and make estimated tax payments throughout the year or elect to have the taxes withheld from your benefit payments.
You also may owe taxes in the country where you live, so be sure you understand local tax law.
Medicare does not offer any benefits outside the US, but it does offer benefits inside the US to enrolled participants who reside outside the US but visit the US from time to time. So for the most part, if you retire abroad, you will have to make other arrangements for medical care there. However, there are steps you can take that are financially advantageous and that mean you won’t be abandoning Medicare entirely.
What to do: If you are moving to another country before you initially enroll in Medicare, consider enrolling and starting to pay premiums when you become eligible whether that is before or after you move. The reason: There are stiff penalties—10% higher premiums for every 12-month period you could have been enrolled but weren’t—for enrolling after your initial enrollment period. When you are first eligible to receive Medicare benefits, this initial enrollment period lasts seven months. For example, if like most people you are eligible for Medicare when you turn age 65, the opportunity for initial enrollment begins three months before your 65th birthday and lasts for four months after (this includes the month that you turn age 65). However, if you plan to live abroad permanently or don’t feel you need the option of traveling to the US for Medicare-provided medical care, it may not make sense to continue to pay Medicare premiums.