02 Jul Can we get Social Security if we retire overseas?

Q. We are thinking of retiring overseas because of the cost of living. We are U.S. citizens. Can we still get Social Security? What else do we need to know?
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A. Moving overseas for retirement is a big step, and there’s lots for you to consider.

Let’s start with Social Security.

Whether or not you can collect Social Security benefits – retirement, disability or survivor’s benefits – depends on which country you move to, said Michael Pappachristou, a certified financial planner with RegentAtlantic in Morristown.

Social Security’s website has a search tool that shows in which countries you can still receive benefits.

Pappachristou said citizens remain eligible in most places, but there are certain countries to which Social Security will not send money, such as Cuba and North Korea.

“There are less than a dozen other countries in which citizens must meet strict conditions in order to collect their benefit,” he said.

You can learn more from Social Security here.

There’s plenty to learn about taxes.

Pappachristou said the United States taxes people based on citizenship rather than residency.

“As a U.S. citizen, your worldwide income remains subject to U.S. income tax whether you are living on U.S. soil or abroad,” he said. “Individuals may not necessarily be subject to U.S. taxes each year, but they are still required to file a federal return as long as they meet minimum tax filing requirements.”

So what income would be taxed?

The U.S. taxes all forms of retirement income, including distributions from a 401(k) plan or IRA.

“That income may be taxed by the country that the retirees decide to reside in as well,” he said. “Though many countries do not tax retirement income – similar to some states in the U.S. – it is critical that individuals have a clear understanding of their new country’s rules.”

It’s important to note that many countries tax individuals according to residency rather than citizenship, so it’s time to read up on how the countries you’re considering handle taxes.

Whether a state tax filing is required is dependent on the state of residence prior to moving overseas. It also depends on whether any income-producing assets, such as rental property, remain in the U.S., he said.

“In many cases, if you are considered a resident for tax purposes or if you have income that derives from a source within a taxable state, then chances are you will need to file a state tax return,” Pappachristou said.

He said there are four states that are known for difficulty in cutting ties and therefore making the expat tax filing process more complicated: California, Virginia, New Mexico and South Carolina.

You should also consider what changes for your retiree health care.

Pappachristou said Medicare will not pay for health care you get outside of the United States, except in three unique situations, none of which apply to this scenario.

If you plan to travel back to the United States frequently, or if you wish to return here to receive care, then it is worth keeping Medicare coverage, he said.

“International medical insurance policies are typically safe and reliable for those who move overseas and plan to travel a lot in retirement,” he said. “In many cases, health care overseas is more cost effective than it is in the United States.”

Also check the fine print of your life insurance policies.

Before you make the big move, Pappachristou recommends you rent for at least a year before deciding to make the move permanent.

“This does not only apply to retirees moving overseas, but even those flocking to states with lower or no state income taxes,” he said. “The idea of retiring to a region with warmer weather and lower taxes full-time seems ideal, but we have seen people regret this decision in the absence of family and changing seasons.”

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This story was originally published on July 2, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.