Dayle O. Blair | Qualifying for US social security when living abroad
American citizens and green card holders living outside of the United States (US) should pay US Social Security in order to secure a pension, life insurance, disability insurance, retirement insurance, and government annuity.
Today, life expectancy has increased, and many people are now living up to age 90 and above. So it is possible that you could spend one-third of your life in retirement. Therefore, you would want to get a monthly payment from the US Treasury from retirement age to death.
WHAT IS SOCIAL SECURITY
In the US, Social Security is a government programme designed to provide a safety net in the form of partial replacement income for qualified retired individuals as well as their spouses, children, and survivors.
To qualify for Social Security benefits while living outside of the US, if you are not working for the US government or a US company as an expatriate, then you must be working in a country that has a totalisation agreement with the US. A country with a totalisation agreement allows US persons who are employed in these foreign countries to access Social Security benefits even though they did not work in the US. But some conditions apply. Countries with a totalisation agreement may also benefit US individuals who are self-employed. However, self-employed persons may qualify for Social Security benefits while living in any foreign country, if they file US tax returns and pay Social Security tax.
If you are living and working outside of the US, the best way to qualify for Social Security benefits if you are not employed in one of the countries with the totalisation agreement is to use the self-employment route. Self-employment is based on the Self-Employment Contribution Act. It covers old age, survivors, disability insurance, and health insurance.
Self-employment income outside of the US is the net earnings from self-employment derived by an individual during any taxable year, along with director’s fee and partnership interest if more than two-thirds of the partners are US persons.
It is easy to show self-employment income, but the main income must be at least $1,410 per quarter in 2020 and $5,640 for the year. So outside of the US, you can employ your spouse if you are showing self-employment income so both can be benefited.
HOW TO QUALIFY FOR YOUR BENEFIT
Simply put, one must have 40 credits, which is four credits per year for a minimum of 10 years. Each quarter is equal to one credit, and you pay the minimum of $5,640 in 2020. However, if one becomes disabled, one may be qualified without the 40 credits by paying the minimum annual amount.
The more credits accumulated, and the higher income reported, yields a higher retirement benefit. So a self-employed person could strategically determine the amount of benefit he would want to receive at retirement by paying the required amount necessary to achieve the desired amount at retirement. Sadly, many self-employed persons fail to file a tax return and report income, and so at retirement, they cannot receive Social Security benefits while living outside of the US. However, persons living within the US, may receive some Supplemental Security Income (SSI), but such persons cannot be outside of the US for more than 30 days.
SSI is a programme run by Social Security that pays monthly benefits to adults and children in financial need who are age 65 or older, disabled (physical or has a mental problem that is expected to last at least a year or result in death), for example, being totally blind or with very poor eyesight. Disability requirements for SSI are the same as for Social Security, however, no work quarters of coverage are needed. There are certain limits for income and assets for SSI eligibility.
WHEN DOES ONE START GETTING BENEFITS?
Generally, you will start receiving Social Security payments between the ages of 62 and 70, but a widow/widower can start as early as age 50, and retirement benefits can start at age 60 and disability benefits at age 50. However, certain conditions must arise before one can receive payment before the full retirement age. Such conditions generally include death of a spouse or disability of a person.
Social security pays disability benefits to people who cannot work because they have a medical condition that is expected to last for more than one year or may result in death. To qualify for disability insurance the person must have worked long enough when he/she became disabled and made enough payments.
The following conditions will automatically qualify you for disability: vision and hearing loss, respiratory illness, anxiety, mental disorder, etc. These must be certified by a licensed doctor or psychologist.
FAMILY: WIDOWED, DIVORCED, CHILDREN
Family – When you start receiving Social Security retirement benefits, some of your family members will also qualify to receive benefits based on your records. Spouses and children can receive up to 50 per cent of your retirement benefit without affecting your benefits. For spouses to receive benefits, the marriage must be at least one year old.
Children – Children must be unmarried, under 18 years old, and under 19 years old if a full- time student.
Divorced – If you are divorced, your spouse can receive benefits based on your records even if you remarry.
Widow/widower – If you are the widow/widower of a person who worked long enough, under Social Security, you can receive full benefits at full retirement age for survivors or reduced benefits as early as age 60.
Medicare is a federal government-funded health insurance programme people over 65 and under 65 with certain disabilities. It is also for persons of any age with permanent kidney failure or other diseases. Medicare is a four-part programme covering hospital insurance, medical insurance, private insurance, and prescription drugs.
Generally, with Medicare coverage, one is considered to have health insurance and does not need to have other insurance as the federally mandated penalty for not having individual health insurance was eliminated in 2018. However, a self-employed person living overseas and making Social Security payments will be covered if he/she should become ill and need the benefits of the US health system.
With a devaluing dollar and increasing inflation in most foreign countries, some people who contribute to foreign pension plans will be surprised when they are ready to reap the benefits of their pension as the pension payments from the foreign currencies will not be worth much, and persons may need additional income.
The best hedge against future devaluation and inflation is to secure a US-dollar pension. A person can get the benefit of US pension, life, disability and health insurance for himself and his family. It would make sense that if you are living outside of the US, you should file your US tax returns, make your payments so that you get the benefits of the US Social Security programme in the form of pension, life insurance, health insurance and disability insurance and eliminate or mitigate the uncertainties of the future. One thing is certain, the US Social Security benefits will be honoured by the US Treasury, and that pension payment will be in your account on the due date of payment.