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What happens to my Social Security dollars once I leave the USA?

Social Security provides retirement benefits to employees; retirement and survivor benefits to spouses and, in some cases, benefits to dependents. This alert pertains to retirement benefits only.

The right to retirement benefits is earned by paying Social Security taxes on wages and self-employment income. Forty quarters of covered earnings are required to be eligible for retirement benefits.

When an employee works in multiple countries over the years, he may pay Social Security taxes to more than one country. He may not accumulate enough credits for benefits in either country, or even worse, he may lose the benefits that are already vested but could not be paid out to him as a non–resident of the paying country.
To alleviate some of these issues, the United States has entered into agreements with certain countries to help employees:
1. Avoid double taxation while working abroad, and/or
2. Qualify for US benefits, by paying into their own country’s system, and/or
3. Collect US Social Security payments (if eligible), as residents of another country.

Unfortunately, many employees are not familiar with these international agreements and often they don’t have the resources or the time to plan correctly. One of these situations is demonstrated with the following example:

Ben’s story:
Ben was transferred by his employer in Israel to the Seattle area. Ben worked as a software engineer and Nina, his wife, was a home maker. After eight years, they decided to move back. They were so busy with the relocation that Social Security considerations were the last thing on their minds.

While working in Seattle, Ben had accumulated thirty-two quarters (8 years) of Social Security credits. He does not qualify for retirement benefits since he did not complete forty quarters of employment.

If he had qualified, the family’s annual benefits would have been:
1. Ben’s retirement benefits- $14,448
2. Nina’s retirement benefits – 50% of Ben’s benefits – $7,224
3. If Ben passes away, Nina’s benefits (as the survivor spouse) would increase to 100% of Ben’s benefits

If both Ben and Nina start collecting benefits at age 67 and live for 20 years in retirement, the total benefit would add up to over $433,000 in today’s dollars. Social Security benefits automatically increase each year based on increases in the Consumer Price Index.

Ben’s employers never mentioned these issues. His tax preparer was always focused on US income tax filings. Ben assumed that since he would not be a US resident, he would never enjoy any benefits from the contributions he and his employer made to Social Security over the years.

Fortunately for Ben, a way was found to make up the missing quarters and reinstate his benefits. It is important to note that all circumstances are different and there is not always a way to resolve such dilemmas.

Very often, newcomers to the USA are not familiar with the Social Security Administration and the benefits it may provide. Not understanding the rules or the lack of appropriate planning, could result in substantial financial losses.

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