You're an Australian citizen who has lived and worked in the United States for years. You've paid into Social Security the entire time. But what happens to your benefits when you decide to move back to Australia?
Does your return to Australia mean giving up your Social Security benefits?
Can you still receive Social Security without living in the U.S.?
And what if you've worked in both countries — can you collect from both?
Read on for answers to these questions and others you may have about receiving Social Security as a returned Australian.
Social Security (SS) is the name for the Old-Age Survivors and Disability Insurance (OASDI) program in the United States.
It is run by the United States Social Security Administration (SSA), and it's a social insurance program that provides income to retired or disabled workers and their families. The Social Security benefit is an income stream that gets paid to you, starting at your ‘Full Retirement Age (FRA), for as long as you live. There is also often a spousal benefit.
As a worker in the U.S., you pay Social Security taxes, which take 6.2% of your wages out of your earned income. Your employer pays an additional 6.2%. To qualify for Social Security, one needs to work for 10 or more years (40 quarters), although these years do not need to be consecutive. If you qualify for Social Security, you can begin to take your benefits starting at age 62.
And if you are wondering, “Do I have to pay Social Security tax as an expat living in the U.S.?” The answer is, yes. Anyone who works in the United States has to pay Social Security taxes, but this also means that you may qualify for Social Security benefits in retirement.
If you're an Australian who has worked in the U.S. and paid into Social Security, the good news is you can still receive your benefits even after repatriating to Australia.
In fact, according to the Social Security Administration, about 700,000 beneficiaries are receiving Social Security benefits outside the U.S.
To understand how Social Security works for those living outside the United States, you need to know a little about the U.S. tax code. Let's say you have been a U.S. citizen for 20 years, and are now returning to Australia. The United States has citizenship-based taxation, which means regardless of where you live, if you are a U.S. citizen or Permanent Resident, you must report various financial facts and file your U.S. taxes.. The U.S. Tax Code views all American citizens and Green Card holders as U.S. tax residents. You won't necessarily be double taxed, as many countries have tax treaties with the United States, but you'll need to file a tax return to determine how much (if any) you owe.
So if you are a dual citizen of Australia and the United States or a U.S. permanent resident, and you have returned to Australia, you still have tax obligations to the U.S. government. In addition to this, as long as you are vested in Social Security—meaning you have worked at least 40 quarters—you will receive the Social Security benefit when you retire. If you have accrued fewer than 40 quarters in the U.S. but also worked in other countries, you might still qualify for Social Security benefits due to international social security agreements, or Totalization Agreements.
Legal residency is unrelated to your Social Security benefit, thus you can receive your benefit even if you are in, or plan to return to Australia, or have been living outside the United States for years. You may even receive it if you relinquish U.S. citizenship or surrender your green card.
The Social Security Administration uses a formula to calculate your benefit through your 35 highest-earning years. You can start receiving the benefit at age 62—at a reduced rate, or wait to take your Social Security at your Full Retirement Age (FRA). Your FRA is determined by your birth year. If you wait to receive the benefit until after your FRA, you can receive 100% of your Social Security Benefit. Furthermore, you can gain a delayed retirement credit of 8% per year by waiting to receive Social Security until as late as age 70. For example, if your FRA is 67, and you wait to start receiving your benefit until you are 68, you will receive 108% of your benefit.
In addition to when you start claiming Social Security, there are a few factors that can impact your final benefit number:
Relocating back to live and work in Australia may or may not impact what you receive.
Your Social Security benefit could be impacted depending on:
It’s also quite possible that working outside the United States has no impact on your benefit—especially if you have worked long enough in the United States to meet the 40 quarter minimum (10 years).
The Totalization Agreement between Australia and the United States can help you if you have divided your career between the two countries. In fact, Australia has over 30 Totalization Agreements with various countries across the world, so if you’ve lived and worked in any of the countries that have a Totalization Agreement with Australia, you are in luck.
Totalization agreements, also called International Social Security agreements, exist to eliminate double taxation of social security benefits and simplify the coordination of benefits. They also allow globally mobile individuals to qualify for Social Security benefits.
This means that expatriates who have worked in multiple countries and have paid into various other benefit programs but have not achieved the minimum requirements to receive those benefits, may qualify to receive at least a partial benefit from another country.
Luckily for Australian citizens, the United States has 31 Totalization Agreements in place, including Australia. This can help you if you have worked in the United States but did not reach 40 full quarters of coverage before returning to Australia.
For example, if you accrued 25 quarters in the United States and 15 quarters in Australia, then you would qualify for at least some amount of Social Security retirement benefits.
For the Totalization Agreement to take effect and for you to receive any Social Security benefits you must accumulate at least 6 quarters of credit in the U.S Social Security system. Thus, if you have only accrued 5 credits in the U.S., you would not be eligible to receive any benefits from the agreement.
However, if you accumulate 6 or more credits in the U.S. Social Security system, the work you do in countries that have a Totalization Agreement with the United States can be combined with your U.S. work credits to help you qualify for benefits. This means, in theory, that you could work in the United States for 2 years, then spend the rest of your career in Australia and still qualify for U.S. Social Security.
As we've seen, if you are fully vested in Social Security, once you are 62 or older you are eligible to receive your Social Security benefits. Here are a few more considerations for returned Aussies.
Non-citizens of the US must be "lawfully present" to receive benefits according to Section 202(y) of the Social Security Act. Does this mean that returned Aussies are out of luck? No—the Totalization Agreement between the US and Australia eliminates this requirement.
You do not need to be a US resident, nor physically present in the US as long as:
Because Australia has a totalization agreement with the U.S, this means that returning Australian citizens can still collect their Social Security even if they're not physically in the U.S.
Another concern returning Aussies have is whether they can receive Social Security payments into a foreign bank account. There is no need to worry because you can have your Social Security payments deposited into a foreign bank account. The U.S. Treasury Department has authorized direct deposit of federal benefit payments into most financial institutions. There are a few payment restrictions—these are Iran, Cuba, and North Korea—however, Australia is not among these restrictions.
In general, spouses and dependents who are noncitizens of the U.S. must have resided in the U.S. for five years to receive benefits. However, there is an exception to this rule if you and your family reside in a country that has a Totalization Agreement with the United States.
Thus, if one spouse is eligible for Social Security, then a non-US citizen spouse can be eligible for spousal benefits — even if that spouse has never lived or worked in the U.S. Once again, the Totalization Agreement between Australia and the United States makes this possible.
You can potentially receive both the Australian Aged Pension and the U.S. Social Security benefits as an Australian resident. However, there are a couple of things to keep in mind.
Understanding your Social Security eligibility as a returning Australian citizen can be complex. Here are some of the main points for those repatriating to Australia from the United States.
However, your individual financial situation will dictate the extent of your benefits. Consulting with a financial advisor who understands the nuances of repatriation can be extremely helpful in planning your retirement.
As a returning Australian citizen, you have a complex financial situation. There are several factors to consider when it comes to claiming your Social Security, pension, and other retirement benefits. At Arete Wealth Strategists, we deeply understand the unique challenges you face as a cross-border citizen.
Access our comprehensive, unbiased financial guides here.