by Barbara Frew
author of Personal Finance for Overseas Americans: How to direct your own financial future while living abroad

The tradeoffs between career opportunities in different countries and government sponsored retirement benefits are difficult to assess. If your career involves several non-U.S. employers and takes you to multiple countries, you could pay social security taxes to several countries but still never receive any government sponsored retirement benefits.

To help Americans whose careers take them overseas, the United States has negotiated bilateral social security treaties, called totalization agreements, with several countries: the latest is with South Korea and is effective April 1, 2001. The 18 countries that have signed totalization agreements with the United States are: Austria, Belgium, Canada, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Norway, Portugal, South Korea, Spain, Sweden, Switzerland, and the United Kingdom.

Earning Credits

You earn social security "credits" with the social security administration of the country that you pay social security taxes to. In other words, if you pay U.S. social security taxes on your income, regardless of whether you earn that income in the United States or in one of the agreement countries, you earn social security credits with the U.S. Social Security Administration. Likewise, if you pay host country social security taxes on your income you earn social security credits in that country's social security system (regardless of whether or not the host country has a totalization agreement with the United States). You typically earn credits based on your income. In 2001, you earn one U.S. social security credit for each $830 dollars of earnings, up to a maximum of four credits per year.

Paying Social Security Taxes

If you work in one of the agreement countries, you will either pay U.S. social security taxes or host country social security taxes, but not both. Which you pay depends on your hiring status. For example, if your U.S. employer assigns you to a temporary overseas position (not to last more than five years) in a totalization agreement country you will pay U.S. social security taxes.

Similarly, you pay U.S. social security taxes if you work for a U.S. affiliate overseas that has agreed (under Section 3121(1) of the Internal Revenue Code) to pay U.S. social security taxes for its U.S. citizen employees. If you work for a non-U.S. corporation or affiliate in one of the agreement countries, you will pay social security taxes to that country. If you work in a country that does not have a totalization agreement with the United States, you may pay social security taxes to both the United States and your host country.

Qualifying for Benefits

You need 40 credits to qualify for U.S. social security retirement benefits. If you have a minimum of six U.S. credits they can be combined with credits earned in one of the agreement countries. The number of "totalization" credits will determine whether or not you qualify for U.S. retirement benefits. Similarly, your U.S. credits can be combined with credits earned in one of the agreement countries to help you qualify for benefits in that country. Note that only your credits are combined, not your earnings and your earnings determine the size of your benefit.

If your career takes you to non-agreement countries, your chances of qualifying for social security retirement benefits are greatly reduced as foreign social security credits earned there cannot be added to your U.S. social security credits and vice versa.

It is possible to qualify for social security benefits in another country. Many countries have a two-tiered system requiring the potential beneficiary to meet residency requirements as well as have a work historyoften of ten years or more.

Your Potential Benefits

The amount of your U.S. social security retirement benefit will be based solely on the earnings on which you paid U.S. social security taxes (whether you earned that income in the United States or abroad). Similarly, retirement benefits from another country will be based solely on the earnings on which you paid that country's social security taxes.

In principle, you could qualify for benefits in both the United States and another country. If that occurs, your U.S. social security benefits will be reduced as may your retirement benefits from the other country.

Retirement Planning

As you see, your career choices can have a significant impact on your social security retirement benefits. If you plan to work for U.S. corporations or their affiliates then the totalization agreement countries have appeal, but there are problems. Generally, you can only work in one of the totalization countries for five years.

Another option is to plan to work overseas in one country long enough to earn the requisite number of credits needed to qualify for that country's benefits. Be sure to learn the details of that country's benefit system as you may need to retire there to qualify for and receive benefits.

If your career will not allow you to qualify for social security retirement benefits negotiate a higher pay package. Invest the extra money to supplement your retirement income.

To learn more, visit the U.S. Social Security Administration's website at: www.ssa.gov/international. There you will find each of the totalization agreements in brief and in full, and links to several foreign "social security" administrations.

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Personal Finance for Overseas Americans: How to direct your own financial future while living abroad
by Barbara Frew

As an American living overseas your finances are complicated by U.S. and foreign laws and practices that affect everything from buying insurance to buying mutual funds. To make the financial choices that are best for you, you need information pertinent to your life style. Personal Finance for Overseas Americans provides that information along with sound financial strategies and methods that work for the long term.