Expat Retirement – Don't Do What I Did
Make sure you qualify for US Social Security and Medicare, advises Carol Gould
If you are young - let’s say under thirty-five - please listen to me. If you are somewhat older - say, up to forty-five - please listen too. Why? From the outset may I explain that I am not a tax lawyer but simply a private citizen wishing to share my thoughts on retirement.
I lived in Great Britain from the age of twenty-two in 1976 and never once thought about my retirement years before it was too late. It happens - you spend all of your waking hours living a full life. I was never a big earner and in some years was plagued by ill health but my life was solely in Britain. Many Americans decide to make a life in the UK because they have fallen in love and embark on raising a family. What is vital to remember is that Britain, according to the OECD - the Organisation for Economic Cooperation and Development - has one of the lowest state pensions in the developed world. When I went on the march on Downing Street a few weeks ago as part of the WASPI campaign - Women Against State Pension Inequality - I spoke to Owen Smith MP who said he was keenly aware of the pitiful amount paid to British pensioners compared to that offered in other countries. (It should be pointed out here that European pensions are much higher than in Britain. In fact I argued pre-Brexit that if we were to Remain in the EU we should have equalisation with generous continental pensions.)
Don’t get cut out of the US system
So - if you want to go back to the USA someday in your older years do you want to be cut out of Social Security and Medicare?
The full British state pension adds up to a whopping £130 a week. Really and truly, who can live on that? Many will say, ‘Ah, but in the UK you have the National Health Service, which is worth its weight in gold,‘ but is a retirement income that barely covers the telephone, gas and electric bills a situation you really want? Let’s cut to the chase: here is what happened to me. I received this message from the Federal Benefits Unit in London earlier this year:
“The Social Security records show that you have 7 quarters of coverage under the US Social Security System. To be fully insured you need a minimum of 40 quarters. As the US Social Security Administration has a Totalization Agreement with the US/UK you can be entitled to retirement benefits from the US Social Security Administration under this agreement. Please visit the website which will provide you with general information on the Totalization Agreements that the US has with other countries.
“The approximate benefit amount that you would receive from the US Social Security Administration under the Totalization agreement at your full retirement age of 66 is $22 per month.”
OMG - I nearly had heart failure when I saw that amount. What is important to note here is that unlike the UK, the American pension system does not allow taxpayers to top up their pension pot. I asked the Federal Benefits Unit if I could pay in a lump sum to bring up my number of quarters, but no. Likewise my situation precludes me from benefiting from Medicare. One aspect of this Embassy appraisal is that I did pay in on the odd year several thousand dollars but in other years I was not liable for US tax. Were I able to spread those thousands over several quarters that would bring me closer to qualifying but this mechanism is not permissible.
So, what is the solution?
All these decades it would have helped had I had even an income from the USA - say, writing for a magazine or being a consultant to the US company. This is something you need to consider if you are young enough to keep yourself employed on both sides of the ocean - even part-time. Get those quarters ! One solution for me would be to go back to the USA now and work full-time until age 70 to accumulate more quarters. But do I really want to do that at my advanced age?
My advice to long-time expatriate Americans is to start saving at an early age in a flexible private pension scheme - not an annuity - so that you have some financial backup to compensate for the paltry state pension. Remember, too, that if you go back to the USA your state pension will not rise because the UK does not allow pensioners who move overseas to enjoy the annual increment. The ‘upheaval solution,’ as I call it, is to quit your UK domicile in your thirties or forties and to go back to the USA, get a job and start paying in to Social Security and Medicare. It is a painful choice but Social Security is considerably higher than the British state pension.
I remember visiting my mom in 1989 and her saying ‘Carol, you’ve got to start thinking about your retirement!’ I barked at her, ‘Oh, come on, I’m thirty-five - I’m not thinking about my retirement!’ I may have been a Phi Beta Kappa but boy, was that a dumb response. Suddenly at age 63 I am shocked that despite the advantage of the Equalization Agreement I needed to pay in to the American system from work done for an American employer. It keeps rolling around in my head that had I paid in to Social Security and Medicare the amount I paid in to the UK pension system all these decades, I would qualify for the top whack and have a happy retirement.
Frankly it frightens the hell out of me that £130 a week is all I get after nearly forty years of hard work overseas - and yes, I am grateful for the NHS and for free prescriptions. It is a grim prospect, as I see so many of my British retiree friends trying to make ends meet.
I hope this article has offered some warning lights on what to do if you are still young enough to make Social Security and Medicare a reality for your older years.
Carol Gould is an American journalist, author, filmmaker and broadcaster who has lived in the UK for years.