Anne Elliot

I’ve trawled through numerous threads and not found anything relevant to our family situation. DH has paid into US Social Security (SS) for 14 years. He’s already retired living off our savings and is now almost 62. I am much younger than him and we have a 10 year-old daughter. We are thinking it is a good idea to claim SS early as she will receive SS payments. He has worked in 3 non-US countries total, one for 18 months, another for 5 years and the UK for 16 years.

It’s a complicated mess as we really have no idea what he will get from these two other country’s schemes, if anything, or in fact the UK State pension. He also contributed to ‘money purchase’ type pension schemes in two countries. One is an insurance policy which pays out at 65, the UK one is a money-purchase style scheme where he chooses the investments, so their estimates of “the fund could buy you a taxable yearly pension of xxxx” are complete baloney if the stock market crashes.

He applied for SS online and has been asked for PROOF OF ANNUITY/ PENSION, then handwritten it says NOW + FUTURE.

How does he answer this honestly? The form is full of ‘declared under penalty of perjury’ type threats. We realize this information is required to work out how much SS should be taken away for the WEP. From looking at the calculator online it appears that when he receives more than $900/month from elsewhere the maximum is reached and he loses no more SS. If his private pensions are included in this calculation his payments should definitely be more than $1500/month. State pensions alone, however, would not be anywhere near $900/month.

Are the foreign private pension arrangements, effectively 401k type plans, counted?

What sort of ‘proof’ is the SS office looking for?

If anyone has been through this and can shed any light I would be very grateful.

nun

Retirement income generated from any no SS wages will reduce the amount of SS your husband will receive with the maximum reduction being 50%.

If you don't know the amount of pension income you can tell SSA the balance of the retirement account and they will use standard actuarial calculations to come up with the income.

Anne Elliot

Thank you nun,

I'm glad you have replied as I've seen your comments before and get the feeling you know what you're about.

In effect then, all non-US pension arrangements, public or private are counted against SS. If DH shows details of pensions to reduce his SS by half the SS administration will not come after us if there is another small amount to come crawling out of the woodwork when he investigates this at age 65. He will already be at the lowest amount possible.

It's complicated - thanks!

Pulaski

Only if they were paid for with non-US-taxed income. If you used US taxed income to buy additional years towards a British state pension then the proportion attributable to the additional years is excluded. IIRC There are also some pensions that are granted by the virtue of time rather than income that can be excluded. But it sounds like all your husband's pensions are WEPable.

Has your husband considered buying additional years towards a British state pension? If he hasn't contributed to NI in recent years he might be eligible to contribute as many as seven years of contributions (current year plus upto six years of arrears), which would be about £1,000 if he is elegible to pay Class 2 contibutions, or about £5,000 if he had to pay Class 3 contributions, however eligibility depends on whether he is working, when he stopped working, and where he lives. He would need to contact the DWP in Newcastle to find out his eligibility, and the international department if he is outside the UK.

kodokan

Am I mis-reading you, nun - WEP doesn't halve your SS, does it? From this table, I thought it reduced the amount of your SS pension by half the amount of the foreign pension, to a max of (presently) $428 if you have less than 20 years of SS earnings.

(Edited above as not worded very clearly.)

https://www.ssa.gov/planners/retire/wep-chart.html

OP, for your husband's foreign state pensions, try looking on that country's government website. We'll be receiving a Swiss state pension for time spent there, and by inputting the wages earned there (and therefore the SS/ National Insurance-a-like paid) on their website, we can get a very good estimate of what it will be in 15-20 years' time when it can be claimed.

For the UK private pensions, have you looked into how you might be taking them, based on the new provisions? It's not always straightforward - for example, I was thinking we'd take a large one of ours as a lump sum or a drawdown arrangement, but the plan administrators don't currently permit this; the only option is an annuity. To be able to take out lump(s), we'd have to move it to another provider, which might be problematic as a US resident. So I'm now assuming this one will be an annuity, unless the plan relaxes its rules.

Interestingly, the 'you might get a pension of this much' amount the UK provider is quoting us is substantially less than the notionally annuitized amount the US SS office would allow for, based on this table: https://secure.ssa.gov/poms.nsf/lnx/0300605364. So depending on your numbers work out, it might be better to try giving SS a copy of the latest statement and see if they'll use the annual figure provided, for WEPing purposes, rather than doing their own calculations. I don't know if they do - we're mid-40s so I have no personal experience of this yet.

Non-WEP related point - you mention about the possibility of a stock market plunge tanking the amounts. It would be a good idea to review the investments within the private pensions, to ensure you're not taking too much volatility risk this close to the pension being paid out or annuitized.

As an aside, has your husband been reporting his foreign private pensions for FBAR and Form 8938 purposes?

MidAtlantic

Yes, it is your US Social Security that is reduced.

Pulaski

I think you misunderstood what Kodokan explained badly.

Yes, your social security is reduced, by a maximum of half of your non-US (or US government) pensions, not by half your Social Security.

kodokan

Thanks, I know it's the SS that's reduced, but I thought it was reduced by half or n (max according to reduction chart) of the foreign pension, whichever was the greater. Not that the SS amount would be halved. Those are very different numbers for me.

kodokan

Thanks, I didn't phrase it well at all! Have rewritten, and made mental note not to post on BE while simultaneously getting the kids off to school

Ok, so what I thought was true is, as you were everyone, carry on...

nun

The max reduction $413 or 50% of the WEPable pension which ever is less.

"The pension amount for calculation is considered as a monthly benefit. ... On the other hand, if the pension is less than double the maximum WEP impact ($413 in 2015), then the WEP impact is reduced to half of the amount of your pension (as a monthly amount)"

Anne Elliot

We've not looked into this, but as it looks like his pensions are fully WEPable, we should.

Thanks

Anne Elliot

Thank you, will do.

We got in touch with the UK insurance company custodian at the beginning of this year after the new rules came in to ask and found out that his pension rules don't allow drawdown either. At that point we just stalled and have done nothing further.

I have noticed too that the amount the UK pension people are quoting as a 'you might get a pension of' is only about 2.5%. I know annuity rates are low, but really?! We have a statement from December 2015 which we will take in to the SS office. But I still think the point is moot for us, as even that lower amount will reduce his SS to the lowest amount.

Yes, understood. We should readjust among investments to make this pot more conservative.
Yes, we have been reporting, on the FBAR since we arrived in the US and more recently on our taxes each year too.

morpeth

Two questions as I am in somewhat similar situation.

I note you comment about minor child receiving US social security payments. If one takes early social security at 62, and one has a minor child, do they also receive social security payments ? I received a statement from social security and it seems to indicate that I would receive X amount at 62, but also having a minor child she would receive the same ! I have a hard time believing that. I called social security and they said yes but they didn't seem to clear.

Second, I have 10 years British contributions and debating whether to pay in more. Are there any benefits to my chlld , especially since we are living overseas ?

nun

UK pension companies are notoriously "tricky" so don't accept them saying you can't do drawdown. Look into moving the pension to a new provider.

Definitely don't buy a UK annuity right now as the rates are rock bottom. A joint life annuity with 3% escalation for a 65 year old couple will pay just 2.4%. Most couples would be better off just putting their money into a savings bond ladder paying 2%.

You should be rebalancing pension investments as the years go by, but be careful not to be too conservative. Also watch out for expenses in UK funds....they can be crippling.

Anne Elliot

It does seem quite amazing doesn't it that parents are rewarded for having children late in life - but that's the rules. You can search for the topic on the ssa.gov site and it's spelled out. In fact, for people who can afford to wait to take their SS at 70, for the inflation-growth of the extra amount that's added on by foregoing taking SS earlier, it seems weird that taking SS at 62 is the correct thing to do. But where there is minor child involved it increases the family amount so much for the first few years, that you can barely catch up by delaying. It shifts the break-even point to later in life.

I am not aware of any State Pension benefits to having children in the UK. And certainly none that are paid to an overseas resident. Someone will correct me if I'm wrong.