As Donald Trump returns to the White House, expats are watching closely, especially those relying on or planning to rely on Social Security benefits while living abroad.
Trump’s proposals to change Social Security funding and taxation could impact expats in various ways, particularly in terms of benefit security and tax implications. There truth is, like all things Trump, he’s been all over the place when discussing his Social Security Plans.
Here, we are best to sift through his codes and tells and explore how these potential policies may affect your Social Security’s stability, expat taxation, and considerations for retirement abroad.
1. Proposed Changes to Social Security Funding and Their Impacts on Beneficiaries
Trump’s agenda includes eliminating income tax on Social Security benefits, which would provide a tax break for many recipients but reduce Social Security’s overall funding by an estimated $950 billion over the next decade. This cut, coupled with proposals to end payroll taxes on overtime and tips, is expected to widen the trust fund’s deficit significantly, potentially leading to earlier insolvency.
Analysts project that under Trump’s proposed policies, the Social Security trust fund could be depleted by 2031, three years earlier than currently estimated. If no corrective actions are taken, this could mean reduced benefits, as by law, Social Security benefits would need to align with available revenue.
In a worst-case scenario, benefit cuts could reach as high as 33% by 2035 for those dependent on Social Security. For expats, who might have limited access to other U.S.-based retirement benefits, these potential cuts pose serious financial challenges.
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2. Expat Taxation on Social Security Benefits: A Potential Relief?
Trump’s proposal to end income taxation on Social Security benefits could provide relief to expats who pay taxes on these benefits to the U.S., even if they live abroad.
Currently, U.S. citizens living outside the country are subject to tax on Social Security benefits depending on their income level and the tax treaty between the U.S. and their country of residence. For example, many countries, including Canada, have treaties that offer relief or partial exemptions from double taxation on Social Security benefits.
Under Trump’s proposed tax relief, expats would no longer pay income tax on Social Security benefits at the federal level. This could lead to greater after-tax income for some, especially those in lower-income brackets.
However, if Trump’s policies lead to earlier insolvency, the longer-term cuts to Social Security could mean reduced benefits, offsetting some of the potential tax savings for beneficiaries living abroad.
3. Impact on Social Security Agreements with Foreign Countries
The U.S. has totalization agreements with over 30 countries, which help prevent double taxation on Social Security earnings and benefits. These agreements allow expats who have worked both in the U.S. and abroad to qualify for benefits from both countries, depending on each country’s agreement specifics.
Any changes to Social Security funding or benefits could indirectly impact the workings of these agreements, particularly if the U.S. is forced to cut benefits in response to funding shortages. Expats relying on benefits through such agreements should stay informed about any revisions in funding policies that might affect their eligibility or benefit amounts.
While Trump’s platform has not specifically addressed changes to totalization agreements, his broader tax and funding proposals could influence their stability in the future.
4. Economic Growth and Alternative Funding: Are They Enough?
To offset the funding gap in Social Security, Trump has proposed increasing economic growth and tapping into energy resources. He argues that increased oil drilling and a stronger economy could provide sufficient revenue to keep Social Security funded.
However, experts are skeptical of this approach, suggesting that the economic growth required to cover Social Security’s funding gap would need to be unrealistically high.
Additionally, even significant increases in energy revenue are unlikely to bridge the anticipated funding shortfalls.
5. What Should Expats Do to Prepare?
Given the potential for benefit cuts and uncertain tax relief, expats should consider taking proactive steps to secure their retirement plans:
- Review Retirement Savings: Diversifying retirement savings outside Social Security may help cushion potential benefit reductions.
- Stay Updated on Policy Changes: Monitoring U.S. Social Security policies, especially those affecting expats, will be crucial over the next few years.
- Consult Tax Advisors: Expats should review potential tax treaty benefits with a tax professional to optimize after-tax income.
Conclusion
Expats on Social Security should keep a close watch on the evolving policy proposals as Trump’s campaign unfolds. While tax relief on Social Security benefits may offer short-term gains, the broader funding cuts could compromise long-term benefits, creating challenges for those who depend on these funds while living abroad.
Remaining informed, diversifying savings, and preparing for possible changes are key steps expats can take to secure their financial future amidst potential shifts in Social Security policy.
SOURCES
For more detailed projections and insights, consult resources from CRB and Politifact which offer non-partisan analyses of Social Security policy proposals and their fiscal impacts
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Charles Bivona Jr aka “Coach JP Money”, is the founder of Coach JP Money. He is a seasoned expert in financial coaching and wealth-building. A multifaceted visionary, Charles is also a writer, global citizen, eco-activist, musician, artist, entertainer, entrepreneur, investor, life coach, and syndicated columnist.
Charles’ journey began with a solid education in accounting, finance, and business at the University of Nevada, Las Vegas, and California State University, Fullerton. At just 17, he made his first real estate investment with no money down, igniting a lifelong passion for financial independence. By 1998, he had achieved debt-free status and has been building wealth ever since.
As an entrepreneur, Charles owned and operated five national newspapers in the U.S. before transitioning to digital media. He founded and managed influential online platforms, including HireVeterans.com (2004–2020) and VT Foreign Policy (2004–2023).
A proud expat since the late 1990s, Charles resides in Baja, Mexico, with his wife whom he married in 1985. Together, they have three adult children and seven grandchildren. Their eco-conscious home, built with sustainable super-adobe techniques, is now a luxury retreat known as Hacienda Eco-Domes.
Under his music alias Johnny Punish, a name coined during his days fronting the underground punk band Twisted Nixon, he continues to inspire through his art and advocacy through his newest musical adventure; Punish Studios.
Today, as “Coach JP Money” Charles dedicates his life to helping others achieve financial mastery and personal success, sharing decades of experience and wisdom through his coaching, writing, and creative endeavors.
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