Will I lose government benefits by renouncing US citizenship

You’ve been paying into the system all these years. Will you lose it all if you leave?

This is Week Four of the 26 week series #MyEconomicCitizenship. Each week I give you a glimpse into my life as I share the ups and downs experienced in pursuit of a second passport through economic citizenship. Each feature includes my weekly journal walking you through the process of obtaining economic citizenship, followed by an in-depth look at some of the most important topics people considering economic citizenship should understand. The series is presented by Nomad Capitalist in partnership with Peter Macfarlane & Associates, whom I worked with to obtain my passport. To read the entire series, just click here.

Dateline: Tbilisi, Georgia

One of the reasons that many US citizens consider getting a second passport — whether it’s economic, ancestral, through naturalization or otherwise — is because they want to renounce their citizenship. US citizens are just about the only people on earth required to pay taxes on both active and passive income, no matter where they live.

While some entrepreneurs are able to minimize or even eliminate US taxation through the Foreign Earned Income Exclusion, not all business owners and self-employed individuals can shield all their income from US tax. In some cases, the only way to successfully eliminate US taxes and the onerous reporting requirements that come with US citizenship is to renounce that citizenship.

Whether you’re an employee earning a salary that goes above and beyond the FEIE limit, a business owner with a company “too big” to justify an exemptible salary of $101,300, a successful consultant working in your own name or a real estate investor who cannot exempt your passive income earnings, there are many logical financial reasons to renounce your US citizenship.

BUT, there is one issue. When I talk to people about renouncing US citizenship, I come across two different sentiments: excitement and worry. On the one hand, there are people who are excited about the idea and don’t care about losing their citizenship. For them, they know that at some point they will renounce. It’s going to happen.

The second type of people, however, are the ones who say upfront that they don’t want to renounce their citizenship. That’s fine. Still, the real reason for their refusal usually surfaces at some point and it often goes along the lines of: “I’ve spent all my life paying into these different systems and what happens to my money if I renounce my citizenship? Won’t it all just go away?”

In fact, I’ve found that people in both camps (especially if they’re older and have been paying into the system for a long time) deal with these types of questions.

So today I want to address these concerns and let you know exactly what will happen to your Social Security, Medicare and other government pensions if you were to renounce your US citizenship.

Social Security

We’ve already discussed how you can receive your Social Security benefits while living overseas, but it turns out that you can also maintain those benefits even if you renounce your US citizenship. In order to qualify for all Social Security benefits you are required to have worked at least forty calendar quarters in the US.

Essentially, that works out to be about ten years of work.

Fortunately, those ten years do not have to be consecutive. They can be any time you paid into Social Security, whether it was a childhood job or a corporate job on Wall Street.

However, you had to have met a certain earning limit for any three month period to qualify as a quarter. For example, in 2016, you must earn at least $1,260 in a quarter for it to count as a “quarter of coverage”. (You can go here to see how much you needed to earn in past quarters.)

Another important point to take into account, since 1978, quarters have been calculated annually. As ElderLaw explains it, if you earned $5,040 in January and February of this year and didn’t work for the rest of the year, you will still receive credit for four quarters of work ($5,040/$1,260 = 4).

If you meet the minimum requirement of 40 quarters, your earnings in those 40 quarters will be averaged out to determine how much you will receive in Social Security payments. Obviously, if you work more than the ten years, you will build up more.

The issue with Social Security for most of us who are a little bit younger, however, isn’t whether or not we’ll be able to receive payments if we renounce citizenship, but whether or not the money will even be around when we retire.

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Currently Social Security is not based on need, but on income earned throughout your working life. It may not always be like that. There is a chance that Social Security will eventually be means tested.

In other words, people who have any kind of net worth (maybe even foreign bank accounts tracked by FBAR) may not qualify for Social Security. If you have money overseas, a certain net worth, income from other pensions or annuities, or passive income from rental properties, etc. there’s a chance they could just say “You don’t get Social Security.” Or maybe you’ll just get half.

Certainly I think benefits are going to go down. But that’s a separate discussion. The point is that, whatever is left of the Social Security when it’s your turn to cash in, you will get whether or not you renounce your US citizenship. It’s your money. And, though I hate to say it, the US is actually a bit more fair than some other countries in this regard.

Now, of course, we’ve talked about Social Security in our previous article. They won’t pay you in a small number of countries, including Georgia for some reason going back 30 years. However, if you’re living in certain places you can get your Social Security benefits wherever you want. So it’s not a big deal.

Again, Social Security may not be around in that distant future in which your retire, but there may be some benefit to it. The most important thing to take away from all of this is that renouncing your citizenship will not have an impact. It will not create any more problems than the ones that already exist within the Social Security program. If you’re rich and you’re a US citizen, you’ll be a rich non US citizen.

Medicare

Just like Social Security, Medicare benefits are still available even after you renounce your US citizenship. However, unlike Social Security, those benefits are not available anywhere in the world. Only in the US.

The challenge with this is that most people are not going to get a passport that allows them visa-free access to the United States. At the moment, there are around 40 visa waiver countries that have visa-free access to the US. Chances are you won’t be getting a citizenship in one of them, especially if you’re buying a passport because the only visa waiver country that has an economic citizenship program is Malta.

So, unless you marry someone or go and live a high tax country for a while, chances are you will not have a second passport from a visa waiver country. And this is one of the things that a lot of US citizens are afraid of. If you get a passport from anywhere basically outside the European Union and the richest countries in the world (like Singapore), you’re not going to have visa-free access to the US.

What does that mean?

Well, Medicare does not provide benefits overseas. I do think that there will come a time — perhaps at the expense of higher taxes for the rich — when some politicians in the US will do what some companies have done and will just pay for you to fly to Malaysia to get medical care. I can see Medicare overseas being an option some day. But not today.

As of right now, to receive Medicare benefits you have to go to the US… if you can get in. If you can get into the US you can get your care. If you don’t have one of those 40 visa waiver passports, that will mean getting a visa. Now, I don’t think the US government is going to be very sympathetic to a guy who renounced his citizenship saying he needs to get a visa for medical care. If you don’t get the visa on any other grounds, they’re not going to be very sympathetic.

That said, they’re not going to be less sympathetic if you renounce as of now. Obviously, Medicare could change, especially if we have Medicare for all. Who knows what it will look like in the future, but as of today you’ll get your Medicare so long as you can get back into the United States.

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Military & Government Pensions

Typically, military benefits, municipal pensions, state government pensions, etc. are gone once you renounce your US citizenship.

For instance, no matter how long you served, once you renounce, all military benefits are gone. Believe it or not, I’ve talked to veterans who served ten years in the US and now they’re waking up and don’t agree with any of the stuff going on. If that’s you, if you’re going to get a $50,000 yearly pension from the military any time soon, you might not want to renounce.

In fact, I tend to think that the military is one of the safest places from which to get a pension. A few years ago I wrote an article about California pensions. The state is bankrupt and there’s a good chance California’s government pensions won’t be around in the future — even for citizens. The military, on the other hand, is much more reliable.

Either way, if you’re older and about to receive a pension, you probably don’t want to renounce. If you’re younger and you can afford to give up whatever benefits you have, that’s great. Just realize that if you work for the city, state, military, etc. and you renounce, you’re not going to get those benefits. (I believe this also applies to veterans’ healthcare, but I’ll let you do your homework on that one).

So basically you’re two for three when it comes to what you’ll maintain versus lose if you were to renounce your US citizenship. Not bad. A lot of people feel renouncing is like poking the hornets nest, but it’s your right to do it and there are many things you won’t have to give up if you do.

What about non-US citizens?

As you can tell, this article is currently only about US citizens who renounce citizenship. We will add insights on other countries in the future, so be sure to come back and check on this article later. However, because US citizenship is the citizenship that people most often want to renounce for logistical purposes, that’s what we’ve covered for now.

Plus, if you’re Canadian, Australian or European, your main concern for now should be about becoming tax non resident, rather than renouncing.

On the other hand, people in emerging world countries like China where dual citizenship is not really allowed, will often just stay in China and hide their other citizenship. Others go abroad to somewhere like Europe and begin using the other citizenship without China’s knowledge. In reality, China likes people to leave the country, they just don’t want dual citizenship.

The same goes for certain other countries. I know people in Malaysia who weren’t renouncing Malaysian citizenship to become British, they just kept it a secret that they had both.

In all honesty, very few people are going to renounce a quality western citizenship, and people with the lesser quality ones are not going to feel the need to renounce.

Get your own economic citizenship and second passport

My goal in doing this series is to help as many people as possible become global citizens by obtaining second citizenship. I live this stuff, in part, so that I can better help individuals like you reduce taxes, obtain a second passport and experience more freedom.

If you’d like to work with me directly to create a wholistic global citizenship strategy, then click here. We’ll go through an entire deep dive process to determine exactly what you need — from passports to residency to where you’re going to live — all so we can get you to your end goals.

If you’re just interested in getting a passport and already know which passport is the right choice for you, then you can go directly to Peter MacFarlane & Associates’ website and contact them by clicking here.

If you’re still determining which approach you should take, feel free to keep reading this series to garner all the knowledge you need to form a vision and actionable plan for the future.

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Andrew Henderson

Andrew Henderson

Andrew Henderson is the world's most sought-after consultant on legal offshore tax reduction, investment immigration, and global citizenship. He works exclusively with six- and seven-figure entrepreneurs and investors who want to "go where they're treated best". He has been researching and actually doing this stuff personally since 2007.
Andrew Henderson

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