Retirement confusion (social security, WEP, pensions, etc.)

I am not even sure where to start, but I have received such excellent advice from this group through the years that I hope people will continue to put up with my inane questions.

I just turned 63 yesterday and I'm thinking about my finances for retirement, even though I am still working and don't have any plans for retirement (other than to work as long as possible--definitely at least until I turn 67). I have pension contributions deducted automatically by my UK employer. I will be entitled to a very small NI pension when I do finally retire; it will be small because I have only worked full time in the UK since 2015. What I've been counting on is my US social security along with 401k and IRA retirement contributions through my US employers. I worked full time in the US from 1983 to 2015 (with a break from 1985 to 1987 for graduate school).

As an aside, I renounced my US citizenship this year and will not return to live in the US. I am up to date on filing my US taxes and will submit my final forms in Feb 2025. From what I understand, I'm still entitled to collect social security, regardless of my citizenship status.

I won't touch my separate 401k and IRA accounts until I reach full US retirement age, but would it make sense for me to collect SS now? I know that the amount will be reduced because I'm taking it early, but will I be able to avoid WEP (on my US SS) until I do retire and start drawing from my UK retirement sources? Is this how WEP works?

Thanks in advance to anyone who takes pity on me to read and respond to my confusion with kindness and clarity.

A couple of thoughts.

Actuarially, the total amount you receive from SS is the same no matter when you start receiving benefits. In other words if you die at the age expected by the tables then no difference. However, WEP reductions won’t begin until you start receiving your OAP so I personally would start taking my SS as soon as I can.

I have used the following calculator for WEP and it is well worth taking the time to use. You will need your latest statement from the SSA and then enter the yearly sums into the calculator.

https://www.ssa.gov/benefits/retirement/planner/anyPiaWepjs04.html


Have you looked at paying voluntary NI contributions?  You should be able to pay up to 6 years of back contributions from when you were living and working in the USA and that is an excellent investment. The increase in OAP from voluntary contributions does not impact the WEP calculation.

A couple of thoughts.

Actuarially, the total amount you receive from SS is the same no matter when you start receiving benefits. In other words if you die at the age expected by the tables then no difference. However, WEP reductions won’t begin until you start receiving your OAP so I personally would start taking my SS as soon as I can.

I have used the following calculator for WEP and it is well worth taking the time to use. You will need your latest statement from the SSA and then enter the yearly sums into the calculator.

https://www.ssa.gov/benefits/retirement/planner/anyPiaWepjs04.html


Have you looked at paying voluntary NI contributions?  You should be able to pay up to 6 years of back contributions from when you were living and working in the USA and that is an excellent investment. The increase in OAP from voluntary contributions does not impact the WEP calculation.

Thanks for your insight. If I do start taking my SS payments, do I have to pay UK tax on it as income? Or can I avoid this by putting it straight into my UK work pension?

I'd love to pay voluntary NI contributions but can't figure out how. I have paid the entire time I've been working in the UK (from 2015 to now), but is it possible to go back six additional years (2009 to 2015)?

Thanks for your insight. If I do start taking my SS payments, do I have to pay UK tax on it as income? Or can I avoid this by putting it straight into my UK work pension?

I'd love to pay voluntary NI contributions but can't figure out how. I have paid the entire time I've been working in the UK (from 2015 to now), but is it possible to go back six additional years (2009 to 2015)?

Yes, you have to pay UK tax on your SS income which counts as regular income. My wife has been receiving her SS for a few years now and it gets paid directly by SSA into our joint UK account.

Contact DWP to inquire about back paying NI contributions. You can do this through your HMRC online gateway account.

Thank you again for talking me down off the ledge. I am going to look into both of these things ASAP.

I am not even sure where to start, but I have received such excellent advice from this group through the years that I hope people will continue to put up with my inane questions.

I just turned 63 yesterday and I'm thinking about my finances for retirement, even though I am still working and don't have any plans for retirement (other than to work as long as possible--definitely at least until I turn 67). I have pension contributions deducted automatically by my UK employer. I will be entitled to a very small NI pension when I do finally retire; it will be small because I have only worked full time in the UK since 2015. What I've been counting on is my US social security along with 401k and IRA retirement contributions through my US employers. I worked full time in the US from 1983 to 2015 (with a break from 1985 to 1987 for graduate school).

As an aside, I renounced my US citizenship this year and will not return to live in the US. I am up to date on filing my US taxes and will submit my final forms in Feb 2025. From what I understand, I'm still entitled to collect social security, regardless of my citizenship status.

I won't touch my separate 401k and IRA accounts until I reach full US retirement age, but would it make sense for me to collect SS now? I know that the amount will be reduced because I'm taking it early, but will I be able to avoid WEP (on my US SS) until I do retire and start drawing from my UK retirement sources? Is this how WEP works?

Thanks in advance to anyone who takes pity on me to read and respond to my confusion with kindness and clarity.

I could be wrong, but *I think* if you live outside the US and are working over a certain amount, your SS will be reduced, quite considerably I think. Whether there would be some make-up when you stop working, I don't know (but I'm pretty sure not). I'll see if I can find information on it.

I took SS from age 62, because males in my family do not have a long life expectancy, but I had stopped working at that point.

Found it in my records. There is a SSA document titled "Your payments while you are outside the United States". The issue I've described above arises in a few places, but one key paragraph is on p. 15 and goes as follows:

"The foreign work test
If you are younger than full retirement age, we will withhold your benefits for each month you work more than 45 hours outside the United States in employment or self-employment not subject to U.S. Social Security taxes. It does not matter how much you earned or how many hours you worked each day."

- so, if you intend to work more than 45 hrs/month prior to US retirement age, it may not be sensible to start taking SSA "pension". Once you reach retirement age, this no longer applies, as per p. 13 of the document:
"... Work after full retirement age will not affect your benefit payments."

If you think about not reporting work in the UK, consider p. 22:
"If you fail to report or deliberately make a false statement, you could be penalized by a fine or imprisonment. You also may lose some of your payments if you do not report changes promptly."

And on p.12:
"Failure to report a change may result in an overpayment. We will recover any payments not due you. Also, if you fail to report changes in a timely way or you intentionally make a false statement, we may stop your benefits."

Sorry, maybe not good news, but better forewarned than make mistakes.

Does it say anything about US citizenship status regarding this reduction? I am no longer a US citizen at this point--I'm just a UK citizen now.

Does it say anything about US citizenship status regarding this reduction? I am no longer a US citizen at this point--I'm just a UK citizen now.

It applies to Citizens and non-citizens (edited to add: I am UK citizen, non-US citizen, non-US resident). Best to Google for the document and read through it carefully. I just Googled "reduction in social security benefits due to income when living overseas" and the first hit was a ssa.gov>pubs page that automatically downloaded the pdf document. I downloaded it when I first decided to take SSA around 2019 and I highlighted the sections that applied to me, for future reference (like this!)

Thank you--I will take a look. I really do respect your advice and appreciate your experience.

Have you looked at paying voluntary NI contributions?  You should be able to pay up to 6 years of back contributions from when you were living and working in the USA and that is an excellent investment.

Until April 2025, they can actually go back as far as as 2006. After April 2025, it reverts to the usual 6 year limit.

Also, if they went from full time UK employment to full time US employment, they can pay Class 2 contributions instead of Class 3 for the period they were working abroad. Class 2 only costs about 20% of Class 3, so it's a significant potential saving.

This is what I did. I filled in 2006-2021 when I returned to the UK in 2022. I paid 2006-2020 as Class 2, but as I retired part way through the 2020-21 tax year, I had to pay a mix of Class 2 & 3 for that year.

(Note that Class 2 NICs normally require you to be self-employed, it doesn't here (and I wasn't self-employed)).

The gov website https://www.gov.uk/check-national-insurance-record show the years you are eligible for and the cost to fill in each of those years. When I did it, the site just assumed you were going to pay Class 3 and didn't talk about Class 2. You had to speak to a human for that. My understanding is the site has improved a bit, and now asks some questions and if it thinks Class 2 may apply... tells you to speak to a human :-)

What happens if I went from full time US employment to full time UK employment? Is that Class 3 or Class 2? I have contacted the International Pension Centre to find out what to do next. I'll also call US social security (eyeroll) to find out how to start now. I think I only have to worry about the issue raised by dunrovin once I start collecting my UK pension. I did download that document, and that language regarding the reduction appears to refer to WEP (again, which only applies once I start taking my UK pension, I think). In which case, my income will be much lower than it is while I'm working (so the penalty shouldn't be so high).

I sure do have a lot of annoying phone calls ahead of me, but it's best not to ignore it.

What happens if I went from full time US employment to full time UK employment? Is that Class 3 or Class 2? I have contacted the International Pension Centre to find out what to do next. I'll also call US social security (eyeroll) to find out how to start now. I think I only have to worry about the issue raised by dunrovin once I start collecting my UK pension. I did download that document, and that language regarding the reduction appears to refer to WEP (again, which only applies once I start taking my UK pension, I think). In which case, my income will be much lower than it is while I'm working (so the penalty shouldn't be so high).

I sure do have a lot of annoying phone calls ahead of me, but it's best not to ignore it.

I recall reading elsewhere when this was brought up that in order to pay Class 2 NICs for years working in the US, you must have worked in the UK prior, for a specific amount of time - not a lot, I vaguely recall something like a couple of years. So, if you started your FT work career in the US, then moved to the UK, as far as I know, you can't pay Class 2 NICs for the years you were in the US.

This is just my recollection, so you can search for further information - this is not definitive information, and it doesn't address the issue of paying it retrospectively. I know I queried it when I first moved back to the UK, and they said I would have to pay Class 3. I'm pretty sure that was incorrect, but at the time I didn't have the time or money to pay it and then too much water pased under the bridge.

I've pasted one section from HMRC below, in case it's useful:

"Before you apply, you should check your eligibility to pay.

If you’re living abroad, working abroad, or living and working abroad, you may be able to pay voluntary Class 2 or voluntary Class 3 National Insurance contributions if you have either:

previously lived in the UK for 3 years in a row
paid at least 3 years of National Insurance contributions"

- so it may be dependent only on whether you had lived in the UK for 3 years. Best place to start is to Google "Social Security abroad: NI38" and read through this HMRC information.

What happens if I went from full time US employment to full time UK employment?

Your ability to pay Class 2 instead of Class 3 for the years you were not UK resident is controlled by whether you went from full time UK employment to full time US employment when you left, and only applies for the years in which you were working in the US. For example, if you took a full UK tax year off work while abroad, you can only pay Class 3 that year.

There's no rule in the other direction and going from full time US to full time UK employment has no benefit or penalty under either system, and you revert to Class 3 (unless you become self-employed). On the year of your return, you probably worked in both the UK and the US and likely paid something into both system (but not at the same time). In which case you'll probably* have credit for 1 or more US quarters and a probably* partial year of UK NI. In which case you're UK online report will show a partial payment for the year which you can top up with a Class 3 contribution rather than pay for the whole year.

* Using 'probably' weasel wording as there's a minimum required payment under the US system, a maximum under the UK system, and if returned on Jan 1st or April 6th only one system would apply.

While typing this reply, dunroving posted a reply with some comments about the need to have a certain number of NIC years in the UK, not just going straight from UK to US employment. I'd forgotten that. They're absolutely right.