What are Social Security "totalization agreements"?

A social security 'Totalization' agreement is a provision between two or more countries concerning dual coverage and taxation of individuals through exposure to multiple social security systems.

In the United States there are approximately 21 totalization agreements with other countries. Through totalization agreements, social security is accumulated through the social security system in which one works and pays taxes independent of citizenship with certain exceptions such as those listed below.

• Detached worker rule: An aspect of totalization that allows continued payment into the social security system of one's base country during employer relocations under 5 years.

• Extenuating review: In cases of unusual Social Security situation arising from non-conventional aspects of international employment, such cases may receive special review and/or exemption from the totalization agreement.

Individuals who are offered work overseas may want to consider totalization agreements in their compensation packages as employment in countries where no totalization agreement is in place could lead to considerably higher taxation of income. In cases where totalization agreements do not apply, income tax may be greater however, and social security coverage qualification may also be higher.

Attributes of totalization

Social security totalization agreements were appealed through the Social Security Totalization Agreement Reform Act of 2007, and are made possible via sections 202, 203, 210, 211 and 233 of the U.S. Social Security Act. Specifically, the 2007 appeal cites non-lawful residents of the United States who work in the United States as being ineligible for totalazation benefits. Totalization agreements between the U.S. and international countries commenced in the early 1970's. Specific attributes of the totalization agreements include the following:

• Determines contribution amounts and eligibility
• Includes mostly European countries Australia, Japan, Chile and South Korea
• Reduces dual coverage and over taxation
• Protects national social security systems from excess financial burden

Advantages and disadvantages of totalization

There are pros and cons to totalization agreements. For example, one of the advantages of totalization make it possible for self-employed individuals within the United States who are foreign nationals to receive social security compensation and vice versa. A few other benefits of social security totalization are the following:

• Provides greater career related retirement plan options to qualifying international workers
• Non-qualifying benefits in participating countries can be totalized under the agreement allowing partial benefits
• Allows employers to avoid disruption in human resource management of oversees employees

In addition to the advantages of social security totalization are several disadvantages. For example, because international law and regulation can be complex, subject to bureaucracy and change, advantages in totalization agreements in place at one point in time, may not be as beneficial in terms of coverage at a future point in time. A few disadvantages of social security totalization include the following:

• Totalization benefits do not include countries in which no agreement is in place
• Social Security benefits may be worse in the country of employment
• Social Security contributions may be higher in the country of employment
• Bureaucratic procedure of actualizing totalization may be complicated

Development in Social Security totalization

As the world becomes increasingly globalized, the trend is toward trade agreements that include totalization. These agreements may be monitored and endorsed by a number of trade agreements, political unions and organizations such as the World Trade Organization (WTO), European Union (EU), North American Free Trade Agreement (NAFTA) and the Association of South East Asian Nations (ASEAN).

As international migration increases between income earners of within countries with both existent and non-existent social security Totalization agreements, the need for regulation of, management of and renewed Totalization agreements may be become apparent. For these reasons, compensation, taxation and benefits associated with Totalization agreements may be subject to change over time.

Summary

Social Security Totalization agreements exist between several countries around the World. These agreements exist in an attempt to harmonize and balance social security coverage and taxation of individuals who receive income in countries other than their permanent and/or original country of residence. The attributes of Totalization agreements vary dependent on the laws and agreements themselves as determined by the member nation-states themselves. Consequently, advantages and disadvantages unique to each tantalization agreement may also be different.

Income recipients subject to and not subject to social security tantalization can either benefit from or be disadvantaged by the existence of tantalization agreements or the lack thereof and may therefore want to study their unique income and taxation situations in regard to tantalization agreements. Contacting relevant social security administrations, government authorities, employers, and tax specialists may assist one in determining unique circumstances regarding tantalization of social security.

Sources:

1. http://www.ssa.gov/OP_Home/ssact/ssact-index.htm
2. http://thomas.loc.gov/cgi-bin/query/z?c110:H.R.279:
3. http://www.ssa.gov/pressoffice/factsheets/USandMexico.htm
4. http://maplight.org/map/us/bill/11561/default
5. http://tinyurl.com/4byay6n

Why you should retire

Why you should retire is a question some might not need to ask, but for those that do, there are plenty of reasons why. Retirement is an opportunity that opens doors that were previously closed prior to retirement.

Sometimes, retirement is a necessary step in life that makes possible new steps in different directions. Whether the retirement is voluntary or involuntary, some of those newly opened doors have dollar signs behind them.

• Employer provides severance package

Some employers will pay you to retire and don't give you a choice about it. Some employment contracts have clauses allowing severance pay under certain conditions. If such is the case, the severance package may entitle you to enough extra funds to consider retiring.

• Retirement hobby supplements income

If you've chosen to retire to pursue a hobby that otherwise would have been an unimplemented pursuit, that hobby may be monetized with the right decisions. In such case, retirement not only allows a chance to do something you enjoy and want to do, but also provides a potential additional source of retirement income, both of which could not be accomplished as easily without first retiring.

• Traditional IRA requires withdrawals

If you've reached the mandatory distribution age for Traditional Individual Retirement Account (IRA) withdrawals, there may not be enough time to spend it without retiring. Of course, this is something not every retiree has the luxury of, but it is a reason that many people have in their retirement financial tool box.

• You have a reverse mortgage

A reverse mortgage pays homeowners back based on the equity value of the home. This type of payment may supplement a retirement income to financially justify retirement. If the income isn't used, it can be reinvested to potentially earn retirement income at a higher yield than the housing market might provide. This type of income could also help finance retirement in later stages.

• Social Security Income allows it

In addition to IRA and reverse mortgage distributions, you may also qualify for Social Security payments. These payments may put your income over the top if you have several other sources of retirement income. Financially, there simply may be no reason why you should not retire if this is the case.

• You've become the recipient of a marital trust

For families with large estates, a marital trust may have been created to avoid heavy taxes upon death of a surviving spouse. Marital trusts make use of estate tax exemptions by passing on assets through a trust that optimizes tax benefits. An example of a martial trust is the A/B trust which divides inherited assets between a spousal and other beneficiary trust.

Several of the above reasons why you should retire are geared toward those whose retirement options and benefits apply by default. However, with the right decision making and financial planning, additional reasons why you should retire may also exist.

Even if you haven't reached retirement age, there may still be ample rationale for why you should retire. Moreover, unless you love your job, require one, and/or it brings you happiness beyond any motive for why you should retire, then there are plenty of explanations why you should retire sooner, rather than later if those reasons are financially workable.