Dear fellow practitioners, CPAs, attorneys, and other professionals, welcome to the twentieth edition of our “Dreidel” newsletter about planning and investment issues of US citizens living overseas. This month Mike Reed will cover a little-known Social Security rule that could have a large impact for couples living in Israel – specifically for couples where one spouse is a US citizen who has worked and been covered for at least ten years by Social Security, and the other is an Israeli citizen.  

The 5 Year Rule

Generally speaking, for US expats with this situation, there is what is called the “5-year rule” for the spouse, meaning that a couple must have lived together as a couple in the US for at least five years for the foreign citizen spouse to qualify for Social Security.  

However, a relatively obscure provision Social Security Operating Manual RS 02610.010  exempts the Israeli citizen spouse of a US worker, who does NOT need to meet the five-year rule to be able to collect a spousal benefit. Israel is one of the few “treaty countries” where the five-year rule US residency rule is waived. The others are Germany, Greece, Ireland, Italy, Japan, plus Netherlands for survivor cases only.  

What Does this Mean?

A person is entitled to the larger of their own Social Security benefit, or half of the benefit of their spouse at the latter’s Full Retirement Age (generally 67). In this instance only the latter case would occur as the non-US spouse does not have his or her own Social Security Eligibility.

For example, if the couple are both 67, and the US citizen is entitled to $2,000 per month, the non-US spouse may collect a further $1,000 for a total of $3,000 in tax-free monthly income for the family. Remember that Social Security is tax-free in both the US and Israel for Israel residents.        

There are also some opportunities for planning. The non-US spouse is only entitled to up to half the benefit at Full Retirement Age (FRA) and less if he or she claims before (one can claim a reduced percentage from age 62). On the other hand, the US citizen may delay his or her benefit till age 70 and collect up to 25% more. 

For example, Abraham is a 70-year-old US citizen, his wife Sarah is 67 and is Israeli only. Assuming his Social Security award at FRA is $2,000, but he waits to claim at age 70. He will collect $2,500. However, Sarah is only entitled to $1,000 or half the FRA benefit amount. 

For couples in Israel, who find themselves in the above example, it could be worth seeking out a financial professional who is familiar with working with US expats, who could look at their individual situation, and perform a scenario analysis to determine when best to start claiming Social Security benefits.