Income in Retirement

Wake up, Neo

I was talking to a coaching client recently and going over their current projected income in retirement from nenkin and other sources. There was a brief pause, then the client said “That’s not very much, is it?”. I was forced to agree. It really wasn’t very much, especially compared to their current income and spending.

Luckily that client was in a reasonable financial situation, had enough time before they were hoping to retire to make some changes and improve that somewhat pessimistic outlook, and most importantly had realised something was wrong and decided to take steps to fix it.

Not everyone is lucky or perceptive enough to do that.

Don’t end up here

I have had other clients who come to me for help with some variation of the following scenario:

Sadly at this point there is not much we can do. With little human capital left the only options are to cut spending to the bone, work as long as possible, and try to save as much as possible until you cannot work any more.

Not exactly the retirement you were looking forward to, eh?

Income in retirement

So what are some common sources of income in retirement? The following is a non-exhaustive list.

In an ideal world you will be able to combine several of these to support yourself in retirement or post-work. The more different sources of income you have the better, and the more income you have the better.

Once you reach retirement age it is too late to set up most of these so the sooner you start thinking about this and preparing the better. Basically the sooner you start working on this the easier it will be.

But don’t delay. No one is going to do this for you, not the government and (probably) not your family either. Come ask questions in the forum if you need help.

18 Responses

  1. All prudent advice, it must be tough when you find people who haven’t started personal preparations for retiring. To hopefully save one young person from the same mistake, I shared this post with a recent college graduate and recommended he follow the site.

  2. I would have added a note to the effect that private pensions (which you mention in the list) does NOT mean an offshore ‘savings plan’ (sometimes called a ‘portable pension’).

    1. Calling an offshore saving scheme a ‘portable pension’ is like calling a punch in the face ‘constructive criticism’ 😉

      1. Ben, can you explain to the ill-informed among us what is wrong with offshore savings schemes? Much appreciated.

        1. Generally speaking they have very high fees (in order to pay commissions to the people that sell them) and are unnecessary for normal people. There is no tax benefit to using them in Japan and the vast majority of people would be better off with a DIY approach.

          The reason I started this website was to try and protect people from that kind of product.

          A bit more detail here:
          https://www.retirejapan.com/blog/psa-the-dark-side-of-financial-advice/
          https://www.retirejapan.com/blog/guest-post-offshore-investments/
          https://www.retirejapan.com/forum/viewtopic.php?f=16&t=811

  3. Thanks for the response! I would go into my situation here in immense detail but perhaps it isn’t appropriate. I am currently paying 1% pa plus Vanguard fees in an offshore bond wrapper that has provided decent double-digit returns over the last three years. There’s no early redemption penalty and no hidden charges – I know because I completed an investment-divestment round-trip a few years ago. Perhaps there is a catch I am missing but I don’t know what it is – that is why I asked! Thanks for the website – very informative and some great links in your Monday Read.

    1. Way off topic, but I would just like to say I used to love reading your blog about travels through the decaying countryside of Japan. Every time I see a picture of Miffy somewhere, I am reminded of the article title “Only Miffy can save us now”. Seeing your name has brightened my day!

    2. Sounds less terrible than other offshore schemes.
      However, what are you paying the 1% for?
      Could you do it yourself and save that 1%?

      1. In theory, that 1% is for tax advantages on capital gains on repatriation of funds to the UK in the future, so we will see. My investment horizon is less than 10 years, so the importance of fees, to be honest, is outweighed by the size of the contribution. To quote The Escape Artist blogger, the results of your compounding machine are dictated by
        1. The % of your after tax income you put into the box
        2. How quickly you get the Compounding Machine started
        3. What asset allocation your Compounding Machine runs on
        4. The fees that are taken out of your box
        5. Which fund(s) you choose
        Note the order.
        https://theescapeartist.me/2019/11/09/how-to-build-a-compounding-machine/

        1. What are the tax advantages? Reason I ask is I once had an offshore fund thing and the advisor used to talk about tax advantages, but turns out there weren’t any. I was resident here so when I cashed in was liable for capital gains on worldwide income including those made on the fund. Didn’t matter that I repatriated the sum to the UK. Wondering if there is something I should have known about.

        2. Fair enough, but I think your % of post-tax income in 1 is reduced by the 1% charge. So it is not charges taken out, after the growth, which this order kind of implies. The fees you are charge stunt the growth of your investment, to a certain degree.
          In terms of the rest of the compounding machine model, it all makes sense.

          And if you are comfortable with the charges and still make a decent return, well done and good luck to you. If the investment period is short, it may be worth looking at shifting some of your portfolio into bonds at some point.

  4. Hi Ben! Thanks for your pension posts – they are always so informative, if a bit scary when thinking about the future. I saw your reply to my previous comment on a different post, which was super helpful. I have registered on the nenkin digital portal so that I can have access to that information from overseas. It’s hard to understand but the Google translate button is quite useful.

    I had one more question to do with that, can we get the pension regardless of visa status? Because if we leave Japan for a long time, possibly forever, our visa would expire at some point, even PR. This is a possible, perhaps even likely situation for me. Can we still claim if we paid the minimum 120 times without a valid visa or status of residence later on in life?

    1. Hi Vanessa

      You can currently get nenkin paid to a foreign bank account if you live outside Japan. There is no need to live in Japan or have a valid visa.

      Just make sure you keep your nenkin number and other details safe!

    2. Guess it all depends where you are from. As for me, German, there is an agreement which enables me to get my retirement pay from Germany (just a couple of “pennies”) and Japan. Also, the time I paid into the “social security thing” adds up, meaning my time in Japan and Germany are getting added together. Don’t know whether or not this helps, maybe Ben got some more precise answers.

      1. A couple of comments.
        I. If you have paid Pension Contributions in Japan, for more than 6 months, you can claim up to 5 years of contributions back when you leave. This was raised this year )previously 3 years)
        https://www.nenkin.go.jp/international/japanese-system/withdrawalpayment/payment.files/A.pdf

        2. Many countries have reciprocal relationships where you can claim your Japan Pension Contributions against you home country’s pension system.

        3. If you contributions are more than 10 years in Japan, then you can claim a Japanese Pension o the value of number of months / 480 x Standard monthly payment.
        https://www.nenkin.go.jp/international/japanese-system/nationalpension/nationalpension.html

        4. If you pay enough in both countries you can receive pension from both countries, anywhere in the world.

        5. In Japan, Retirement Bonus (退職金) is taxed at a very advantaged Tax Rate (about half of your standard Tax Rate)

        1. Hi Don, thanks for your comment and information you provided!

          1) I think if I invalidate my visa I may be able to claim back the lump sum even if I paid for 10 years, but as Ben has mentioned previously, having a government pension can be considered a form of diversification and so it might be worth holding onto that.

          2) I think the UK is one of the countries that doesn’t have this part of the reciprocal relationship, only elimination of dual coverage. Maybe they’ll do it one day? It’s kind of wild that they don’t have it in place already.

          I just hope the Japanese government doesn’t decide to revise the number of years up again one day :’)

      2. Thanks for your comment, Klaus! You are super lucky with that arrangement Japan has with Germany. To date I don’t think the UK has that agreement with Japan, which is really inconvenient, although they do have elimination of dual coverage. I have no idea if they ever will make that arrangement either, so that’s why I’m trying to get as much info as I can.