Your Thirties Are Also Good
The second in our new series here at RetireJapan. Over four weeks we’ll be looking at personal finance for people in their twenties, their thirties, their forties, and their fifties.
If you’re the wrong age for today’s post feel free to read along anyway -you can think of what might have been or take notes for when your kids are older 🙂
I became interested in personal finance in my early to mid-thirties. It took me a while to really get into it, but reading books like Your Money or Your Life or The Millionaire Next Door planted the seed.
Generally speaking, people in their thirties begin settling down and worrying about the future.
They tend to have more money than people in their twenties, but more expenses too.
For a lot of people, the thirties are when they start to think seriously about their present and future financial situation.
In your thirties you still have most of your human capital (earning power) and multiple decades to reap the benefits of investing. Much of what we talked about in the twenties post applies.
Work on your career. Take a second job if it makes sense. Develop other sources of income (online content, investments, renting things out). Don’t fall victim to lifestyle inflation. Keep living a simple life and save (some of) any raises instead of spending them (all).
Learn as much as you can about personal finance and investing. The Further Reading page is your friend 🙂
If you’re going to be in Japan for the long term, pay into the pension system (it’s not just a straight pension, but also includes disability benefit, etc.). Open an iDeCo account. Invest in THEO or NISA. Focus on stocks for growth, and make sure you have a diversified portfolio.
If you’re not sure how long you’ll be in Japan, or if you are a US citizen, consider investing through Interactive Brokers.
Figure out how insurance works here. Decide what you need and what you don’t. More on this on the blog in the new year.
Think about your housing situation. Are you happy renting? Do you need to buy a new home? Can you find a good deal on a ‘used’ home? If you do buy, can you guarantee you’ll be there for decades?
Make sure your emergency fund can cover your expenses in full if you need it to.
You still have time to make mistakes and figure things out as you go, but only if you start now. Get this right and your future self will be eternally grateful.
What do you think? Any other advice for people in their thirties?
I am sitting on about 500,000 yen I am ready to invest. I am US citizen, with Japanese wife, and we are planning on moving back to the USA in 5 years (give or take forever/never). I already have a good bit invested in the USA in index funds with Fidelity. If the exchange rate was good like it was a month or two ago, I would probably just send more yen to the USA. But its not so hot right now.
For my case what is your opinion: THEO VS. NISA VS. Fidelity VS. Interactive Broker.
The interactive brokers is an obvious no since I have a Fidelity account already. My wife is Japanese so THEO and NISA are still on the table. If I understand correctly when/if my wife receives her US green card the NISA and/or THEO account will then have to be reported to the IRS, correct? But my earnings in Fidelity have to be reported now. The NISA would at least be protected until she gets her green card.
The exchange rate is just horrid right now and I feel like its money down the drain to exchange so yen to dollars at this rate. Is putting money into NISA worth it for 5 years, 3 years, 1 year?
Another question. I noticed in another post you mentioned that you put money into your THEO account twice a month. For the last few years I have been waiting till I have about 500,000 saved up until I invest mainly do to the fees involved with sending/exchanging money. Also minimum investment that fidelity has for many funds. How are you able to invest small amounts into your THEO, you mentioned its automatic. With NISA and THEO do you recommend investing at a regular base, like payday, or does it matter if I only put money in twice a year.
Hi bobby
Thanks for the comment and questions! Have to start by saying I can’t give you advice, just suggest things for you to think about.
You asked an impressive number of questions in one comment 🙂
1. THEO charges a yearly fee so it doesn’t cost anything to invest each time. This makes small investments possible.
2. The yen-dollar exchange rate doesn’t matter as you’re paying the same prices sending yen to the US and buying shares as you are buying the same shares here with yen.
3. For NISA you will pay the fees charged by your provider for purchases. These can be smaller (SBI? Monex?) or larger (Rakuten? Mizuho?). In some cases it will make more sense to save up and make larger purchases to minimize the impact of fees.
4. I’m not sure exactly what happens if your wife gets a green card, but I think she’d have to close a THEO account and report a NISA one.
5. As you say, if you have a Fidelity account it doesn’t seem to make much sense to open an IB one.
6. The answer as to what you should do with money now depends on how likely you think you are to leave. The more likely you are to leave, the more sense it would make to invest the money in the US.
THEO is by far the easiest option for your wife. NISA takes a bit more thinking but is tax-advantaged.
I hope that helps a bit! Please ask in the Forum if you need more help (people who know more than I do hang out there).
“2. The yen-dollar exchange rate doesn’t matter as you’re paying the same prices sending yen to the US and buying shares as you are buying the same shares here with yen.”
This is an excellent point I never thought about before. But with THEO and NISA aren’t Japanese stocks available that won’t be affected by the USD/YEN exchange rate. Or any all foreign stocks. Some exchange rates are better than others.
(BTW thanks for such a detailed reply)
Hi bobby
Glad to be of service!
THEO makes a portfolio for you based on your preferences. Looking at mine right now, I have a small amount of Japanese exposure through an Asia Pacific fund. Everything else if US or other markets.
You can buy whatever you want in a NISA account, of course.
So I sat on what you were saying about the exchange rate. I didn’t realize that many (most) of the stocks in a NISA and THEO would be US stocks and funds.
Now I am really beating myself up for not sending 5k to USA back in November when the rate was fantastic. I was aiming for this Feb. Now the rate is worse than it’s been in nearly a year.
So let me know if my thinking is way off with this train of thought: My Fidelity index funds should ideally be earning around 5+% (its more like 2% lately) but if I transfer say 600,000 yen today I am prettying much losing 15% of my cash (getting only 5100 USD). At least that is how I see it. Would it not be wiser to see how the rate goes in the next few months with Trump and then transfer at a hopefully more like a much better exchange rate.
Am I over thinking this too much. Should I just transfer the 600,000 now and another 600,000 in 6 months and stop worrying about the exchange rate?
Hi bobby
Never second guess your decisions based on what happened. It’s better to worry about the process.
A few more things to consider:
1. if you know what the exchange rate is going to do you can try and time it (I have no idea what will happen)
2. the yen could get weaker as well as stronger
3. if you’re sending money back regularly it might be better just to send it and not worry about the exchange rate
4. not investing your cash means that you are missing out on dividends and growth
Hope that helps!
(I’m an American living in Japan 9.5 years, never married)
I’m writing in response to the part about your recommending paying into Japanese pension. I’ve heard through many sources that pretty much every pension scheme throughout the world is bankrupt, and from what I’ve read in the news, the Japanese government is struggling with pension payouts to retirees anyway. The sales tax increase to 10% was supposed to help with this, but it hasn’t increased yet, and it’s uncertain when it will eventually go up.
I could be wrong, but I also heard that some people may only get 40% of what they pay into the pension system back when they retire. Why would anyone give someone $100 so that they could get $40 back 30 years later? The least you could do would be put that $100 in a 0% interest savings account and get 100% back in 30 years.
Also, I’ve heard that in order to receive any kind of pension payouts in the future, you’d have to pay into the system a minimum of 25 years. Rumor has it that that 25 years will be reduced to 10 years, but that hasn’t actually happened yet. Last time I went to the pension office, they said that if you didn’t pay into the pension system for at least 25 years (let’s say you pay into it for 24 years) then the most you could receive in a lump-sum withdrawal is around 300,000 yen. If you pay 16,000 yen monthly for 24 years, that’s 4,608,000 yen with a return of 300,000. Quite a waste of money, if you ask me.
Sorry if this sounds a bit negative. I’m struggling with decisions regarding Japanese pension payments right now.
Hi Ryan
You are of course completely right. Public pension schemes are looking increasingly inadequate in the face of longer lifespans and changing demographics, Japan’s most of all.
Just a few points:
1. paying into the pension scheme in Japan is not optional, it is a legal requirement of residence. Enforcement is still spotty but I believe it will get harder to avoid this in the future
2. the pension includes disability insurance as well
3. iDeCo is linked to paying into the pension
4. the reduction of vesting period from 25 to 10 years is now scheduled for next October, although it could well be postponed again
5. you can also apply for kara kikan (eligibility for the years between turning 20 and arriving in Japan)
Ultimately everyone should decide based on their own situation and preferences.
Hope that helps!