A brief overview and some advice
A reader got in touch with me in March (!) and kindly offered to let me use their pension statement for a blog post. They also sent me some background information about themselves.
So this will be a new kind of post on RetireJapan: share your situation and get feedback from me and the community 🙂
Background
This person is around 50 years old, not a US citizen, owns their home and are debt free. Savings of around 6m yen in home country. Earns a typical English teaching salary and plans to work until their late 60s.
Nenkin
Looking at the statement, the key numbers are the number of months paid in (129) and the projected annual payout (416,114).
You need to pay in at least 120 months in order to vest (qualify for a pension) and get a projection on your expected pension.
Depending on how close to retirement age you are, the projected number will either reflect contributions so far, or your final pension (assuming you continue to pay until age 65). In this case, it is contributions so far, so if our reader continues to pay they should see their eventual nenkin grow proportionally.
Because all the contributions have been kosei nenkin, the projected payout is larger than it would have been if they had only been paying into kokumin nenkin.
As a rough estimate, paying another 15 years (to age 65) into kosei nenkin should result in something like an extra 150% or so, giving our reader something like one million yen a year if they took their nenkin from age 65, or around 1.4m if they deferred it to age 70.
Our Take
Our reader owns their home and are debt free. This is a great starting point.
They should also receive a small monthly pension from nenkin (at least 80,000 yen a month, but more if they delay taking their pension). Unfortunately the pension will be reduced by kaigo hoken payments withdrawn at source.
The current 6m yen emergency fund should help deal with any unexpected expenses.
But this will likely not be enough to live on.
Our reader probably needs to try to save and invest as much as possible for the next fifteen plus years, for as long as they are able to continue working.
Options
I would treat this as an emergency. Getting started, getting up to speed, and continuing for as long as possible is going to be key to building up a decent level of investments to keep this person going in retirement.
Having said that, I only really started getting serious about investing in 2008, and now we’re in a pretty good place. So there is certainly enough time, if the will is there.
In general, for people living in Japan, once they have an emergency fund it is best to start with tax-exempt investment accounts.
Start with iDeCo (but not if you are a US citizen or green card holder). Pay in as much as you can up to the limit. For people paying kosei nenkin the maximum monthly contribution is 23,000 yen. This will come off your taxable income, and reduce the amount of income tax you need to pay.
Then open a tsumitate NISA account. You can pay in up to 33,000 yen a month.
For both of these, choose low-cost diversified mutual funds, like these.
Then use your taxable account (you have to open this when you open a NISA account) to invest more if you can.
Put stock funds in the tax-exempt accounts, and bonds/REITs/etc. in the taxable account.
Make an investment plan (check out one of our recommended reading books), then concentrate on investing as much as you can every month. Don’t check your balance, don’t invest in exciting new things, just do the boring thing for 15-20 years and you will be fine in retirement.
Don’t forget to enjoy your life now either, but don’t fail to act on this. Getting started now is much better than getting started in another few years’ time. Good luck!
Come by the forum if you would like more advice, from more people 🙂
“Put stock funds in the tax-exempt accounts, and bonds/REITs/etc. in the taxable account”
This is assuming those REIT funds are accumulating. (Like an Emaxis Slim Developed Reit or J-Reit fund). Reit ETFs are very much not tax efficient, and many payout monthly. This would create a lot of tax-drag.
Many investors outside of Japan avoid REITs for this reason, but the REIT funds in Japan avoid this issue. (*Not an endorsement of holding them over marketcap)
Good point. Of course in iDeCo and tsumitate NISA only accumulating mutual funds are available.
An investor using ordinary NISA might want to take that into account though!
Hi, I stumble upon your website as I was looking for an answer to this question. If I plan to move back to my home country after retirement, will JPS be able to remit my money directly to a bank at my home country? Or is the pension banked into a Japan bank account and then I have to remit it back home myself? I’ve been searching for an answer but found none. Thank you for helping. Your website has been very helpful.
That is my understanding -once you claim your pension from nenkin it will be sent to a bank account in your country of residence. More information here: https://www.nenkin.go.jp/international/japanese-system/report/report.html
This situation is interesting because he’ll be starting a bit late. In a situation where someone started early I’ve heard it’s advisable to slowly increase your bond percentage as you get older. But in his case would you suggest having a high percentage of his investing in stocks until retirement?
That is the million dollar question. Obviously I have no idea what is going to happen in the future.
The standard advice for a stock-bond portfolio would be to have your age in bonds as a percentage (or your age -10 in bonds), which would give 40-50% bonds.
However, I would be inclined to try to fill the tax-exempt accounts with stocks, then buy bonds in a taxable account if they have extra money. With both iDeCo and NISA they could have a 20-year investing horizon, which should give time to recover from stock market falls.
Also, right now we seem to be in a bit of a depressed stock market, the best time to buy ^-^
Dear Ben,
Sorry to bother you. Why do you recommend not putting money into iDeCo if you are a green card holder (I am not a US citizen)?
Thank you for making this blog.
Yours sincerely,
Stuart McLean
It’s basically anyone who has to submit a tax return to the IRS (this can include non-US spouses of US citizens filing jointly, I guess). I hear the paperwork is miserable if you dare to own pretty much anything not listed in the US.
(I exaggerate, but not much)
Dear Ben,
Sorry for my confusion. I thought you were referring to Japanese permanent residency as a “Green card”. Sorry about my error. And thank you again for the blog.
Stuart
Ah, I wouldn’t use Green Card to refer to anything other than US permanent residence. For Japan I would use PR or permanent resident or even 永住者 ^-^
Looking at eMAXIS Slim Balance (8 assets equal type) fund that you have a link to , I feel I should comment that
1) the structure of the fund seems to be so diverse that it is useless: 1/8th Japanese stocks (where will these go?), developed country stocks (declining now), developing market stocks (don’t know what will happen), Japanese bonds (useless), developing country bonds (which countries? ), developed country bonds (will have negative returns as interest rates rise in developed markets), Japanese REITS, developed country REITS (currently falling as US market in general).
2) A better approach would be to target countries or sectors that have a chance of going up (Japanese bonds won’t).
3) Though market timing is impossible, macro-economic forces can be taken into account. US interest rates are rising, and there is a strong possibility that a recession will ensue. That is the time to invest in US stocks.
This, of course, is just my opinion: what do I know?
Oh, absolutely. The link is to the entire eMaxis Slim range, and most people stick to the All-Country global stocks fund, and the Developed Countries bond fund.
That balanced fund (like many balanced funds in Japan) appears to have been created by someone who was more interested in having a pretty pie chart to show people than in the actual investing thesis for the fund. I agree it is pretty lame and I certainly don’t recommend it to anyone ^-^
I would say the Emaxis Slim stars are:
1. Emaxis Slim All Country
2, Emaxis Slim Kokusai (Developed countries -ex Japan)
3, Emaxis Slim S&P500
4. Emaxis Slim Developed Country Bonds
……………………….
Honorable mentions:
Emaxis Slim J-Reits
Emaxis Slim Developed Reits
……………………….
Love those accumulating funds w/low fees..
Yesterday I received my Nenkin postcard and I was surprised when I saw that my estimated pension for retirement at 65 or 70 (both amounts) went DOWN even though I paid for 12 more months. Have you ever seen that before?