Retiring in Japan

Health Insurance and Retirement Bonus

Regular readers will be aware that my contract at the university I was working at finished at the end of March. I was supposed to be unemployed/retired now, but due to a series of unfortunate events will instead be helping my wife with her language school (and getting a small salary) for the rest of the year.

I haven’t had much to do with the university since I cleaned out my office and returned the key, but there have been some minor paperwork issues I had to deal with.

Health Insurance

Perhaps the most important was that I chose to stay on the kyosai health insurance. This is an option for many employees, and involves the employer keeping them on shakai hoken health insurance for up to two years after leaving employment. Employees who choose to do this become responsible for paying both the employer portion of the insurance as well as the employee portion. Basically this means that the cost of their health insurance will roughly double compared to when they were working.

So why do it?

Well, because for most people, paying double what they did as an employee will still be cheaper than paying kokumin kenkou hoken. This is based on your income from the previous year, and in my case at least would have been almost 50% more expensive (my new monthly health insurance cost is just over 40,000 yen now -used to be just over 20,000- but kokumin health insurance would have been over 60,000 yen!). So it is well worth doing, at least for the first year.

Once I reach the second year, I will check to see if my reduced income this year makes kokumin kenkou hoken a better deal -if so I will then switch from the kyosai, but if the kyosai continues to be cheaper I will stay on it for the second year.

Retirement Bonus

I also got a much more pleasant piece of paperwork this week: the statement detailing my retirement bonus.

I worked full time at the university for 13 years, so qualify for a retirement bonus (taishoku teate) upon completion of my contract.

Based on my reading of the retirement bonus tables and how the bonus is calculated (base salary multiplied by a number based on years of service, modified by whether you finished your contract or left before the end, etc.), I had been expecting to receive just over 5 million yen, so imagine my surprise when I opened the envelope and saw this:

I have no idea where that number came from, and I am kind of expecting them to contact me saying it was a mistake and could I please return the extra two million yen…

But assuming it is not a mistake, I was very pleasantly surprised by how little the bonus was taxed.

Let’s jump into the numbers and see why that is.

Retirement bonuses (as well as certain vehicles like iDeCo) qualify for the retirement bonus allowance tax break. That works as follows: first you build up your tax free allowance (400,000 yen a year for the first 20 years, then 700,000 yen a year for the next 10 years, for a maximum tax-free allowance of 15 million yen).

In my case, my tax free allowance after 13 years is 5.2 million (400,000 yen per year x 13 years).

This is applied to the retirement bonus (or the contents of the iDeCo account), then for any amount over that, half of the remainder is taxable (the other half is tax free). So in my case 7.247m – 5.2m tax-free allowance = 2.247m, half of which is then tax-free, leaving 1.123m subject to tax.

This is taxed as income, but is not added to any other income you have, so is taxed at a very low rate (as you can see on the slip above). Approximate 5% in income tax, and 10% in local inhabitant’s tax (split between the city and the prefecture, as Sendai is big enough to be an independent political entity).

Unemployment Insurance

Because I will be helping my wife, I was not able to claim unemployment insurance this time. If I had been able to, I would have qualified to receive around 60% of my salary for around seven months. Not too shabby!

This is something you can do when you finish working as long as your employer has been paying koyou hoken on your behalf, so it is worth factoring into any calculations.

And that is my experience of retirement (so far). I’ll keep you posted as to whether they ask me to pay back some of that amount.