What is all the fuss about?
In April the Financial Services Agency released a report that stated that most people would need to have extra savings to top up their state pensions if they wanted to spend as much as pensioners do now, especially if they live to 95.
Aso Taro, the Minister in charge of the Agency, then rejected the conclusions of the report. Heh. I guess that’s not what you want people to hear just before an election, eh?
So what is going on with nenkin?
A lot of people seemed to be upset about the news, but I think it might be worth looking at what the report said (and didn’t say).
First of all, the report did not say that the nenkin system would fail. It presumes that payments will continue to be made at the present levels. Nenkin may end up being revised in the future, but that is not what this report was about.
The report was based on a survey of retired people, who reported their income and spending levels (I can think of several reasons why people might want to minimise their income and maximise their spending when replying to a government survey).
The conclusion of the report was that on average people spent about 50,000 yen a month more than the value of their public pensions.
Over a thirty-year retirement, spending an average of 50,000 yen a month more than you earn means that you need to have at least 18 million yen in cash at the start of your retirement.
Why this doesn’t matter
The government didn’t really provide us with any new information by releasing this report. Everyone should be aware of their pension projections (it will be shown on your online account at Nenkin Net or in your annual pension update ๅฎๆไพฟ).
Average spending of pensioners in Japan has no bearing on your spending. Hopefully you have a rough idea of what you spend each month (if you don’t, I recommend tracking your spending for a while). This may be similar in retirement, or may change. You may find yourself spending less as you don’t need work clothes, lunch, or a car. Or you may find yourself spending more as you finally get the chance to go on those cruises.
However, your spending in retirement is unlikely to be the same when you are 95 as it was when you were 65. Most people find themselves spending less on discretionary things like travel and cars, and more on healthcare. Japan does a fairly good job of subsidising health care and nursing care, so this should not be the burden it might be in another country.
Finally, people are not completely stupid. If someone has a fixed income and few savings they are unlikely to spend an extra 50,000 yen a month for the rest of their life. Instead they will reduce their lifestyle to a level they can afford.
Can you live on nenkin?
If you had to.
It wouldn’t be much fun though. Far better to have the resources to live the life you want to.
That is why it makes sense to start thinking about the future now. The earlier you start, the less you have to save and invest.
Regardless of where you are in life, working out your current situation and what things will look like can only make your situation better.
So, if you don’t have savings, start saving. Even a few thousand yen a month is a win, and you can increase the amounts once you get used to it.
If you live in Japan and aren’t paying nenkin, start (or apply to be exempt -you still build up pension credits even if you aren’t paying).
If you aren’t using iDeCo and NISA to invest, look into them (unless you are a US citizen or green card holder).
If you’re close to retiring, figure out what your pension income will be like, how much you have saved and invested, and what your post-work life will look like.
And if you have any questions about any of that, ask on the RetireJapan Forum ๐
“You may find yourself spending less as you donโt need work clothes, …”
This season I’m in shorts & t-shirts daily, and I only wish I could sell some of those work clothes! Does anyone need some nice shirts in (US) 15-34/35? Or a couple sport coats in 42 or 42 long? How about some neckties?
What are you waiting for? Sell them on Mercari or another flea market app. ๐ Best way to clean out a closet!
Am I allowed to work part time after I start collecting my Japanese pension? Online business?
I believe so. I am planning to work on freelance projects ๐
We need to check the law on this, as there could be a maximum such as like a spouse can make before affecting the main breadwinners tax situation.
I got exemptions from ๅฝๆฐๅนด้ from I was 23 until I was 25. So maybe around 15 months or so. Should I go back and contribute to increase my pension or just leave it? Also apart from Ideco, are there other plans I could contribute to as I pay ๅ็ๅนด้ and thus Fuka Nenkin and such aren’t available to me?
I wrote about this a while ago here: https://www.retirejapan.com/blog/backpaying-kokumin-nenkin/
You may come to a different conclusion though ๐
If you max out iDeCo, the next thing would be NISA and then just investing in taxable accounts (or in real estate, or social lending, etc.).
My nenkin is 16000 yen net every 2 months. I paid about 14800 yen a month for many years. Figure that out. Was said to the wife, you start to break even at the age of 80.
Net makes it harder to compare (are you being taxed? Having nursing insurance taken out?) but 16,000 yen every two months is only about 12% of a full pension. Which suggests you barely paid in the minumum 120 months, or you paid in at a lower rate (3/4 or 1/2 price premiums), or you took the pension early (which drastically reduces the value of it).
It’s very simple to figure out how much you will get. A full pension is 65,000 yen a month, and requires 480 months of full payments. If you pay less than that, your pension is reduced proportionally. If you take it early, it is much less, and if you take it late it can be increased to 142% of the normal amount.
Another thing that might be worth checking on–if you’re classified as disabled (ๅทๅฎณ่ ), I’ve read that you can collect your full pension earlier than you otherwise would.
I don’t know the details/thresholds–just how much earlier, and which disability classification is needed–but it’s another angle to consider.
(unless you are a US citizen or green card holder).
Unless you are a US citizen NOT married to a Japanese national you trust with your life savings (which I hope you would). Totally legal for a US citizen to have their spouse invest the money in an account in the spouses name. The US can’t touch it. Can’t tax it. Can’t see it.
iDeCo is not as useful for a spouse, as it only reduces the owner’s taxes. NISA of course is useful ๐
What happens to this investment if the spouse dies. Does the surviving spouse have access somehow? Or is the money invested in the other spouse’s name. Is the money invested in the non-Japanese spouse’s name? The post was a bit unclear (to me) on this issue.