The State of Retirement in Japan

Things are pretty bad here too


The retirement crisis in the US seems to be getting worse. Here’s a nice post by Retire By 40 on the subject.

Here in Japan things are not much better! 
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​​This is a new guest post by Desmond P. who is rapidly putting me to shame with his contributions. I made a Desmond P. category so those who just want the good stuff can click and read his posts more easily 😉


DP: I came across a series of recent news articles that essentially covered the same topic, but with information released in drips and drabs (no idea why).

Piecing the disparate information together, however, proved to be a very sobering yet interesting read which also happens to dovetail with the aim of RetireJapan so I thought of sharing once more.

According to a Health, Labor and Welfare Ministry survey, 25.2% of all households in Japan comprise seniors and/or couples aged 65 or older.

Among these households, 58% are facing difficulties in making a living, while at the same time 55% of the same demographic have no other source of income save their pensions or retirement benefits [link].

According to a different (maybe the same?) survey from the same Ministry, 58% of all households comprising of people aged 65 or over, or with children under 18, are facing financial hardship.

Only 8.5% of these households earned the national average household income of ¥5.42 million, with the remainder earning an average household income of ¥2.97 million [link]. 

According to a report from the Organisation for Economic Co-operation and Development (OCED), 80 percent of Japan’s total public expenditure was spent on pension, medical and public nursing services.

This mainly benefits elderly people, and the budget allocation to sustain it is set to further increase in future.

Also, according to a Nippon Institute for Research Advancement (NIRA) simulation, babies born in 2015 will be paying 48.4% of their lifetime incomes to support public expenditure.

For those in their 30s the figure is 13.5%, whereas those aged 85 or older receive more benefits than what they paid in [link].

In terms of the overall picture, if the elderly who worked throughout Japan’s bubble era are unable to have a comfortable retirement despite paying less than 13.5% of their lifetime incomes to receive over 80% of government spending on them to the tune of an average of ¥2.97 million annually, then it very strongly reinforces the notion that those in our age range ought to take full responsibility to have alternative sources of income ready before the mandatory retirement age.

My personal takeaway? For those among us who have yet to set aside a fixed portion of our salary to invest, best start now. For those who have already started, stay the course no matter what happens.
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Our future selves will thank us for it 🙂


RJ: This is pretty shocking stuff, and I think we can all agree that government pensions and social security are unlikely to increase in the future. I think it’s more likely that we’ll see further cuts and even means-testing.

I’m also worried about wealth taxes and other forms of government revenue raising, but that is a post for another day 🙂

My official stance is that everyone, regardless of their income, should be saving 20-50% of their income for emergencies and retirement. Stay tuned for my new book(let) which will tell you exactly how to do that.

In the meantime, Mister Money Mustache’s latest post is pretty relevant too.

28 Responses

  1. /start rant
    You can definitely put me wholesale into the “Japan is screwed” camp so take what I say knowing up front where my biases lie.
    The demographics here are appalling now and are only going to get worse and, moreover, I can’t ever see Japan agreeing to let in more young immigrants to offset the labor shortfall. Furthermore, the government debt levels are so atrociously high that I can’t see any way for Japan to continue funding its government obligations except through massive inflation which will, in turn, mean that any cash savings or entitlements (like pension benefits) valued in Yen could end up being worth far less in the future. So the likelihood of current taxpayers recouping anything near what they put in to the system seems unlikely so if I had the option to opt out of the pension system I would do so in a heartbeat as I think there is a very good chance I will get almost no benefit out of it. Finally, and then I will get off my jaded expat soap box, the taxes here are too damn high and are only going to get higher. For those of us in the prime accumulation phase of our careers, the aggregate tax burden and the lack of tax protected accounts (J401K has a really low limit) means that we lose a lot of money to Japanese tax… and that really hurts when it comes to putting money aside for retirement.
    /end rant
    Bottom-line, make sure your retirement portfolio is globally diversified and save save save what you can!

    1. No disagreement here! The one good thing is that if you own foreign assets priced in yen the value shouldn’t change even if the yen tanks.
      Surely it has to at some point?

      1. It amazes me that the Yen remains so strong even to this day… it goes against everything I thought I knew about economics (which is apparently nothing, Jon Snow).

  2. Thank you for that interesting read. I am staying the course! I paid an obscene amount of taxes last year. Never again. Next time I see a retired man disrespecting me I’ll bring this up.

    1. My taxes seem to go up every year. Sendai has one of the highest local taxes in the country apparently -I’d be paying a lot less if I lived 500 metres down the road 🙂

      1. Sadly nothing 🙁
        500 metres down the road though is another city (we live on the border of Sendai and Tagajo) and their inhabitant taxes and health insurance are much lower than Sendai’s. If we could move there we’d reduce our tax bill considerably…
        J401k accounts reduce taxes though, so I’m looking forward to finally getting one in January 😉

  3. Saving 20% is a lot for people on the low end of the pay scale. For example, many entry-level teaching jobs in Tokyo pay 250,000 yen a month (before taxes). It’s already hard to live on that level of income, but to save 50,000? That’d be really difficult to do.

    1. Difficult, but worth trying, no?
      It’s precisely people with low disposable income that need robust emergency funds.
      Might also be worth thinking about doing additional freelance work, or finding a better-paid job, or moving to a cheaper area.
      Everything you do with your money is a choice. You get to make that choice, but you get a lot more power if you are aware that you are making a choice.
      Sure, some people have it easier than others, but complaining about that doesn’t help anyone. The only thing people have control of is their own actions.
      You can choose not to think about personal finance, not to have an emergency fund, not to save, and the only person that affects is you.
      I’m not criticizing people that aren’t taking action, my goal is to offer information and encouragement to people that want to 🙂

    2. 250,000 for teaching in Tokyo is a joke. There is no way you can make a living off that. I was making that out in the inaka and it was basically poverty for my wife and me. I found a teaching job in Tokyo that paid 500,000 a month. We ran the numbers. Worst (I mean cheap) apt we could find + 1 hour away (times 2) and I would be taking home the same after it was all said and done. So lets see. 5 minute commute vs. 1+ hours on a Tokyo subways eachway. HUGE apartment traded for tiny noisy box with no patio to bbq no place to park two cars and a motorcycle. Same amount of take home. It was lose lose lose. Thank god I got my master’s and found a job in the inaka that pays well. 360,000 take home after all taxes and insurance paid. 5 minute commute, massive apartment.
      After years I can finally put away 25 to even 40% of my paycheck. With 75% of the country living in the hyper expensive cities making LESS than their inaka counterparts, no wonder no can save anything. Good lord, it costs 300 yen just to LOOK at the subway. I spend 2500 a MONTH on gasoline.
      I honestly have no idea how eikaiwa teachers or all those people who work at the fast food places and combinis in Tokyo can even afford to put food on the table. Everyone’s goal of moving to Tokyo, Osaka, Nagoya is basically dooming them to life of poverty with no retirement.

      1. 500,000 a month for your first teaching job in Tokyo?! That’s seriously impressive, at least from my perspective… Where, how?!
        I cope on not vastly more than 250,000 a month. It limits saving but if you can compromise on apartment size it’s bearable for some time. Obviously I’m aiming at earning more in the near future though.

      2. Hear hear. I think the key point is that 250,000/mo. is for an entry-level position; it’s definitely not something you want to do for more than 2-3 years, especially if you want to live in Tokyo (although living in Tokyo can be cheaper than you think if done right). Average income in Japan is north of 5 million per annum: think about that and your relative position. If you’re not making that much, it might be worth thinking about how you can make more.
        I’m not a teacher, but if the market is still anything like it was, I’m sure a good teacher in demand could make more on the free market paid hourly than at a school. The hard part is landing enough students, but that’s a sales problem. In the end, it all comes down to how good of a business(wo)man you are. Of course, you’ll never have the courage to even start if you don’t have enough savings.

  4. I also notice my tax increasing each year
    Also seems there is an exit tax that has been introduced recently when leaving Japan

    1. Yeah, the exit tax is ugly. Making it worse is the fact that it’s denominated in yen, so if the yen tanks in the future a lot more people are going to come under it (100m yen at the moment).
      Thanks for bringing it up though, I might do a blog post on it 🙂

      1. your welcome, a post would be great 🙂
        I heard real estate is excluded, well for now anyway…

    2. The exit tax (for now) only applies to citizens and permanent residents I think. Still, it is evidence that Japan is increasingly targeting expats and citizens with global income. This is further evidenced by the requirements to report overseas assets worth more than 50 million Yen in aggregate.
      Where I think a lot of us also need to be careful is Japanese estate taxes. If you are left a lot of money by an overseas relative, you may find yourself with a very nasty and unexpected tax bill.
      The more I learn about Japanese taxes the more attractive low tax jurisdictions like Singapore or Hong Kong start to look from a financial perspective.

      1. The attractiveness of HK or Singapore is probably why the government came up with this exit tax 😉

      2. The law has also changed in regards to the term considered for this.
        Previously you had to pay after 5 consecutive years, but this now has changed to if you have been in Japan 5 of the last 10 years.

      3. Woah, we’re supposed to report assets over 50MM yen? Since when? Hadn’t heard that one, will have to look it up.

    1. Hopefully they’ll adjust some of the numbers. 100m yen is not very much, especially if the yen weakens again.
      Not planning to leave yet, but might do some day.

  6. Re: the MMM post, I’ve recently felt more and more that time is my biggest asset/advantage. The friends I have with financial problems usually don’t have the luxury of the free time needed to dig themselves out of the hole they’ve created. That to me is the biggest advantage of simplifying your life; minimalism has this great ripple effect on expenses/finances. 🙂

  8. I, saw a trailer for an anime. It was about Godzilla coming in and destroying Japan and the Japanese fought back with high technology weapons to take back their island. I thought it was kind of funny. Young repressed Japanese citizens using technology to destroy another much bigger and older incumbant Japanese citizen, must kind of be an artistic allusion to what is going on in Japan today.

    1. Ha, ha, that is awesome. I think you might be reading a little too much into that 😉
      Or we could go back to the traditional way of dealing with this problem, which is the source of all those quaint place names like ‘throw granny off the bridge’ or ‘leave granny on the mountain’…