My situation is probably a bit different from most posters here. My wife and I live in Europe, but we're thinking about moving to Japan in retirement. She's a Japanese national, but she left the country at the age of 22 and hasn't lived there since. We both live and work in Switzerland, which means both high salaries and a high cost of living by European standards. We already visit Japan every 2 years for extended holidays and visits to friends and family. Long-term residency shouldn't be a problem, and we're both familiar with the language, the culture and the general lifestyle. The difference in COL might even allow us to retire a bit earlier than if we stay in Switzerland. We still have years left until our earliest possible retirement date though, and we are still in the early stages of thinking about this.
Obviously we haven't paid a dime into the Japanese social security system throughout our working lives, and we know little about how taxes work and what other pitfalls may be waiting for people who move to Japan late in life. Most information that is available online (in English or Japanese) doesn't really seem to apply to our situation or is hard to parse. Our idea is to pay minimum living expenses from a fixed pension income: a Swiss company pension and Swiss social security, both paid out monthly in Swiss francs. We would complement this fixed income with variable withdrawals from our nest egg, which is in internationally diversified index funds. We're trying to work out what our net income would be in this case, and to identify possible problems with our approach. Some points:
Kokumin nenkin vs Swiss social security, and taxes after retirement
According to the social security treaty between Switzerland and Japan, we have the theoretical right to make the years we paid into the Swiss system count towards a kokumin nenkin pension plan and receive a Japanese state pension, but it looks like kokumin nenkin would pay out far less money than Swiss social security. So it would be better to simply take the Swiss SS directly and convert it into JPY. However, it is not clear to me how much we would have to pay in taxes and other contributions in Japan. If I read the treaty correctly (and that's a big if), we would have to
- pay Japanese taxes on our Swiss SS payments. It's not clear to me whether there would be a tax-free portion to this pension, or whether it would simply count as income, with none of the reductions that Japanese pensioners receive
- pay a withholding tax to the Swiss state on our company pensions that we can then reclaim from the Japanese tax office
- probably be enrolled in kokumin nenkin until the age of 60? We wouldn't reach the 10 years needed for payouts
- pay kaigo hoken, scaled to income
- pay kokumin kenkô hoken, apparently also tied to your official Japanese retirement income above the age of 64
- pay taxes on dividends and realized capital gains from our nest egg. There's no capital gains tax for long-term private investors in Switzerland, so it should make sense to sell all our ETFs while we're still in Switzerland and then reinvest the cash with a Japanese broker once we have moved. Unless the Japanese taxman objects to this practice?
Currency risk
All our fixed income would be in CHF and all our living expenses in JPY. What if the CHF depreciates drastically against the JPY, as it did e.g. in 2008? Possible solutions: keep a JPY cash buffer, and invest a part of the nest egg into assets denominated in JPY?
Cuts to social security benefits
Then there's a non-negligible risk of the Swiss government slashing social security benefits sometime in the future due to demographic pressure, either for everybody or specifically for pensioners who live abroad.
Possible solutions: discount part of the planned for SS payments and plan with a larger nest egg or a lower withdrawal rate?
Any comments or ideas? Any other issues that we should be looking out for? The Swiss case might be a bit special, but maybe there are others from other countries who have similar plans for retirement, or have already implemented them. I would really appreciate your advice.
