Can we rely on pensions?

[northSaver]

I had a bit of time last weekend so I started crunching some numbers - as you do - and tried to pin down my retirement date. I was pleasantly surprised to discover that my wife and I could theoretically retire next year if we rationed ourselves to 25 man per month for two years (until my youngest finishes university), then 35 man per month after that for the rest of our lives. The plan involves drawing down our savings (portfolio) until the pensions start to kick in.

There are some nice built-in safety measures too, such as:

1) It assumes neither of us will earn any future income.
* This is ridiculous because we are not THAT old and have a strong eikaiwa business that won't end so quickly.

2) It assumes the portfolio won't earn any future interest.
* Highly unlikely. Almost half of it is a small block of apartments that until now has always been at least half full. Most of the rest is invested in low risk / low yield strategies (Permanent Portfolio and All Weather). And the rest is cash.

3) It assumes we will live forever.
* Impossible, but no problem due to the pensions.

On the flip side, there are some definite risks:

1) It assumes no inflation.
* Highly unlikely, even in Japan! However, the inflation-adjusted pensions and investment property might go some way to reducing this risk, especially until we start drawing the pensions. After that it depends where we live.

2) It assumes out children will become financially independent when they finish university.
* Bloody hope so!

3) It assumes no additional spending.
* Well, we aren't big spenders so we'll probably continue to save a little from our 35 man per month income, and use it for occasional emergencies such as a new car.

4) It assumes that the pension forecasts will give us what they say they will, and when they say they will.
* This is the biggie. How likely is this to happen? My wife is less optimistic about this than me, and says that we shouldn't rely on pensions too much in the future. But how much is "too much"? Nobody knows. And if we can't rely on pensions then how do we make sure we have enough savings to cover everything we need until we die... which could be 100 or later!? That's a tough one.

So finally, my question. What is your take on how much we should rely on private (UK company), UK state and Japan state pensions in the future? Can we put a rough figure on it, like "assume a minimum of 50% of what they forecast"? I know the dates might slip by a year or two, but that's less important in the grand scheme of things. The important thing is how much you'll actually get. And whether you'll get anything at all (e.g. due to drastic rule changes regarding citizenship and residency).

Oh, I should day that I'll be 55 this year and hope to start drawing pensions at 67. So this is not so long in the future. My wife is younger and our income should only get better as she starts drawing hers too.

[Beaglehound]

On pensions, I would love to be able to budget without them but in reality me and the missus (like most folk) will not have enough cash to retire comfortably without them. So I am assuming they will be there in some shape or form. One point to consider is whether any of your pension income is transferable after the death of one of you.

[goodandbadjapan]

When I do the numbers etc I tend not to factor in pensions at all. That's my 'safety measure' if you like. If I can make the numbers work without the pension then they will just come as a lovely bonus when they arrive. But I think they will come and would probably risk a slightly lower FIRE number than I might if I knew I would have no pension at all.

[beanhead]

Surely there will be something to claim...? I hope so, anyway.
But whether it is 90% of today's sums, or 75%, or 50%, who knows.
Raising the age at which we can claim is obviously something that will continue happening.

A means-based approach, with anyone over a certain net worth unable to claim, is the biggest concern. That would be a real kick in the teeth, after paying in for decades. Unlikely in Japan, with the penchant of all political parties to court the silver vote. Not sure about the UK, to be honest.

[northSaver]

One point to consider is whether any of your pension income is transferable after the death of one of you.

Yes, this is a good point. I looked into this a while back and found that company pensions tend to keep paying a "survivor's pension" (which is less than the original one), whereas state pensions don't. They might offer some limited bereavment payments though.

It turned out that my wife would not get enough to live on if I died first, so we've rectified this by topping up her UK state pension. We'll continue paying into that until it becomes a full one (approx. 12 more years to contribute). This should balance things out more and it won't matter who dies first in terms of pension income.

I highly recommend everyone to look into this for your own situation, make sure your Notice of Wish forms are up to date, and provide details, phone numbers, etc. for your spouse in the event of your death.

[northSaver]

Also, it's occurred to me that I didn't include any inheritance from our parents in the calculations. Maybe I'm seeing inheritance as some of you guys are seeing pensions? I know we'll probably get something, just not sure how much and when. So whatever we get will be a nice surprise, and not something to be relied on.

[RetireJapan]

A means-based approach, with anyone over a certain net worth unable to claim, is the biggest concern. That would be a real kick in the teeth, after paying in for decades. Unlikely in Japan, with the penchant of all political parties to court the silver vote. Not sure about the UK, to be honest.

Can't imagine any government doing this with pensions. Benefits, you could make a case for making them means-based, but a pension is something that you specifically pay into for an advertised return.

[ClearAsMud]

...company pensions tend to keep paying a "survivor's pension" (which is less than the original one), whereas state pensions don't.

Are you referring to the UK state pension here? Japanese public pensions do have survivors' benefits, with Kousei Nenkin in particular passing on a large proportion of the earnings-related part of the regular pension to a dependent spouse, lifelong and tax-free as long as certain age requirements are met and the spouse doesn't get remarried. Things can get pretty complicated (and coverage under the Basic Pension only exists when dependent children are involved), but the surviving wives of male company employees have traditionally relied heavily on these benefits. RetireWiki.jp goes into some detail on the subject.

Not much consolation for the self-employed, though, I suppose.

[northSaver]

Yeah sorry, I was referring to kokumin nenkin. That's interesting about kousei nenkin, thanks.

[Wales4rugbyWC23]

Obviously nobody on this thread was paying into an Equitable Life pension. One of the most respected pension companies in the UK. A lot of those who invested who were expecting a good return have either died or are still waiting on arbitration, although there has been some pay-outs.