Retirement Allowances (taishokukin 退職金)

[RetireJapan]

In fact, after the Great Tohoku Earthquake we even had pay cuts to help pay for the recovery.
[/quote]

I'm still bitter that I had my pay garnished for four years to 'help pay for the recovery' (our home was destroyed by the earthquake) and then spent most of those years reading about the projects nationwide they were wasting the money on

[TJKansai]

Does anyone know of any get-around when it comes to American taxes and taishokukin? Has anyone (or have heard of someone who) avoided this at all? Is there a way to simply "not" delare the taishokukin? The only get-around I can see is to become a Japanese citizen and get free of the IRS.

An American I know said he used his deferred tax credits (capital gains I think) to bring the bill down significantly. Not sure how that actually works though.

[regular]

Sorry to revive a slightly old topic. One Professor colleague who is 65 is semi-retiring in March next after 30 years here is expecting a much larger amount than the 41.5 months of final salary that I mentioned earlier. He will still be working at somewhere like 60 percent of his final salary on renewable, one year term contract and will keep using his office etc for 5 to 10 more years at our university.

The only plausible explanation seems that there was downward revision in taishokukin, sometime in the 90s. If anyone know of any Japan-wide movement to lower shigaku taishokukin during these period, please mention when it happened.

[captainspoke]

Sorry to revive a slightly old topic. One Professor colleague who is 65 is semi-retiring in March next after 30 years here is expecting a much larger amount than the 41.5 months of final salary that I mentioned earlier. He will still be working at somewhere like 60 percent of his final salary on renewable, one year term contract and will keep using his office etc for 5 to 10 more years at our university.

The only plausible explanation seems that there was downward revision in taishokukin, sometime in the 90s. If anyone know of any Japan-wide movement to lower shigaku taishokukin during these period, please mention when it happened.

If there's anything to be learned from this thread, it's that everybody does it differently. Public, private, how the early years are dealt with, what happens in the later years, etc.

Your professor colleague expecting much more that what you mentioned earlier? Sorry, but this is just hearsay. The extra there--that prof's continued work at a reduced salary, their office--sounds like a typical 特任 setup (and not relevant to taishokukin).

And as I think I said earlier, schools have changed their charts, which is a pretty normal response to changing student numbers, and other changes. Earlier people are grandfathered in. (And where I worked, it wasn't just taishokukin, the salary charts were changed as well.)

Also, it's not shigaku taishokukin--shigakukyosai has nothing to do with taishokukin. That depends on each employer's rulebook. Public uni tend to be on the lower side (salaries, too), privates are higher, but probably also more diverse from school to school.

[Tokyo]

And as I think I said earlier, schools have changed their charts, which is a pretty normal response to changing student numbers, and other changes. Earlier people are grandfathered in. (And where I worked, it wasn't just taishokukin, the salary charts were changed as well.)

Agree with captainspoke’s comments but where my wife and I worked the last 15-20 years before retirement at two private, unaffiliated universities there were no reductions in salary or taishokukin implemented. There were major changes at both universities in terms of retirement ages which were lowered from 70 to 65. That not only represents a significant loss in taishokukin but it becomes a huge loss of salary.

The other tendency for both salary and taishokukin is that larger (student population) universities pay more than smaller ones. But it’s only a general tendency with many exceptions.

[RetireJapan]

I will get around 5m yen this month after 13 years full time at a national university.

If my calculations are correct, my retirement bonus tax allowance will cover the entire amount and I won't owe Japanese taxes.

[beanhead]

I was telling a friend that the taishokukin amount was pretty large--my university mentioned a figure that I calculated would be close to $20,000 when I asked how much the taishokukin would be when my husband and I were just purchasing a house. It surprised me because I've only been in my position for 5 years and will (presumably) be forced to retire in 11 so that doesn't seem like that long of a time to be working. My friend said well that's going to mean paying a lot of taxes on that! So I'm wondering how Japan (and the US--I am an American citizen) handles that big chunk of money? Presumably they don't tax you at the normal rate? Also, did I misunderstand--is the taishokukin really this big? And one last question . . . I now have a mortgage until I'm 80 years old because I bought this house rather late in the game. Would it be better to pay the house off when (if) I get such a big taishokukin? Or would it be better to just invest it at the time and continue paying my mortgage?

So let me state these as questions:
1) How do taxes work in Japan for the taishokukin? I have seen some posts here that say it will be very small (3-5%) and others that say it will be nearer 20% (in a different forum where someone discussed taishokukin).
2) The year I get a taishokukin am I going to exceed my yearly threshold for excluding money from the US and thus have to pay a lot of taxes? (I see someone here said their friend just became a Japanese citizen instead of paying the US!)
3) How big are taishokukin normally? (does anyone want to tell us, ballpark, how much they got?)
4) Would it be better to pay off a mortgage with taishokukin or invest it and keep paying the monthly mortgage?

1) Taxes for taishokukin are small
See this thread:
viewtopic.php?t=1472

2) US tax stuff...sorry, can't help

3) Average for the 40-year salaryman at a big company used to be almost 30M yen.
I read somewhere that it is down to less than 20M (17M maybe), for those who put in their 40 years. Of course, many large Japanese companies have switched to DC plans from taishokukin anyway.

4)No-one can answer this but you. Everyone has a different appetite for risk. Most US-based Bogleheads cherish being mortgage-free. Many of us here have mortgages of around 1%, so are comfortable keeping this debt and investing other money rather than paying off the loan early. This has been discussed on the forum before, but as I said, you have to consider what will make you more content with your financial situation.

[Tkydon]

I was telling a friend that the taishokukin amount was pretty large--my university mentioned a figure that I calculated would be close to $20,000 when I asked how much the taishokukin would be when my husband and I were just purchasing a house. It surprised me because I've only been in my position for 5 years and will (presumably) be forced to retire in 11 so that doesn't seem like that long of a time to be working. My friend said well that's going to mean paying a lot of taxes on that! So I'm wondering how Japan (and the US--I am an American citizen) handles that big chunk of money? Presumably they don't tax you at the normal rate? Also, did I misunderstand--is the taishokukin really this big? And one last question . . . I now have a mortgage until I'm 80 years old because I bought this house rather late in the game. Would it be better to pay the house off when (if) I get such a big taishokukin? Or would it be better to just invest it at the time and continue paying my mortgage?

So let me state these as questions:
1) How do taxes work in Japan for the taishokukin? I have seen some posts here that say it will be very small (3-5%) and others that say it will be nearer 20% (in a different forum where someone discussed taishokukin).
2) The year I get a taishokukin am I going to exceed my yearly threshold for excluding money from the US and thus have to pay a lot of taxes? (I see someone here said their friend just became a Japanese citizen instead of paying the US!)
3) How big are taishokukin normally? (does anyone want to tell us, ballpark, how much they got?)
4) Would it be better to pay off a mortgage with taishokukin or invest it and keep paying the monthly mortgage?

1) Taxes for taishokukin are small
See this thread:
viewtopic.php?t=1472

2) US tax stuff...sorry, can't help

3) Average for the 40-year salaryman at a big company used to be almost 30M yen.
I read somewhere that it is down to less than 20M (17M maybe), for those who put in their 40 years. Of course, many large Japanese companies have switched to DC plans from taishokukin anyway.

4)No-one can answer this but you. Everyone has a different appetite for risk. Most US-based Bogleheads cherish being mortgage-free. Many of us here have mortgages of around 1%, so are comfortable keeping this debt and investing other money rather than paying off the loan early. This has been discussed on the forum before, but as I said, you have to consider what will make you more content with your financial situation.

To reiterate what I wrote in the other thread,

Post-employment payments are split into 3 groups for Japan Tax purposes

1. Retirement Allowance = Lump Sum = Taishokukin 退職金

This has a special Tax treatment.

This is NOT lumped in with other income, and is treated completely separately.
The Only Allowance against Taishokukin 退職金 is the Special Allowance equal to 400,000 per year for the first 20 years of service (or part thereof) and 700,000 per year for years of service over 20 years (or part thereof)
(You can basically use this deduction every 4 years or so)

e.g. 11 years of service => Special Allowance = 11 x 400,000 = 4,400,000 Tax Free

The remaining amount after deduction of the Special Allowance is then Divided by Two = Taxable Amount

The Taxable amount is then taxed according to the Standard Aggregate Marginal Tax Rates.

Income Tax Rates 総所得金額の合計、復興特別所得税、住民税の税率
Band Marginal Tax rate (％) National - Reconstruction - Residents' Taxes = Total
Under 1,949,000 5% 0.105% 10% = 15.105%
1,950,000 3,299,000 10% 0.21% 10% = 20.21%
3,300,000 6,949,000 20% 0.42% 10% = 30.42%
6,950,000 8,999,000 23% 0.483% 10% = 33.483%
9,000,000 17,999,000 33% 0.693% 10% = 43.693%
18,000,000 39,999,000 40% 0.84% 10% = 50.84%
Over 40,000,000 45% 0.945% 10% = 55.945%


That is actually the Equivalent of Total Taishokukin 退職金 minus Special Allowance taxed at

Band Marginal Tax rate (％) National - Reconstruction - Residents' Taxes = Total
3,900,000 6,599,000 5% 0.105% 5% = 10.105%
6,600,000 13,899,000 10% 0.21% 5% = 15.21%
13,900,000 17,999,000 11.5% 0.242% 5% = 16.742%
18,000,000 35,999,000 16.5% 0.345% 5% = 21.845%
36,000,000 79,999,000 20% 0.42% 5% = 25.42% Y8,984,800
Over 80,000,000 22.5% 0.4725% 5% = 27.9725%

(the amount is halved and taxed at the standard marginal bands, which is the equivalent of twice the width of the band at half the band tax rates as shown above)


2. Pension Income - Such as Japan National Pensions 国民年金、国民年金基金、Overseas Pensions, etc..

Pension income is aggregated with other Aggregate Income, and taxed accordingly. You get to apply all Allowances and Deductions, Furusato Nozei, Medical Cost Deductions, and the additional Public Pension Deduction, the calculation of which you can see in this document

https://www.tax.metro.tokyo.lg.jp/book/ ... k2021e.pdf

Page 8 - Calculating the Public Pension Plan Deduction (Calculation Table)
Individuals under the age of 65 and Individuals aged 65 and up

The remaining Aggregate Taxable Income is then taxed according to the Standand Aggregate Marginal Tax Rates.

Income Tax Rates 総所得金額の合計、復興特別所得税、住民税の税率
Band Marginal Tax rate (％) National - Reconstruction - Residents' Taxes = Total
Under 1,949,000 5% 0.105% 10% = 15.105%
1,950,000 3,299,000 10% 0.21% 10% = 20.21%
3,300,000 6,949,000 20% 0.42% 10% = 30.42%
6,950,000 8,999,000 23% 0.483% 10% = 33.483%
9,000,000 17,999,000 33% 0.693% 10% = 43.693%
18,000,000 39,999,000 40% 0.84% 10% = 50.84%
Over 40,000,000 45% 0.945% 10% = 55.945%


3. Pensions and Annuities Other Than 2. Above

Annuities provided by Insurance Companies, and other Pension Income that does not qualify for the additional Public Pension Deduction, are taxed the same as 2. above but without the additional Public Pension Deduction.


You may have a combination of 2. and 3. above, so may be entitled to the additional Public Pension Deduction on part of your total Pension Income. See

Page 8 - Calculating the Public Pension Plan Deduction (Calculation Table)
Individuals under the age of 65 and Individuals aged 65 and up

So let me state these as questions:
1) How do taxes work in Japan for the taishokukin? I have seen some posts here that say it will be very small (3-5%) and others that say it will be nearer 20% (in a different forum where someone discussed taishokukin).
2) The year I get a taishokukin am I going to exceed my yearly threshold for excluding money from the US and thus have to pay a lot of taxes? (I see someone here said their friend just became a Japanese citizen instead of paying the US!)
3) How big are taishokukin normally? (does anyone want to tell us, ballpark, how much they got?)
4) Would it be better to pay off a mortgage with taishokukin or invest it and keep paying the monthly mortgage?

1) See the Tables above.
After Special Deduction of 400,000 per year (<20 year) and 700,000 per year (>20 years)
Band Marginal Tax rate (％) National - Reconstruction - Residents' Taxes = Total
Basically, first 1,949,000 5% 0.105% 10% = 15.105%
Next 1,349,000 10% 0.21% 10% = 20.21%
and so on...

2) You can use the Taxes paid in Japan as the Foreign Tax Credit against US Taxes.

3) Case by case...

4) No. Other than for piece of mind, NO!
Pay off all High Interest Loans...
If you pay off your mortgage, that is the equivalent of a return on your money equal to the Interest Rate you are paying on your Mortgage, AND if you were getting the Morgage Tax Deduction, 1% of the outstanding balance of the Mortgage, you would lose that too...
Much better to invest the money for 5%+ annual return and pay the payment and interest out of the investment income/gain, and at the end, you will still have the money in your investment account.
Your Mortgage is covered by Life Insurance, so if you die, the Mortgage will be completely paid off. Your Heirs will receive the property free and clear AND the amount in your investment account...

See the guys from Everything Money explain it:

https://www.youtube.com/watch?v=w3z0vVEVT_s

[TokyoWart]

2) The year I get a taishokukin am I going to exceed my yearly threshold for excluding money from the US and thus have to pay a lot of taxes? (I see someone here said their friend just became a Japanese citizen instead of paying the US!)

I believe it's taxed as ordinary income by the US. As Tkydon points out you can claim a FTC for amounts of tax you pay for income above the FEIE limit but because you only get to claim a pro-rated share of those taxes (you subtract out the amount of foreign tax paid on income excluded by FEIE) this benefit is limited and receipt of the retirement payment is one time US expats will often owe taxes to the IRS.

3) How big are taishokukin normally? (does anyone want to tell us, ballpark, how much they got?)

The article below gives some broad averages. From what I have seen for people who worked 30+ years in my industry the amount may be 30-40 million yen or more (i.e. higher than the averages in this article).

https://www.navinavi-hoken.com/articles ... ey-average

[ClearAsMud]

The Retirement Allowance Foundation for Private Universities and Colleges of Japan (私立大学退職金財団) conducted a detailed survey of retirement age and retirement allowances at Japanese private universities in 2018 (download it from https://www.shidai-tai.or.jp/files/user ... port30.pdf).

The survey -- which unfortunately doesn't report actual monetary amounts for retirement allowances -- reveals that the most common mandatory retirement age for teachers at 4-year non-medical universities was 65 years old (63% of members), with 70 years old (13.8% of members) the next biggest cohort. A total of 6% of 4-year members had a retirement age of 60. (Numbers are different for medical schools and junior colleges/technical schools, generally for the worse.)

Four-year non-medical universities with programs of continued (post-retirement) employment that counted toward the final retirement allowance accounted for 13.1% of members. Programs of continued employment that did NOT count toward a retirement allowance were operated by 50.5% of such universities. 33.1% of this type of school had no continued-employment program in place at all. (Here the numbers tend to be a little better for other types of schools, except that no med schools provided continued-employment programs with retirement-allowance benefits.)

The foundation has a membership of 597 schools. The survey is interesting reading if you want to go full-wonk on the topic.

At the concrete level, I can add some general information regarding a big private uni with both taishokukin and a corporate pension. The retirement allowance is, as usual, based on salary and time served, and calculations haven't changed for at least 30 years, except to add a new layer to encourage early retirement (10% increase per year on the base sum, up to a max of 10 years). I think that 26M yen or so (ballpark figure) is a reasonable estimate for those hitting retirement age after a career of 30 years. The tax-exemption amount at that point would come to about 15M yen, leaving 5.5M as taxable after the 50% reduction, leaving a take-home total of about 24.7M yen after taxes. Preferential taxation indeed, and Americans beware. The most accurate online calculator I have found for estimating taxation of the retirement allowance is here (from Casio):
https://keisan.casio.jp/exec/system/1292387069

The university has, however, managed to cut pay and benefits in other ways.