Paying half Hoken or full Hoken

[RetireJapan]

Thank you again for your many replies. I am probably worse condition retirement wise than most. But, since this forums hasn’t shame me yet,(many thanks) I feel comfortable to continue my retirement health check even though I expect bad news.
The calculation will be vey simple I believe, even though I don’t know how to do it. A year ago I started to give my retirement some thought……I applied for Nenkin and was told that I could be exempt for paying it. My wife and I did just that, and consider ourselves lucky.
But, are we really?

Nenkin is a pretty good deal. I don't think it would be possible to buy something similar from a company for the same price.

This article might be interesting: https://www.retirejapan.com/blog/pensio ... vestments/

If you can afford to pay full nenkin it might be worth doing so (as well as iDeCo, fuka nenkin, or kokumin nenkin kikin).

[Haystack]

I applied for Nenkin and was told that I could be exempt for paying it. My wife and I did just that, and consider ourselves lucky.
But, are we really?

If you can afford to pay full nenkin it might be worth doing so (as well as iDeCo, fuka nenkin, or kokumin nenkin kikin).

Oliver, give us the details so we can help.

Edit; Found this in another thread

Hello, I am 45 years old, from the EU. I am self-employed teaching English. I have no debt, I have a 18 years left to my house mortgage

Zero debt and less than 20 years on a mortgage is not a bad place to be.

The question would be, what is your current savings situation? Nenkin is ultimately your money. By not paying you lose access to future guaranteed income, and access to Japanese #1 individual requirement savings plan, iDeco.

If you can afford Nisa, you can afford Nenkin imo. Setting Nenkin + IDeco + T-Nisa as a goal going forward would out you on a path for success. could you budget for all three? It would be worth cutting subscription, reducing phone payments, etc.

Nenkin - ¥16,590
T-NISA - ¥5,000 -¥33,333
IDeco - ¥5,000 - ¥68,000

[Beaglehound]

One factor to consider is that the OP said he and his wife are getting half pension contributions without paying anything, so paying full pension would only add half the benefits.

[RetireJapan]

If you are deemed eligible for reduced or waived kokumin nenkin, you accrue benefits at the following rate:

fully exempt (1/2 benefit)
3/4 exempt (5/8 benefit)
1/2 exempt (6/8 benefit)
1/4 exempt (7/8 benefit)

https://www.nenkin.go.jp/service/kokune ... 50428.html

[zeroshiki]

Assuming you're fully exempt your whole life AND you worked 40 years (is that possible?) you will get a pension of 388,900 JPY a year or around 32k a month (you also lose out on 32k a month if you paid full pension).

Full pension tax is 16,590 a month.

Assuming you dump 16,590 into TNISA (and only that) and count 20 years at 5% growth, the result is 6,582,770 in 2042 money.

vs

388,900 a year from 65 to, lets say, 85 = 7.7M

break even point is 17 years.

So basically, if you expect to live more than 17 years after retirement, the pension is a better deal.

*note this sets aside the time value of money from 65+ for simplicity's sake since I doubt you'll be investing your monthly pension payouts.

[Haystack]

If you are deemed eligible for reduced or waived kokumin nenkin, you accrue benefits at the following rate:

fully exempt (1/2 benefit)
3/4 exempt (5/8 benefit)
1/2 exempt (6/8 benefit)
1/4 exempt (7/8 benefit)

https://www.nenkin.go.jp/service/kokune ... 50428.html

So op will pay 8,300 x2 and receive 4150x2 in stated funded benefits. (Rounded).

That's basically 10万 a year in "free" benefits.

It all comes down to how much you could invest, and if you can make use of an iDeco or not.

[TBS]

...

Thanks. This was along the lines I was thinking but was too short on time to do any of the leg work.

More generally (not specific to the OP's situation) and breaking down into the details, there may be scenarios where it is better to pay into tNISA earlier in life whilst using a nenkin exception, then switch to paying nenkin later in life. Nenkin contributions in earlier years are effectively more expensive due to opportunity cost. Conversely nenkin payments in later years are a bargain as you are buying very cheap annuity contribution years with little opportunity cost.

Echo what others have said. These points are just the pure money/investment aspects. Other important considerations: tNISA performance is not guaranteed. It's defined contribution (effectively) and returns could be much lower or greater than forecast. Nenkin is more like defined benefit, albeit future annuities will depend on the performance of the Japanese economy/society and the political whim of governments.

[zeroshiki]

There's also the fact that you'd generally want to better yourself (and your income) in the coming years so a full exemption might not even be possible since pension contributions are a tax.

[Oliver]

Am I right to think that if I don’t pay into Nenkin for at least 10 years I will receive nothing in retirement payouts?
Also am I right to think that if I don’t pay the full amount 10 years of half price payment will not be enough for a payout?

[RetireJapan]

Am I right to think that if I don’t pay into Nenkin for at least 10 years I will receive nothing in retirement payouts?
Also am I right to think that if I don’t pay the full amount 10 years of half price payment will not be enough for a payout?

No.

The years you are granted an exemption for also count towards the 120 months required to qualify for a pension.