Return on investment (Hypothetical)

[LifeinJapan]

Hey folks,

Any thoughts on which will have the best rate of return as an investment over the next decade+ ? (Expected retirement 10-12 years away)

A. Kokumin Nenkin

Currently not enrolled, will have to pay the two years back payments, and then % of income for the next decade to qualify for payout.

B. Kosei Nenkin

Not required to pay back payments. But will have to pay both the employee and employer contribution as I am the company owner. Significantly higher monthly cost then Kokumin Nenkin, but expected higher payout as well. (10 year minimum to qualify for payout)

C. Private target date index fund (USD). Historically 7-11% return over time but varies with market conditions, year to year fluctuations. FDIC insured to 500K and portable, but there is always risk of currency fluctuations, remittance problems, etc. , not state sponsored.

In terms of pure % of return on investment, which do you think is the best choice and why? or possibly there is another combination of choices? or alternative vehicles.

Any thoughts or comments with an explanation very much appreciated.

LiJ

[RetireJapan]

Well, this isn't a choice, really. If you are a company owner you should be enrolled in kosei nenkin. If not, you should be enrolled in kokumin nenkin.

Kokumin nenkin is a fixed rate, not % of income.

National pensions are different from other investments: https://www.retirejapan.com/blog/pensio ... vestments/

I would argue it's not either/or but both. If you are already investing, nenkin is a way to diversify.

[LifeinJapan]

Retire Japan,

Thank you for the reply.

I didn't know Kokumin nenkin was fixed rate, also that link you shared is insightful, great!

Legal/social obligations aside, the analytical part of my mind still wants to know the probable yen to yen % return on 'investment' for each.

But perhaps my question maybe something like asking to compare apples to oranges...

Cheers,

LiJ

[beanhead]

On this forum, we have a sizable group of UK passport-holders who are trying to figure out how to voluntarily pay into the state pension there.
Other discussions have debated the possibilities of back-paying into the Japanese pension to increase future payouts.
Many people believe that, for all the doubts about future payouts, government pensions are valuable sources of income post-retirement. It is not an ROI discussion.

[zeroshiki]

Beanhead said it way better than I could.

Not targeting the OP directly here but recently there's been a rash of questions asking whether paying into pension is "worth it" and it always made me feel uneasy because pension is a tax. If everyone else started making the same calculus then it ceases becoming a government service and becomes no different than whatever life insurance vehicle your cousin's wife sells in her free time.

Putting aside the fact that you do actually get benefit from it, you should pay into the pension because the government has decided its good for you. Its an obligation full stop.

[RetireJapan]

pension is a tax

I agree with your post but this is incorrect. Nenkin is a legal obligation for residents of Japan, but it is not a tax.

[zeroshiki]

pension is a tax

I agree with your post but this is incorrect. Nenkin is a legal obligation for residents of Japan, but it is not a tax.

Its an amount the government requires people to pay which in my eyes makes it a tax. I'm not sure of the specific legal terminologies but it functions like a tax. In the US they got around the legal question of medical insurance being an obligation by saying it was a tax. In the end, its semantics unless there's something special about a tax versus an obligation that I don't see.

[Tony]

pension is a tax

I agree with your post but this is incorrect. Nenkin is a legal obligation for residents of Japan, but it is not a tax.

Its an amount the government requires people to pay which in my eyes makes it a tax. I'm not sure of the specific legal terminologies but it functions like a tax. In the US they got around the legal question of medical insurance being an obligation by saying it was a tax. In the end, its semantics unless there's something special about a tax versus an obligation that I don't see.

A tax is a compulsory contribution to state revenue. Nenkin is not state revenue, it is placed in a pension fund. The state does not have the ability to use that money without some serious changes to the law. There was an interesting post on reddit about the current state of the pension fund.

So yeah, pension is most definitely not a tax, it is an obligation, as you are not paying the state, you are being force to buy into a fund.

[RetireJapan]

Its an amount the government requires people to pay which in my eyes makes it a tax. I'm not sure of the specific legal terminologies but it functions like a tax.

In the end, its semantics unless there's something special about a tax versus an obligation that I don't see.

It is semantics, but in this situation I believe claiming that nenkin is a tax is confusing.

It is not administered by the tax agency, and has nothing to do with normal tax reporting and payment. Enforcement is (currently) much weaker, which is why many people still get away with not paying it and even end up thinking it is optional.

It is not added to government revenues but rather is used solely to fund the pension fund. Paying it gives you a claim on a pension, unlike other forms of taxation which do not provide specific benefits based on paying that tax.

So it's not a tax. It is compulsory for residents of Japan, and enforcement is getting stricter and more competent. I do hope that in the future it will be as difficult to evade nenkin as it is to evade taxes, as this will make the system more robust and force people to make provision for their retirement.

[beanhead]

Putting aside the fact that you do actually get benefit from it, you should pay into the pension because the government has decided its good for you. Its an obligation full stop.

Yeah, I drafted a more specific reply about the fact that you don't legally get to make the choice the OP is considering, but deleted it.
Some people think they can avoid their obligations forever...