Best option to start saving with limited income? - Plus dual-pension question

[RetroNewbie]

I've been in Japan for a while now, and TBH haven't really been saving anything.. partly due to not really having much spare cash to save, partly due to the language barrier for services, and partly due to not knowing how long I'll be here.

Effectively, the only savings we're making in Japan are paying my wife's pension every month (which seems pretty pricey, but nevermind).
I am also paying into my UK pension, and I'm under the impression that I don't need to pay into the Japanese one because there's some kind of dual-taxation agreement, but for pensions. (Having to pay a backlog on the pension would be impossible).

Since income barely covers living costs, plus the ridiculously high health insurance, local tax, pension etc.. for a family of 4, I don't really have the option of paying into some of the services that have high minimum deposits.
So I'm trying to think of how I can get started saving *something*. I keep reading advice about what I should be doing for my financial future... but little of it seems possible/feasible in Japan.

- It seems to me that the iDeco option would be good due to being pre-tax? (Is that right?) So it'd also reduce my general/local tax,
But it apparently requires a pension, and I'm not sure if I'll be here until retirement.
- So maybe a NISA seems like the next best option. No tax reduction, but tax free and more flexible in the short term. I have an (cash) ISA in the UK, but it's frozen as I'm non-resident. NISAs just seem far more confusing though.
- The other option would be a robo-advisor like Chloe (was 8 securities or something like that). It doesn't get the best review here, but it has the lowest fees and minimum. It would be taxable though, right?

Since I don't know much about the stock market, I think the best option would be to just put stuff into ETFs like Vanguard, right?
(US ETFs, not Japanese, is that best? Is that an option?)

So, assuming the iDeco thing is off the table due to pension or uncertain future plans, should I just open a NISA at somewhere like MIzuho (where I have an account already) or is it better to try and do something like Rakuten Securities?

Any other general pointers or advice would also be helpful. I've seen a couple of similar threads here, but most of them seemed to be starting fro the point of having more income available, or being here permanently.

Thanks in advance!

[RetireJapan]

Hi RetroNewbie

Welcome to the forum! You've come to the right place.

I'll give you a really quick overview of my responses to your questions, please ask if anything is not clear or you would like more information.

1. As a resident of Japan you have a legal obligation to pay into the Japanese national pension, either kosei nenkin through your employer or kokumin nenkin if you are a freelancer. The maximum you can be asked to backpay is two years, and many people are able to pay in installments if their financial situation is uncertain. Once you pay in 120 months you will be eligible to receive a pension anywhere in the world.

The UK-Japan pension treaty only addresses being forced to pay both, it does not exempt you from paying the Japanese one if you are paying voluntary contributions from abroad to the UK state pension (which is a very good idea IMO).

2. iDeCo is a great option, but you need to be paying the pension and you can't get your money until you are 60. It can be paid anywhere in the world though, so even if you have left Japan you won't lose your investments.

3. NISA is also a good option as it means you won't have to pay capital gains or dividend taxes. You might consider the Tsumitate version, that allows you to invest up to 400,000 yen a year tax-free for twenty years.

4. I really recommend using an online broker instead of a bank for your investments. The fees are lower, the range of products better, and they don't call you up and try to sell you things.

5. In my experience the best way to start investing is to start a small monthly investment, and increase it over time. You will get used to the monthly payments and it will be easy to end up saving much more than you thought possible.

Basically you should consider your current situation an emergency. Not saving and investing regularly is leaving you in a precarious situation: you might not be able to deal with any emergencies that come up, and you might find yourself in a bad financial situation when you are older.

Motivate yourself to get this sorted out now, and your future self will look back and be grateful.

Anyone else?

[adamu]

Welcome, congrats on thinking about your financial future.

I think the two most important points are:

1) You need to pay the Japanese pension too. It's a legal requirement for residents of Japan to pay into the pension, as RetireJapan said. (edit: I'm assuming you're paying voluntary contributions. If you're paying something else, I'm not sure in that case and maybe the treaty applies as you said)

2) I think you don't have to worry about investment products etc. for now but just to start saving. For that, a simple bank account is enough. Once you can keep that up consistently, then it's time to start to think about investing.

I don't know your situation, but usually, before considering investing any money, it's good practice so save up 6 months to a year of living expenses in cash. There are many good guides online about how to get a retirement savings system in place. Habit is the most important point, so just consistently putting something away every month (and never spending it!) is the best first step. Before that, I wouldn't get analysis paralysis about NISAs, iDeCo, etc. Just start putting cash away into a separate account. That has the tipple benefit of: visually getting bigger as you save, not disappearing in a stock market crash, and giving you a peace of mind in case you ever need to stump up a payment for something at short notice.

[AinT]

I'll repeat what I've said before, and often. Do NOT use an expat financial adviser in this country. They are all mutual fund salesmen. It may seem like an easy option but you are screwing yourself in the long run.

[captainspoke]

I'll repeat what I've said before, and often. Do NOT use an expat financial adviser in this country. They are all mutual fund salesmen. It may seem like an easy option but you are screwing yourself in the long run.

Logged in specfically to emphasize this. Most if not all "offshore investment" plans (or 'schemes' as they're sometimes called) are scams.

Build an emergency fund first--cash in the bank--and along the way do some reading and ask questions (here and elsewhere).

[zeo]

I'm new Japan, so all my experience is from the US. In the US you always need to keep at least 6 months of expenses in cash, due to insecure nature of your job in the US and most unemployment insurance in the US, at best, covers only about 60% of your income. From what I've pieced together so far, it seems better here, but I'd still recommend calculating all your costs and having that on hand in case of emergencies.

Definitely second the statement about getting in to the habit of saving, but do it with a plan. Put together a realistic monthly budget. Stick to it and track it. It doesn't work quite as well here as in the US, but I can recommend using YNAB, short for You Need a Budget. It's a web app now and costs $60/year, but using it is great for tracking all your expenses and managing a budget. It works better in the US because it can pull US bank data in to the application so you don't have to do manual entries for each expense. But entering each transaction manually keeps you well informed and it forms a good habit. They have a lot of free online training on how to use the system too, so it's easy to learn. You can switch the denomination to Yen from US dollars, so at least it will look right. Lots of budget tools out there though so look around.

[RetroNewbie]

I knowit's been ages, but I just wanted to say thanks for this.
The info on pensions, plus life in general, sidetracked me for a while.

I'm gonna post another question on pensions.