Delaying pension

[beanhead]

Thankyou Moneymatters. Yes, those sums certainly add up. I think perhaps my question wasn't well worded, so here's another way of putting it:

MM Answered this already:
You don’t need to keep paying in if deferring. The two are not connected. You could stop at 60 if you like. Or contribute to 65 voluntarily if not working..

[banders]

Would I be out of line suggesting a RJ e-book on pension taxes...? Updated annually, of course.

[Tkydon]

Thankyou Moneymatters. Yes, those sums certainly add up. I think perhaps my question wasn't well worded, so here's another way of putting it: Would one get 142 from age 70 by deferring, merely waiting (while living off other means) those 5 years from retirement at 65, but not contributing a single yen more? Or does the 142% at age 70 figure assume continuing contributions have been made from ages 65 to 70? If one stops work at 65 but pays no more into the system, will the pension amount received every two months be 142% higher than it would be if one started receiving the money at 65?

Your compulsory contributions stop at 60.
Your voluntary contributions, if you choose to pay them, stop at 65 or 480 months...

Oh, if you have contributions in another country that has a Pension Treaty with Japan, you may also be able to count those contribution months against the number of qualifying months, especially if you have less than the minimum 10 years' (120 months) qualifying contributions to get over the line.

There will be no additional voluntary contributions after 65, so that would be your absolute maximum, to then be marked up if you delay starting to receive the pension.

[Moneymatters]

Thankyou Moneymatters. Yes, those sums certainly add up. I think perhaps my question wasn't well worded, so here's another way of putting it: Would one get 142 from age 70 by deferring, merely waiting (while living off other means) those 5 years from retirement at 65, but not contributing a single yen more?

Yes.

Or does the 142% at age 70 figure assume continuing contributions have been made from ages 65 to 70?

No.

If one stops work at 65 but pays no more into the system, will the pension amount received every two months be 142% higher than it would be if one started receiving the money at 65?

Yes. (From age 70..)

[RetireJapan]

Delaying pensions to get a higher monthly payout is a kind of insurance against living for a very long time, or losing your cognitive capacity. Getting a monthly payment from the government (or bimonthly in the case of Japan) is better than trying to juggle your investments. Also can't be taken away by a scammer or family member.

My thinking here: https://www.retirejapan.com/blog/pensio ... vestments/

Basically this shouldn't be about maximizing how much money you get from nenkin, but rather maximizing your chances of being comfortable in retirement.

[hbd]

Bravo and thankyou all. Sorry for not having known that one isn't allowed to contribute any more after turning 65. So putting in what I can until then, then just letting it sit for 5 years but grow in value by 42% seems a rather good deal. As I said - staggeringly basic stuff!

[RetireJapan]

You can also delay to 75 and get 184%, but I'm reconsidering delaying for couples as you generally can't inherit pensions. Thought in progress!

[Tkydon]

There is a discussion on The Rational Investor Podcast regarding the Canadian equivalent of this discussion, and they concluded that in the Canadian case, it is not advantageous to delay taking the pension (based on fully contributed public pension).

Rational Reminder: The Index Fund Tipping Point (Nov. 3, 2022)
https://youtu.be/m9PXPjAQVeg

@44:00:00 According to the featured Canadian Financial Planner, due to the different Indexing Values actually used for annual increases to Canadian Pensions vs the annual increase to the monthly amount if the pensioner delays receiving his/her Canadian Pension, Canadian Pensioners should take their Pension earlier, and NOT delay taking benefits until later, as the break-even on delaying taking the Canadian Pension would not be achieved until the pensioner reached 105...

Do the two different indexing values also apply to Japanese Pension?

The 0.7% increase Per Year from 65 is the approximately the same as the Canadian case... so 142% at age 70... 184% at age 75 or over...

Would it be even more beneficial to accelerate to 60 ???

In Japan, if you pull the trigger at 60 you get 70% of the Full 100% amount that you would receive at age 65 but based only on the contributions to age 60 (discounted at approximately 0.6% per year).

In Japan, if you do not have 480 months of contributions at age 60 (a full 40 years' contributions - probably most of us who came to Japan later than age 20), then it is definitely not to your advantage to take the pension until you have paid in the maximum number of voluntary contributions you can up to 65, but then I don't think it would be advantageous to delay taking the pension past 65, and instead feed the pension payments if you don't need them into NISA to invest Tax Free after having paid the Pension Income Tax, bearing in mind that the higher delayed payments may also push the recipient into a Higher Marginal Tax Bracket, with more tax and other income related payments, and may reduce the amount of the Public Pension Plan Deduction...

See Page 8 (page 12 of the PDF) - Calculating the Public Pension Plan Deduction (Calculation Table)
https://www.tax.metro.tokyo.lg.jp/book/ ... k2023e.pdf

I haven't yet run numbers to support this conclusion...

[banders]

Here's my thinking, assuming my calcs are correct:

1) 5 years of voluntary contributions costs 60 * ¥16,520 = ¥991k

2) This will ‘earn’ an additional 60/480 * ¥795k = ¥99k pa (¥8,300 pm)

(The ‘macroeconomic slide’ (as detailed at the end of the RetireWiki > Japan pension system), if I understand correctly, doesn’t exactly give me confidence this will be maintained.)

2) is roughly equivalent to ¥2.5m at 4% drawdown in a NISA

I would feel more confident putting the ¥991k in my NISA and it growing to ¥2.5m (including drawdowns) over the next 25 years than the J pension staying at that rate for the same time (or even existing that long).

I know the nenkin can be considered a safe minimum income for life, but if that ¥8,300 per month is that important, I think you’re in trouble.

[RetireJapan]

I know the nenkin can be considered a safe minimum income for life, but if that ¥8,300 per month is that important, I think you’re in trouble.

Hopefully it is a form of diversification, ie you have plenty of investments in NISA and iDeCo, and nenkin is something completely uncorrelated to them.

If that is not the case and someone is choosing where to put their scant resources, I might be inclined to go with something they have control over (ie NISA). But then there is market risk and cognitive risk.

Tough situation.