Starting to save for retirement at 55

[latebloomer]

Hello All, I've purchased the Retire Japan e-book, and my main takeaway is to use iDeCo to reduce taxable income and keep the investment in cash. I've lived in Japan for 9 years, am a permanent resident, and self-employed. Until last year, I was earning below the annual spouse limit. My husband, a company employee, is Japanese. Due to previous business losses and debt repayment from my home country, we weren't able to focus on retirement until recently. Due to living out of Japan for 20 years, my husband has also only been enrolled in the Japanese pension system for 9 years since his return and a few years before he initially left Japan to work abroad, so we are not going to be getting much of anything from his pension. We now have about 10 million yen in savings, and I'm ready to contribute the maximum allowed as a category 1 iDeCo participant to boost our savings. Obviously, we will have to continue working for as long as we are able I have not applied for iDeco yet, but would like to get going in the next couple of days. Should have done this at the start of the year to reduce my taxes, but no point beating myself up or procrastinating any further Any advice would be greatly appreciated.

[RetireJapan]

Welcome! I'm guessing you're a US citizen? (due to the keeping iDeCo in cash thing)

[latebloomer]

Hi, not a US citizen, but based on my age (55) my takeaway was to keep it in cash.

[RetireJapan]

For most people, given how long they are likely to live (probably at least 2-3 decades beyond 55) and how small iDeCo allowances are compared to other investments/savings, it would likely make sense to invest the money so it has a chance to grow within the tax advantaged account.

That way you get both the income tax saving and the investment growth.

[Tsumitate Wrestler]

Obviously, we will have to continue working for as long as we are able

Not to be dark, but not everyone's health sustains this plan.

At 50, increasing income, and decreasing spending will go a long way.

Do you have a budget? How much do you save every month? What expenses can you cut?

...............

The Japanese financial planner my wife heard speak the other day recommended most people cut any whole life insurance polices, and use the funds for iDeco as step 1.

[Beaglehound]

Your husband should probably do IDECO too, though his limit will be lower than yours. Also I would consider whether you will fully benefit from IDECO tax deduction (i.e. is your income enough that it will all result in tax savings). If not, you might be better off with some in NISA, which gives you more flexibility on withdrawal and no tax (IDECO is tax advantaged but there may be some tax liability when you withdraw, especially with high contributions packed into a few years.

I would say you need to be considering taking on some investment risk. I assume the plan is to keep working until at least 65, which is enough of an investment horizon to put some in growth assets. If you check out target date funds it would give you an idea of what an appropriate allocation might be.

[Tkydon]

iDeCo is tax advantaged because you pay the premiums out of Gross Income, so if you paying Income Tax Through Withholding, you will get a Tax Refund at the end of the Year for the Total iDeCo Contributions divided by your Marginal Tax Rate and reduced Residents' taxes in the following year, so you could make tax savings of 20%, 30% or even more per year, depending on the level of Gross Income...
(think of it as the Government subsidizing or your iDeCo contributions)

Tax Free In - Taxable Out in Retirement, but at lower Income Tax Rates.
The bigger amount in means more to grow over the years.

If you are disciplined, you can take the Tax Refund at the end of each year and pay it straight into NISA Tax Free, and then it will be Tax Free when you withdraw it in the future...

NISA Contributions (other than the above) are Tax Advantaged because you pay the contributions from After-Tax Net Income, so it has already been taxed and no tax rebate or Residents' Tax savings, but when you withdraw the money at any time in the future, you withdraw the money completely Fax Free.

After Tax In - Tax Free Out.

If you Tsumitate the money into iDeCo and NISA (Dollar Cost Averaging), buying low cost - low fee Index Funds, you will achieve a low average cost over all the units you own, and IF you have 10 years to ride another Economic Cycle to 65, even if the markets crash, you'll be buying at lower and lower prices, ensuring a low average price overall... so a market down turn would be your friend during the accumulation phase, allowing you to buy more, more cheaply...

Good explanation here:
https://www.sc.com/sg/stories/dollar-cost-averaging/

The totals of their table
4000 paid for 220 Units for average Price of only 18.18 per unit...
Lower than all prices except the 12.5 price...

But this is not without risks...

[Tkydon]

Hello All, I've purchased the Retire Japan e-book, and my main takeaway is to use iDeCo to reduce taxable income and keep the investment in cash. I've lived in Japan for 9 years, am a permanent resident, and self-employed. Until last year, I was earning below the annual spouse limit. My husband, a company employee, is Japanese. Due to previous business losses and debt repayment from my home country, we weren't able to focus on retirement until recently. Due to living out of Japan for 20 years, my husband has also only been enrolled in the Japanese pension system for 9 years since his return and a few years before he initially left Japan to work abroad, so we are not going to be getting much of anything from his pension. We now have about 10 million yen in savings, and I'm ready to contribute the maximum allowed as a category 1 iDeCo participant to boost our savings. Obviously, we will have to continue working for as long as we are able I have not applied for iDeco yet, but would like to get going in the next couple of days. Should have done this at the start of the year to reduce my taxes, but no point beating myself up or procrastinating any further Any advice would be greatly appreciated.

Where did you Husband work abroad? Was he paying in to a National Pension Scheme there? Can he continue to contribute to a National Pension Scheme there? (e.g. UK...)?

Where are you from? Were you paying in to a National Pension Scheme there? Can you continue to contribute to a National Pension Scheme there? (e.g. UK...)?

Unfortunately, every country is quite specific, so without knowing the countries concerned, it is difficult to point you in the right direction.

Japan has Pension Totalization agreements with many countries

https://www.nenkin.go.jp/international/ ... dance.html

https://www.nenkin.go.jp/international/ ... nisms.html

https://www.nenkin.go.jp/international/ ... ons01.html

The Pension Totalization agreement with the UK is very limited - think non-existant - but other countries are much better.
But if you have status in the UK, you could apply to pay Back-Contributions at very reasonable rates.
Other countries, you would have to ask the National Pension Office or Super Annuation Office or CPP Office, etc...

[Moneymatters]

Mindless* curiosity on my part.

It seems you can START receiving an annuity distribution from iDeCo as late as age 75.
and then spread it between 5-20 years.
https://dc.rakuten-sec.co.jp/about/recipient/

The question that I'm struggling to find an answer for is...
Does your investment balance continue to remain invested during this withdrawal (annuity distribution/pension period)?
Or is it all effectively just sold and realized at the start of the pension period and just paid out in installments..

* I'm overly blessed in this department.. I recently caught a cold then spent a whole day wondering what happens if an astronaut got sick.
A few of my sneezes would have resulted in aborted space walks for sure..

[Tsumitate Wrestler]

Mindless* curiosity on my part.

It seems you can START receiving an annuity distribution from iDeCo as late as age 75.
and then spread it between 5-20 years.
https://dc.rakuten-sec.co.jp/about/recipient/

The question that I'm struggling to find an answer for is...
Does your investment balance continue to remain invested during this withdrawal (annuity distribution/pension period)?
Or is it all effectively just sold and realized at the start of the pension period and just paid out in installments..

* I'm overly blessed in this department.. I recently caught a cold then spent a whole day wondering what happens if an astronaut got sick.
A few of my sneezes would have resulted in aborted space walks for sure..

一度iDeCoを受け取ってしまうと掛金を拠出できなくなりますが、60歳を過ぎても積み立てを継続する場合は65歳まで掛金の拠出が可能です。また、運用自体は75歳まで継続できます。

iDeCoの受取可能年齢 60歳から
iDeCoの掛金拠出可能年齢 65歳まで
iDeCoの運用可能年齢 75歳まで

Once you receive the iDeCo, you can no longer contribute to it, but if you wish to continue accumulating it after age 60, you can contribute to it until age 65. In addition, the investment itself can be continued until the age of 75.

Age at which iDeCo funds can be received: from age 60
Age at which iDeCo contributions can be made: Up to age 65
Age at which iDeCo investments can be made: Up to age 75

https://www.smbc.co.jp/kojin/money-viva/ideco/0017/