Retirement planning

[captainspoke]

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Isn't the answer that most of them don't? Kosei nenkin is much more than that, so for the average salaryman they will get more like 150,000 - 200,000 per month. Plus, if married, their wife may pick up the 'free' kokumin nenkin as well, for that 700,000 or so a year extra.
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Divide my august (bimonthly) payment by 2, and I'm getting ~¥162,000/month. That's after kaigo hoken is deducted from it (and I have some other income so I'm at a higher rate for that). Add social security of about ¥53,000 for a total of ¥215,000/month. With the extra income added to that I certainly do pay taxes, but pensions do cover the bills and most of ordinary life. I'll be 73 next month, and still have a chunk of taishokukin left (40%?), and so far have only lightly touched my investments.

Of course it helps that my wife always worked and she gets her own pensions--she worked longer and so gets a little more than I do (if I leave off the social security). She also got taishokukin, saved money, and still works a little tutoring online. Not yet, but one of these days I'll get her signed up for social security, not on her own but there's a spousal benefit (no idea how much that'll be, maybe 1/3 of mine?). If I die first there's also a social security survivor's benefit (again, not sure what that would be, and not sure she'd want to deal with it).

I realize this isn't (or may not be) the typical case for a retired couple here. This is just an instance of how it works for someone in a certain niche.

[beanhead]

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Isn't the answer that most of them don't? Kosei nenkin is much more than that, so for the average salaryman they will get more like 150,000 - 200,000 per month. Plus, if married, their wife may pick up the 'free' kokumin nenkin as well, for that 700,000 or so a year extra.
...

Divide my august (bimonthly) payment by 2, and I'm getting ~¥162,000/month. That's after kaigo hoken is deducted from it (and I have some other income so I'm at a higher rate for that). Add social security of about ¥53,000 for a total of ¥215,000/month. With the extra income added to that I certainly do pay taxes, but pensions do cover the bills and most of ordinary life. I'll be 73 next month, and still have a chunk of taishokukin left (40%?), and so far have only lightly touched my investments.

Of course it helps that my wife always worked and she gets her own pensions--she worked longer and so gets a little more than I do (if I leave off the social security). She also got taishokukin, saved money, and still works a little tutoring online. Not yet, but one of these days I'll get her signed up for social security, not on her own but there's a spousal benefit (no idea how much that'll be, maybe 1/3 of mine?). If I die first there's also a social security survivor's benefit (again, not sure what that would be, and not sure she'd want to deal with it).

I realize this isn't (or may not be) the typical case for a retired couple here. This is just an instance of how it works for someone in a certain niche.

Good info. Thanks. Your education pension is closer to what those paying into kosei nenkin will get. As you say, with your wife worked as well (not just part-time), your situation is a bit different from those with spouses who work in the home and get the 'free' kokumin nenkin based on being dependents.

[northSaver]

I think I'll run the numbers again on our apartment block. The last time I did it the average net yield was much better than a REIT and similar to a global stock fund's CAGR. But yes, I agree about the hassle even when using a managing agent. We won't be buying another one.
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So, I've run the numbers again and assuming I'm calculating it correctly (big assumption)... they're kind of mediocre. I'll post the results first, then the method I used to calculate them. I'd really appreciate Deep Blue, WalesforrugbyWC23 or any other property investors on here checking if they do things the same way, and perhaps offering their numbers if possible for comparison. I can imagine the UK property ROIs are much higher due to appreciation!

Results over 18 years (2024 not included)

Average gross yield: 10.8%
Average net yield: 6.7%
2023 gross yield: 11.9% (88% occupancy)
2023 net yield: 8.6%

ROI: 76.6% (=3.2% growth per year)

The above yields are actual and don't assume 100% occupancy (unlike the estate agent listings).
The property value hasn't been professionally assessed since 2019, so I'm using that value from then until now. It's actual value may be lower or higher than 2019. Based on current listings I feel that it is higher. If so then the yields will be lower but the ROI will be higher.

Method of calculation

The yields are fairly straightforward: [annual income / property value]. On the Blue Tax Form for Property Income, gross income is box #4. Taxable net income is box #19, so I'm adding depreciation (box #8) back on to get net income. Sounds about right? Note that net income includes mortgage interest but not mortgage principal.
Property value is decreasing each year from initial value in 2005 to assessed value in 2019, then fixed after that.

ROI is a bit more complicated, but I think involves total net income (from above), initial property value (including acquisition costs), current property value (including selling costs), and my initial down payment. Something like:

Net P/L = Total net income + [current value - initial value]
ROI = (Net P/L - Initial payment) / 100

Is this the accepted method of calculating ROI on property?

Conclusion

We didn't lose on it, but in hindsight putting the down payment into the stock market in 2005 would have resulted in a much higher ROI and much less hassle. However, I wouldn't have gone all-in on stocks in 2005, and wouldn't now either. So the actual gain from investing it in the markets would have been somewhere in between. Oh well
Going forward, we have the tailwind of no mortgage and a possibly increasing property value (since the building has already depreciated substantially and the land should continue to increase). So the ROI can only get better. However, there will probably be expensive roof and siding maintenance costs in the near future so that will drag down ROI. So should we keep it? That's the big question.

[Deep Blue]

Those yields are pretty good, far in excess of what we get in the UK or I would expect to get in Japan. Typically I see apartment blocks in Tokyo being offered at around 6% gross yield, so your 11% is way above. I had assumed that the only way to get 11% gross yield is if the apartment block is basically losing value and there is a chance you will lose a chunk of your capital (i.e. an old property that needs to be torn down and rebuilt in a few years). Maybe this is not the case outside of Tokyo though?

I don't generally think about RoI on property investment because it changes so much on how much risk you want to take on the borrowing front. If you are borrowing 100% you can get a very high RoI but at a very high risk... whereas if you slap down the full cost in cash at the start your RoI will be much lower. And different parties will be able to borrow at different interest rates, so RoI's are not really comparable so it isn't a terribly common metric for property investors.

FWIW the most recent property my wife bought in the UK the current gross yield is 5.1% and in a typical year we convert about 60% of this into net income after ageny fees, maintenance and tax. So net yield of 3%

If I use the purchase price in the denominator gross yield is 5.9% and net 3.6%

Property price is up around 17% since she purchased in 2016. So I guess this is an "extra" 2.4% gross yield per annum.

So it isn't a disaster, but she paid cash and this probably takes up 30 hours a year dealing with all the adminstration and taxes, plus all the hassle and stress of looking for it, going through the purchase process etc. If she had simply stuck all the money in a passive tracker it would have grown far more and been far less hassle.

I guess this is probably one of the least flattering times to compare given how well the stock market has performed over the past few years, but I think over most long term horizons stocks > property and it's just much much less hassle.

[northSaver]

Thank you for your thoughts Deep Blue. About the yield, we heard from several sources back in 2005 that Sapporo yields were still very good compared to Tokyo and other cities, and that influenced our decision somewhat. And it's interesting that our net yields as a percentage of gross yields are about the same (60%) even though our properties are in two different countries!

About ROI, sorry but I completely messed up the writing of the formula above, even though I did it properly in my spreadsheet. It should be:

ROI = ((Net P/L - Initial payment) / Initial payment) * 100

And yes, if someone put zero down and took out a 100+% mortgage (to cover purchase costs) then the ROI would be infinity! And risk would be much higher, as you said. So I agree that it's not a very useful metric when comparing property investments. But since I did put some money into it at the start, I was curious as to how much it has grown compared to stocks, bonds, cash or whatever.

Update: since my previous post we have estimated the 2024 figures based on actuals so far, and the ROI has gone up from 77% to 97%! This is about 3.6% growth per year over 19 years. Getting better. We've also asked our agent for another valuation, so it will go up even more if the property is worth more than I'm estimating. This will affect our decision about what to do with it. I still think it will be a great source of yen income in retirement - unaffected by exchange rates and market crashes - so we might just put up with the hassle for as long as we can.

[Deep Blue]

It is a good point about the stability of the income - and the low correlation with equities. This was part of the reason I was keen, and I guess it still holds true. One happy point for me is I've had almost zero vacancy in any property - maximum has been a few weeks between tenants due to switching from non-students to students who tend to align with the academic year. All in all I guess occupancy has been high 90's across all properties - if you pick the right property in the right area you'll always have tenants. I've tended to buy houses near training hospitals and universities which have a steady flow of students, postdocs, nurses and doctors cycling through every year, come rain or shine.

When I was in my 20's I didn't really have a forty or fifty year mindset for investing, which I should have done but I didn't really. I guess this is a key difference with the FIRE generation, this just wasn't a thing back in my day. All power to the elbows of those embarking on this FIRE path now and having that longer timeframe.

I'm trying to inculcate the investment mindset into my children, but seems I am not breaking through yet - they just want to spend their pocket money on Fortnite vbucks and other nonsense.... guess I will keep plugging away.

Like you, I also plan to maintain the properties we have, it is income, it is fairly economically insensitive and even though it is probably suboptimal asset allocation it's also low risk and that helps me sleep a bit better at night so there must be some intangible benefit there....

[northSaver]

I think we're slowly convincing each other that it's not too bad after all

Our worst occupancy was 50% back in 2011. We were really worried at the time that it would stay like that forever. But we made some improvements, things picked up, and it's been as full as it gets for several years now. For personal reasons we decided to keep one unit and one garage for ourselves from 2022, so it's not 100% full at the moment.

Yeah, I hear you about the 20s. No investing whatsoever, apart from a defined-benefit company pension. Not much saving either... most of my spare cash went on sports cars, holidays abroad and beer! I regret the beer especially, and envy the younger people of today who don't seem to drink much. They still need internal motivation to start investing though. We've told our children, now in their early 20s, many times about NISA and iDeCo, but so far no interest. FIRE is not a priority, it seems.

[RetireJapan]

We've told our children, now in their early 20s, many times about NISA and iDeCo, but so far no interest. FIRE is not a priority, it seems.

I'm planning to give my grandkids the money to put in their iDeCo and maybe NISA accounts. As long as they don't touch it, it should sort out their retirement at least

[adamu]

iDeCo

The problem with iDeCo is that you have to do annoying paperwork every time your situation changes. And it requires a maintenance fee even if you want to stop paying into it. A few too many strings for me to easily recommend it over NISA to people, anyway.

[RetireJapan]

iDeCo

The problem with iDeCo is that you have to do annoying paperwork every time your situation changes. And it requires a maintenance fee even if you want to stop paying into it. A few too many strings for me to easily recommend it over NISA to people, anyway.

Sure, but the advantage with regards to the grandkids is that they can't cash it out