Retirement planning

[captainspoke]

...

I wish I had had the benefit of your posts from about 10yrs before I retired.

[Tkydon]

...

I wish I had had the benefit of your posts from about 10yrs before I retired.

I wish I had had the benefit of all the Great Posts here by all the Gurus more than 10 years ago too!

[Bubblegun]

There was a point when they wanted me to pay for 30 years and then say, "You didn't pay the full 40. "So sorry! You get Jack.

That is not quite accurate.

The period to vest (become eligible to receive a pension) used to be 25 years until it was reduced to 10. Foreign residents could use the '空期間' rule to count the time between them turning 20 and coming to Japan as eligible years towards this limit (would not have increased the amount of pension, but would have allowed people to claim it).

Agree that the current 10 year/120 month vesting period is fairer and easier for pension payers.

Now you mention it....it does ring a bell. 25 years was a long time to ask someone to pay into the system and get nothing back. That was the main reason I didn't. We planned to return when the kids hit junior high school, and financially, it wasn't worth it, but our plans changed. I can see why my friends and I didn't pay because they didn't know what they would be doing in 10 or 15 years. I have never really understood why the Japanese government didn't force every company to take a deduction from every employee's pay packet. So I was glad when they changed it to 10 years. But I would prefer if they deducted contributions directly from the pay packet instead of the convoluted, administratively difficult banking system. Hopefully, they'll force employers to do that with the MY NUMBER system.

[Roger Van Zant]

The Benefit of iDeCo is the large Tax Deduction. Tax Free Money In, Taxable in Retirement

You pay with Pre-Tax Yen, but if you have already paid tax on that Yen due to Withholding, then you get that tax refunded at the end of the year.

refund = iDeCo Contributions / (1 - Marginal Tax Rate and Reconstruction Tax) - iDeCo Contributions

e.g. 12,000 x 12 / (1 - 0.33693) - 12,000 x 12 = 73,171 Yen Tax Refund

or 23,000 x 12 / (1 - 0.33693) - 23,000 x 12 = 140,245 Yen Tax Refund

So the National Government pays nearly half of the iDeCo Contribution.

When you receive the tax refund you can put it straight in to NISA Tax Free....

I dutifully submit the postcard I get from the iDeCo people along with my 年末調整 forms from my company each year in November.
However, I have never gotten a refund anywhere near the above 73,171 yen you mentioned above (I pay in 12,000 per month from my bank account).
Usually I get a refund of about 10,000 yen the following January or February, just as I used to get before starting iDeCo....
Any ideas as to why?

That is because your employer is adjusting your taxes to match the iDeco. You are getting the tax benefit immediately.

I see. Thanks.

[Roger Van Zant]

I wonder how much that would be if you had just taken the money and put it intohough you will n the S&P500. Altever run out, I wonder what the break-even point is.

Erm, it would be illegal for me NOT to pay in to the Japanese pension though....

Well, yes, we understand that we must legally pay into it. There was a point when they wanted me to pay for 30 years and then say, "You didn't pay the full 40. "So sorry! You get Jack. "It wasn't worth it. At least they made it easier and more financially logical to follow the law. If they had their way, i wasn't going to get anything until I was 80 years old. But it does make us wonder.

This can't be right. I am also on track to pay in "only" 30 years out of the maximum 40, but I will still get a pension of about 117,000 yen per month in retirement.

[Roger Van Zant]

The Benefit of iDeCo is the large Tax Deduction. Tax Free Money In, Taxable in Retirement

You pay with Pre-Tax Yen, but if you have already paid tax on that Yen due to Withholding, then you get that tax refunded at the end of the year.

refund = iDeCo Contributions / (1 - Marginal Tax Rate and Reconstruction Tax) - iDeCo Contributions

e.g. 12,000 x 12 / (1 - 0.33693) - 12,000 x 12 = 73,171 Yen Tax Refund

or 23,000 x 12 / (1 - 0.33693) - 23,000 x 12 = 140,245 Yen Tax Refund

So the National Government pays nearly half of the iDeCo Contribution.

When you receive the tax refund you can put it straight in to NISA Tax Free....

I dutifully submit the postcard I get from the iDeCo people along with my 年末調整 forms from my company each year in November.
However, I have never gotten a refund anywhere near the above 73,171 yen you mentioned above (I pay in 12,000 per month from my bank account).
Usually I get a refund of about 10,000 yen the following January or February, just as I used to get before starting iDeCo....
Any ideas as to why?

The formula shows

Amount of Annual iDeCo Contributions / (1 - Marginal Tax Rate and Reconstruction Surtax Rate) = Value of the Pre-Tax Money used to pay the iDeCo Contributions

Amount of Annual iDeCo Contributions / (1 - Marginal Tax Rate and Reconstruction Surtax Rate) - Amount of Annual iDeCo Contributions = Amount of Money due back, just based on this single calculation.

Either, you are not in the 33% Tax Bracket, or tax is not withheld on iDeCo Contributions, or you have other tax shortfall that absorbs some of the refund...

Assuming you are in the Education Sector, and your monthly iDeCo Contribution is currently 12,000 per month...

12,000 x 12 / (1 - Tax Rate and Reconstruction Surtax) - 12,000 x 12 = Yen Tax Refund

144,000 / (1 - Tax Rate and Reconstruction Surtax) - 144,000 = Yen Tax Refund

For Different Tax Bands

144,000 / (1 - 0.05105) - 144,000 = 7,746 Yen Tax Refund
144,000 / (1 - 0.1021) - 144,000 = 16,374 Yen Tax Refund
144,000 / (1 - 0.2042) - 144,000 = 36,949 Yen Tax Refund
144,000 / (1 - 0.33693) - 144,000 = 73,171 Yen Tax Refund
144,000 / (1 - 0.4084) - 144,000 = 99,407 Yen Tax Refund
144,000 / (1 - 0.45945) - 144,000 = 122,395 Yen Tax Refund

I am not in the education sector. I work for a regular Japanese company. I pay in 12,000 yen per month, yes.
Apparently, according to another poster (Tsumitate Wrestler), my employer is adjusting my taxes to match the iDeco, so I am getting the tax benefit immediately.

[Roger Van Zant]

There was a point when they wanted me to pay for 30 years and then say, "You didn't pay the full 40. "So sorry! You get Jack.

That is not quite accurate.

The period to vest (become eligible to receive a pension) used to be 25 years until it was reduced to 10. Foreign residents could use the '空期間' rule to count the time between them turning 20 and coming to Japan as eligible years towards this limit (would not have increased the amount of pension, but would have allowed people to claim it).

Agree that the current 10 year/120 month vesting period is fairer and easier for pension payers.

Now you mention it....it does ring a bell. 25 years was a long time to ask someone to pay into the system and get nothing back. That was the main reason I didn't. We planned to return when the kids hit junior high school, and financially, it wasn't worth it, but our plans changed. I can see why my friends and I didn't pay because they didn't know what they would be doing in 10 or 15 years. I have never really understood why the Japanese government didn't force every company to take a deduction from every employee's pay packet. So I was glad when they changed it to 10 years. But I would prefer if they deducted contributions directly from the pay packet instead of the convoluted, administratively difficult banking system. Hopefully, they'll force employers to do that with the MY NUMBER system.

Eh? Every employer I have had in Japan has deducted my pension contributions directly from my pay packet....

[beanhead]

Eh? Every employer I have had in Japan has deducted my pension contributions directly from my pay packet....

A lot of English language schools didn't use to. They classified all native teachers as part-time workers.

At that time, someone paying in 24 years into nenkin would get nothing in return. So, if you were in your 20s and were faced with this situation, you would probably have also agreed that this whole Japanese pension thing was a bit of a scam that you should avoid.

[Bubblegun]

That is not quite accurate.

The period to vest (become eligible to receive a pension) used to be 25 years until it was reduced to 10. Foreign residents could use the '空期間' rule to count the time between them turning 20 and coming to Japan as eligible years towards this limit (would not have increased the amount of pension, but would have allowed people to claim it).

Agree that the current 10 year/120 month vesting period is fairer and easier for pension payers.

Now you mention it....it does ring a bell. 25 years was a long time to ask someone to pay into the system and get nothing back. That was the main reason I didn't. We planned to return when the kids hit junior high school, and financially, it wasn't worth it, but our plans changed. I can see why my friends and I didn't pay because they didn't know what they would be doing in 10 or 15 years. I have never really understood why the Japanese government didn't force every company to take a deduction from every employee's pay packet. So I was glad when they changed it to 10 years. But I would prefer if they deducted contributions directly from the pay packet instead of the convoluted, administratively difficult banking system. Hopefully, they'll force employers to do that with the MY NUMBER system.

Eh? Every employer I have had in Japan has deducted my pension contributions directly from my pay packet....

sadly! Some employers never deducted contributions or never bothered to enrol us. I always thought ( just of the boat) they were automatically deducted from the PAYE system. But I realised just because they do in the UK and other countries doesn't mean Japan does. I'm not sure how it works, but if you worked under a certain number of hours, maybe they didn't need to enrol you, tell you, or deduct anything. I worked for 3 companies, and not one of them ever paid it. It seemed a lot of people I know were never enrolled. It is such a convoluted system that it must be an administrative nightmare. For all parties. To be honest, I was shocked they didn't even have a National insurance number system. My kids work and again, nothing is every deducted from their pay cause they don't have enough hours. IMHO, I think it is irresponsible of the Japanese government.

[Tkydon]

Eh? Every employer I have had in Japan has deducted my pension contributions directly from my pay packet....

There is a lot of nuance in 'Pension Deductions'.

If you are a Part Time Worker or a Contractor, then you are responsible for your own Pension. You have to pay the Basic National Pension Contribution of Y16,980 yourself, and if you want to use iDeCo you can pay up to Y68,000 per month...

If you are employed full time, then the Pension Contribution for National Kousei Nenkin is 18.3% of your Gross Salary, 9.15% paid by you and deducted from your paycheck before Tax and the other 9.15% paid directly by your employer, again before tax, but it doesn't show up on your payslip.

Your employer may also, or alternatively, have another company Defined Benefit Pension Plan or a Defined Contribution Pension Plan (also known as a Japan 401k), which they may pay, or may provide matching if you choose to pay. In this case, it may limit the remaining Tax Free Allowance that you can use for additional iDeCo.
iDeCo for an employee with no such benefit is limited to Y23,000 per month.
In your case, it would seem that you are getting half of that benefit Tax Free from your Employer's system, leaving you the additional space for an iDeCo Contribution of Y12,000 per month.
If your Employer provided Pension Plan(s) were using all of the available Tax Free Benefit, then you woyuld not be permitted to contribute to iDeCo at all.

People in Shigaku Kyosai are also paying Kousei Nenkin, split 50/50 with their employer, and the additional Shigaku Kyosai Mutual Aid Pension Contributions, again Tax Free, leaving them the additional space for an iDeCo Contribution of Y12,000 per month. I understand this will increase next year to Y20,000 per month. I haven't looked at the details.

Now, if iDeCo is deducted directly from your Paycheck, the employer will adjust Withholding Tax to reflect the fact that iDeCo, along with National Pension, Health Insurance, Nursing Insurance, Unemployment Insurance and other payments are withdrawn before tax, and you will only be taxed at the National Level on the residual income after the tax free payments have been removed.

If the iDeCo payments are paid by you from your bank account, the employer does not know about those payments or the amounts, and so cannot adjust your Withholding Tax until you provide the Postcard at the Year-End Adjustment - Nenmatsu Chousei, so when they do get that information, they can refund the excess tax withheld through the year, or you can file for the Refund at Kakutei Shinkoku.

You also receive a benefit in Reduced Residents' Taxes in the following year, as your Taxable income is reduced by the Deduction of the Tax Free Pension Contributions and other Insurance Payments.

You are receiving those tax benefits, just in the form of reduced taxes in each paycheck, rather than in a lump sum refund for Withholding Tax over-paid through the year.

The Tax benefit for a Y12,000 per month iDeCo is as calculated above depending on your marginal National Income Tax Rate, plus an additional 10% Residents taxes on the Pre-Tax amount, which I didn't include above.