RetireJapan

UnderscoreEX wrote: ↑Wed Mar 01, 2023 9:12 am Can I ask your advice for the remaining 80k per month. If there is no need for a downpayment, would you recommend investing it all each month?
What would you do?

I can't give you advice, as I am not qualified to and I don't know your situation.

But the general advice is:

1. save emergency fund/get necessary insurance
2. max out iDeCo
3. max out NISA
4. invest in taxable account/other investments (like real estate, etc.)
5. continue to update plan as you learn more about investing and yourself

All while increasing your income/spending more efficiently.

Many questions:

1. Do you intend to stay in Japan?
2. Do you intend to stay in Tokyo?
3. You state you don't know if/when you will get married or have a family
4. If you stay long term, where would you like to live?
5. How much are you currently paying for rent?

As a single person, required living space is less than if you get married and start a family. Also, your priorities may be quite different if/when you get married and start a family, such as schools, supermarkets, parks, etc., so you may end up living further out for a better quality of life for the family, where as a single person, you may prefer to be closer into town for the nightlife, convenience etc..

I can't give you advice either, as I am not qualified to do so, and I don't know your situation.

If I had a do-over, I might consider doing this:

Look for and buy a reasonably new Investment Condo for personal occupancy in a good area, that I could easily afford (in line with, but maybe a little higher than my current rent), where it would be easy to rent out in the future, if I outgrew the space.
If I was to buy for personal occupancy, if I buy as an Owner Occupier, I will get a lower interest rate than if I buy for investment, and not need such a large down payment. I will get the Primary Residence Mortgage Interest Tax Deduction, which will reduce my Taxable Income by 1% of the outstanding loan balance every year, and thereby reduce my National and Residents' Taxes, and give me a tax rebate at the end of every year.
I would live there as an owner occupier as long as it suited me to do so, at least a couple of years...

(Edit: If I got married and my wife was working, I might consider getting her to do the same thing in her name before she decides to quit... I would have to inform the bank that I was planning to move, see below, and she buys a reasonably new Investment Condo... ditto above, for a few years...)

If/when I started a family, I would need a bigger space, and may consider moving for some or all of the benefits above, or may even have to relocate for work... Who knows...

I would then start to look for a suitable family property, again finance with a different Owner Occupier loan with a low interest rate, but instead of selling, I would then rent out the Investment Condo.
I would have to inform the bank that I was planning to move (temporarily for work, maybe), but there is a fairly high chance that the bank may let me keep the Owner Occupier loan with the low interest rate.
Now, I get the Primary Residence Mortgage Interest Tax Deduction for the new Property's loan, and I no longer get the Primary Residence Mortgage Interest Tax Deduction for the Investment Condo, but instead I can start taking Depreciation as an expense, which will ensure that the rental property makes an Accounting Loss, and again reduce my Taxable Income and my National and Residents' Taxes, and give me another tax rebate at the end of every year.

Thus, making my Investment Condo start to work for me, and take my first step on the Rental Property Investment path.

I would need to keep some of the tax rebates for repairs/refurbishment when tenants change, but I could then invest the tax rebates to mutual funds, or other...

Who knows, I might even have to move again, as the family grows...

Assuming you are not saying that just to brag about being loaded, does this mean most people are screwed?
Of course, I am only 30 and my salary is going to increase. But, I feel like I am making a lot more money and am more frugal than many foreigners (albeit not proactive foreigners like you all) and many Japanese around me. If 5mil per year is not enough to retire, what is everyone else going to do?
What are the average people making 4mil who are not thinking about retirement going to do?

The ¥20 million scenario is based on many assumptions, notably having had a steady job at a large Japanese company which affords a typical middle class lifestyle. Not everyone fits that profile. The above middle class retiree will be fine but will not have much leeway to splash out much either. My solidly middle class retired neighbors rarely seem to go out and never travel overseas (with one notable exception who was a valued executive kept on at the company until his late 70s.) But they are not screwed either.

If you save conscientiously and invest wisely over the next few decades you will put yourself in the best position for retirement that’s possible for your situation. That’s all anyone can do.

UnderscoreEX wrote: ↑Wed Mar 01, 2023 4:53 am I will be 30 years old this year and I am trying to plan for my future, mainly about buying home and retirement.

Personally, I didn’t buy a home in Tokyo until I was married with kids, and around 36 years old.
The pros of that
- with a higher salary at 36, I could afford a better home than when I was younger
- being married to a local native enabled me to get PR which helped getting a mortgage
- my spouse and I were both happy with the home (some spouses I know don’t like the home that their spouse already owned but are stuck with it)
- my spouse could also contribute to the home purchase - a if a double income couple helps there

Your home may lose value by the time you perhaps decide to sell it. I see my home in Tokyo as a consumptive thing. It costs more than when I was renting, but my salary has gone up which he made that bearable.

I think your number one priority should be seeking that higher paying IT job you talk about! That is the best investment I can see for you to make at this stage.

But yes contribute to iDeCo if you can, and then NISA as you can. But don’t sweat it; that you have already started is excellent. Get a higher income first and then do more of the investment stuff later when you have a greater propensity to invest. I started the investment thing when I was around 33 I guess, and had buying a home in mind so did not have the money invested, rather as cash in the bank, not wanting to risk it, given that I was planning to use it. You are not married yet, so different story. But buying a home is a big step, I think. You can do that later, after you have that higher paying IT job, and maybe a spouse too.

If you get a higher paying IT job, your retirement saving target of 10,000,000 would be easy peasy. If you just put away 500,000 of your higher 6 million income a year (that you do not have yet) for 20 years you’d be there. Without even investing.

3) Also, would you recommend putting the 80k a month into index funds or saving for a downpayment?

If you are willing to invest the money for 10 years or more and not use it for a down payment, then yes investing it seems a fine idea to me. But not if you might want to spend the money if a couple of years, and the market might have had a bad year just when you want the money. (Over a 10 year horizon this risk is extremely low.)

Am I on the right path to retire in Japan?

You have found this place at a young age; I think it is a very promising sign!

In our early 30’s, my spouse and I really had no idea about how much we ought think was realistic to buy a home for. We rented in a “nice” suburban area and prices seemed high and out of reach. But my salary increased a lot during my 30’s and in the end the “quite expensive” home we bought has been easily affordable. I don’t know if I have been lucky or if it is standard like this.

My point there is that at a young age you don’t really know how your lot is going to turn out, or how much you will be able to afford. So first, focus on getting that better paying job to make your lot turn out as good as possible (I hear the IT market is good for job seekers now, so it’s a good time to be looking).

(All purely my opinion - even as I write this I ponder whether my thinking on buying a home wasn’t overly cautious, so take it all as one opinion full of self doubt .)

Tkydon wrote: ↑Wed Mar 01, 2023 11:30 am Many questions:

1. Do you intend to stay in Japan?
2. Do you intend to stay in Tokyo?
3. You state you don't know if/when you will get married or have a family
4. If you stay long term, where would you like to live?
5. How much are you currently paying for rent?

Thank you for the detailed answer!

In my case:
1. Yes. I don't plan to move back home or anywhere else
2. Or Kanagawa.
3. I have a gf but I am trying to plan the things I can control myself.
4. I am currently just outside of Tokyo, in Kanagawa and I think ill need to be within commuting distance from Tokyo for more IT jobs.
5. I have a good place at the moment. 40m2 for about 75,000.

As a single person, required living space is less than if you get married and start a family. Also, your priorities may be quite different if/when you get married and start a family, such as schools, supermarkets, parks, etc., so you may end up living further out for a better quality of life for the family, where as a single person, you may prefer to be closer into town for the nightlife, convenience etc..

I want to be close to job opportunities in tokyo, but I don't drink or go out at all.

Look for and buy a reasonably new Investment Condo for personal occupancy in a good area, that I could easily afford (in line with, but maybe a little higher than my current rent), where it would be easy to rent out in the future, if I outgrew the space.
If I was to buy for personal occupancy, if I buy as an Owner Occupier, I will get a lower interest rate than if I buy for investment, and not need such a large down payment. I will get the Primary Residence Mortgage Interest Tax Deduction, which will reduce my Taxable Income by 1% of the outstanding loan balance every year, and thereby reduce my National and Residents' Taxes, and give me a tax rebate at the end of every year.
I would live there as an owner occupier as long as it suited me to do so, at least a couple of years...

I didn't know about the tax deductions, or that there was a different kind of home purchase. This looks like the standard option, and would be perfect for my situation. Can I ask if there are rules about leaving/selling your house before the term is up. I talked with another friend who said its better to get a 20+ year mortgage and then leave after 5-10 years, and that some how this is better. I really don't understand how it works.

Thus, making my Investment Condo start to work for me, and take my first step on the Rental Property Investment path.

Is there a search platform that you would use for a condo?

sutebayashi wrote: ↑Wed Mar 01, 2023 12:59 pm Your home may lose value by the time you perhaps decide to sell it. I see my home in Tokyo as a consumptive thing. It costs more than when I was renting, but my salary has gone up which he made that bearable.

It costs more than renting, but your are building an asset that can be kept in the future. In that way, is it still a financial drain?

I think your number one priority should be seeking that higher paying IT job you talk about! That is the best investment I can see for you to make at this stage.

Yes, this is my priority now. While I have been very close, it's getting more difficult to get my foot in the door with IT.
It will happen soon though.

You have found this place at a young age; I think it is a very promising sign!

Thank you for the positive words

In our early 30’s, my spouse and I really had no idea about how much we ought think was realistic to buy a home for. We rented in a “nice” suburban area and prices seemed high and out of reach. But my salary increased a lot during my 30’s and in the end the “quite expensive” home we bought has been easily affordable. I don’t know if I have been lucky or if it is standard like this.

That is really great to hear. I'm happy you managed to find even more success!

There is a tax break (loophole?) where you get a 1% break on your home loan principal. The loan has to be for personal use and this deduction is only valid for 10 years (was 13 years during covid). Your friend probably thinks getting this tax break then selling the house and getting a new loan is a good idea.

zeroshiki wrote: ↑Thu Mar 02, 2023 6:29 am There is a tax break (loophole?) where you get a 1% break on your home loan principal. The loan has to be for personal use and this deduction is only valid for 10 years (was 13 years during covid). Your friend probably thinks getting this tax break then selling the house and getting a new loan is a good idea.

Thank you for the information. I didn't know about that.

As others have said, since your family situation may change in the future, purchasing property may not be the best decision right now.

Keep renting at a reasonable cost and invest as much as you can. Don't worry about bonds at your age, just equity (funds, preferably) and a cash reserve.
If, at 35 or 40 or whatever, you decide you really want to buy, then you should be in a comfortable financial place and can then decide what to do about the deposit.

I bought a house at 35, once I decided that I was definitely here to stay (just as another data point).

UnderscoreEX wrote: ↑Thu Mar 02, 2023 5:38 am It costs more than renting, but your are building an asset that can be kept in the future. In that way, is it still a financial drain?

Well, when we bought my property and got the keys to the door, the very next day we had the old house (maybe 40 years old?) immediately bulldozed!

I hope that the new house we had built will last well, but if I am selling our place 35 years from now, I am resigned to the fact that I would get nothing for the house (in fact it might be a liability even, assuming the next owner will want to bulldoze it too).
The land is more likely to hold its value.

I read a book from my local Tokyo library about the rent / buy trade offs before buying - マイホーム、買ったほうがトク! - if you read Japanese you can possibly find a copy in your local library. The title of the book makes it sound like the author wants to suggest you buy, but actually I recall the financial considerations presented being more in favour of renting. It's a 10 year old book now, but I imagine it is largely still valid.

Yes, this is my priority now. While I have been very close, it's getting more difficult to get my foot in the door with IT.
It will happen soon though.

That's the spirit! It is definitely not easy to find good work, but don't quit that until you get something like what you are looking for.

sutebayashi wrote: ↑Thu Mar 02, 2023 2:15 pm

UnderscoreEX wrote: ↑Thu Mar 02, 2023 5:38 am It costs more than renting, but your are building an asset that can be kept in the future. In that way, is it still a financial drain?

Well, when we bought my property and got the keys to the door, the very next day we had the old house (maybe 40 years old?) immediately bulldozed!

I hope that the new house we had built will last well, but if I am selling our place 35 years from now, I am resigned to the fact that I would get nothing for the house (in fact it might be a liability even, assuming the next owner will want to bulldoze it too).
The land is more likely to hold its value.　

At the point that you sold it, before it was bulldozed, you would have got some payment for it, right? The way that I was taught to think about it (albeit, in the west) is that rent payments are going towards an asset that you can then sell in the future and get some return at the end. Perhaps not a 100% return, but at least enough to make it more efficient than renting.

I read a book from my local Tokyo library about the rent / buy trade offs before buying - マイホーム、買ったほうがトク! - if you read Japanese you can possibly find a copy in your local library. The title of the book makes it sound like the author wants to suggest you buy, but actually I recall the financial considerations presented being more in favour of renting. It's a 10 year old book now, but I imagine it is largely still valid.

Now that you mention it, I wouldn't be surprised if renting is cheaper, especially if you can add the flexibility of moving at will to the equation. I'm incredibly surprised at how good my apartment is for only 75,000 p/m.

That's the spirit! It is definitely not easy to find good work, but don't quit that until you get something like what you are looking for.

Luckily, I have 5mil job where I don't have to do much, so I can focus on study right now. But, my other friends in IT said that there are not a lot of jobs out there.
Thanks for the help! I really appreciate the support here