RetireJapan

Hey awesome peeps, TGIF!

Here is another thread of "help me figure out basic stuff"
While it might be rookie stuff to you, it is rocket science to me because financial literacy has never been part of my life so I am happily receiving indispensable advice from you.

I am trying to work out the math to reach FIRE in 25 years. I will be late 50s by then!
It kinda beats the purpose of FIRE for which people usually retire during 40s or even 30s but hey, at least I will get to retire one day...
Moreover, I am aware that I might be short-sighted and that maybe when my situation changes (higher salary / spending change) then I push more money into investing more to reach retirement before 50s.

Right now, I have one source of income: "Corporate Slavery" which generates roughly 350K and I try to put overtime so it rounds up to 390K per month. Let's say 400K for the sake of simplification.

I did 3 over-simplistic calculation (Keyword: "simplistic" so I am aware certain assumptions are skewed)

1- FIRE calculation (x25): based on current spending then I will need to acquire 120M to retire.
2- 4% withdrawal rate: Assumed a projected spending of 400K a month so 4% out of that portfolio on yearly basis (which is subject to change as well, some claim it is 5% now but that is a different topic)
3- Saving calculation: Using the compounded interest calculator at 7% return rate and I found I need to save 240K a month in order to reach that figure.

Question-1: How can I save 240K per month
Even better, is 240K is accurate-ish? Should I save less/more?

Assume we saved 240K initially then that leaves 160K

Essential Expenses: (Fixed Physical Needs)
Rent: 87.7K
Utilities: 9.2K (Avg)
Medical Insurance: 6K (Both secondary and cancer insurances)
Lunch: 8.4K (Certain work requirements so can't take a bento every day)
Groceries: 20K (Avg)

Essential Expenses: (Societal Needs)
Japanese Classes: 7.5K (Required till I reach N1)
Gym: 8.6K (AnytimeFitness - Required to reduce stress till shift to Calisthenics)
Transportation (Train/Bus) : 0 (Cycling a lot)
========Total: 139K (Out of 160K then 21K left)

Flexible Spending: (Wants)
Personal care: ~3k (Haircut / Toothpaste / Shampoo / Gel / etc)
Convenience store: ~5K (Averaged from 6 months spending - this is used mainly for coffee / unplanned meals / snacks)
Eating out: ~9K (Novelty / Networking / Socialization)
Cafes (Novelty / Networking): ~2k (Averaged from 6 months spending)

========(The remaining 9-savings goals here have 2K remaining which I have no idea how to finance)

Clothing (Summer & Winter): 1.6K?? (Assuming 20K budget per year)
Meds (Headache / Vitamin / etc): ??
Hobbies (Cycling Goods/upgrades): ??
Home Improvement / Home Supplies (Daiso or Nitori stuff): ??
Furusato-Nozei: ?? (Gotta finance it in order to claim it back)
Entertainment: ?? (Travel / Disney Land / Dream Lab - Keeping it to a minimum)
Trip back home (Family): ?? (Assuming 150K budget per year)
House: ?? (Planning to move rent budget to this once/if I make the decision to buy)
Child: ?? (No idea how much these little creatures cost)

Question-2: How can I reconcile this budget above?
Am I over-spending in one area? Is there ways I re-shift some spending into other categories?

Question-3: Does all of the 240K has to come out of pocket
I mean, I looked into pay slip and I am already paying 56K in pension which as far as I know is not invested and I have no control of.
&
I started contributing 27K in DC contribution plan starting Sep-2020 (Thanks to RetireJapan articles & forums as I didn't even know this option existed before)
If the 27K can be regarded as part of the 240K then I can comfortably shift more money into other spending goals.

Thanks again amazing people! Have a great weekend and stay awesome as always

Mmm...You say you need 120 million yen to FIRE based on current spending. At 4% that means your current spending is 4.8 million yen. Your current salary also seems to be 4.8 million yen.

The good news is that if you budget well and bring down your spending to say 3 million, then you'll probably find that you can FIRE on less money. That would make your goal more achievable.

By the way, kids cost a lot. An awful lot...

As fools_gold said, you have a set of really pessimistic assumptions.

To me, it seems unlikely that:
- your salary will not grow
- you will spend more in retirement that you did while working
- you need to save 250k per month for 25 years to reach that goal => you should definitely check that number!

Your salary will grow, you expense will grow once you start a family, especially if you marry someone who aims to become a housewife, which is still extremely common in Japan, for better or worse. So I guess taking your current situation is a good starting point anyway.

For monthly savings goal, I am not sure how you came up with such a large number. You can use this calculator
https://www.bankrate.com/calculators/sa ... lator.aspx
Remove 3 zeros to all the numbers because it's meant for dollars, and put the compounding to monthly. I get ~200k per month of saving based on a 5% interest rate.

For advice on budget, I think you forgot the vacations budget.

The pension will give you additional income once you reach 65 years old. You don't have to live in Japan to receive the money, but you need to pay into it for 10+ years. If you don't stay long enough in Japan, you can rely on a bilateral treaty between your country and Japan to get credit for your pension in your home country (most EU countries have such a treaty).

There is one enormous error in the initial post, and that is that you do not need 25 times your salary, but rather 25 times your living expenses. For most people, their living expenses are going to be much lower than their (gross?) salary.

You mentioned you're a corporate slave, but if that's the path you're going to continue on, it's vitally important to choose a company that pays well. The link below has the top companies in Japan ranked by average pay... figure out how to get in one of the high-ranking ones. This is especially important in rigid Japan, where it's your company's rules, rather than performance, that will be the biggest influence on your pay level. Raising your income will be the biggest impact move you can make.
https://heikinnenshu.jp/ranking.html

fools_gold wrote: ↑Fri Dec 11, 2020 7:08 am The good news is that if you budget well and bring down your spending to say 3 million, then you'll probably find that you can FIRE on less money. That would make your goal more achievable.

Budget reconciliation is what I am targeting but as you probably noticed above, I still have some fixed costs totaling up to 139K per month which leaves me with 21K for "Wants" so not sure if more cutting is possible. It seems to me that increasing net worth is rather easier in this particular case.

fools_gold wrote: ↑Fri Dec 11, 2020 7:08 am By the way, kids cost a lot. An awful lot...

I plan to make a separate topic on this one as I need to know what I might be potentially getting myself into. Unpopular opinion but I think kids can potentially give you purpose in life.

seb wrote: ↑Mon Dec 14, 2020 5:21 am As fools_gold said, you have a set of really pessimistic assumptions.
To me, it seems unlikely that:
- your salary will not grow

That is true that I didn't factor that in, thanks for noticing this one. I noticed though that salary increases in Japan tend to be lower the older you get. I "think" an increase of 3% seems to be the average which might potentially decrease as you rise in seniority.
Source: https://www.boj.or.jp/en/research/brp/r ... n0001a.pdf

seb wrote: ↑Mon Dec 14, 2020 5:21 am - you will spend more in retirement that you did while working

I am not sure where I mentioned that, however I read certain articles (can't source them now) that mentioned that your medical costs and family costs (visits to connect with children & grandchildren) rise so all in all, I "feel" the reduced costs from area will balance out by increases in other areas.

seb wrote: ↑Mon Dec 14, 2020 5:21 am - you need to save 250k per month for 25 years to reach that goal => you should definitely check that number!

I used your calculator and it did get 200K as well. I guess different calculators work differently but that is great actually. That frees up some budget for different spendings. That makes me happy, thank you so much for that

seb wrote: ↑Mon Dec 14, 2020 5:21 am The pension will give you additional income once you reach 65 years old. You don't have to live in Japan to receive the money, but you need to pay into it for 10+ years. If you don't stay long enough in Japan, you can rely on a bilateral treaty between your country and Japan to get credit for your pension in your home country (most EU countries have such a treaty).

Unfortunately, that won't be the case for my country of origin. That being said, it is good to keep that info in mind as no one ever knows what the future might hold so I might be in a position where this comes in handy.

RetireJapan wrote: ↑Mon Dec 14, 2020 5:43 am There is one enormous error in the initial post, and that is that you do not need 25 times your salary, but rather 25 times your living expenses. For most people, their living expenses are going to be much lower than their (gross?) salary.

As I didn't budget much in my 20s, I had an "uncalculated" spending behavior which consumed rather all of my salary. Now that I am in my early 30s, I am beginning to understand more of my spending behaviors and starting to categorize really what is important and what is not. I will work better to understand my essential living expenses and expenses that contribute to my quality of life.

mighty58 wrote: ↑Mon Dec 28, 2020 12:21 am You mentioned you're a corporate slave, but if that's the path you're going to continue on, it's vitally important to choose a company that pays well. The link below has the top companies in Japan ranked by average pay... figure out how to get in one of the high-ranking ones. This is especially important in rigid Japan, where it's your company's rules, rather than performance, that will be the biggest influence on your pay level. Raising your income will be the biggest impact move you can make.
https://heikinnenshu.jp/ranking.html

Thank you so much for sharing that link. I am mostly focused on multinationals as my Japanese is not perfect but this is bound to change in the future. I will certainly revisit the list in the future when I believe I can work in 100% full Japanese capacity. As mentioned in my other reply, increasing the net worth more effective than reducing expenses.

All, I sincerely apologize for the delayed reply. I had a family emergency that caused me fly for few weeks outside of Japan and the thread totally slipped my attention. I am happy to be back now and contributing again.

That being said, I feel I need to ask again as no one seems to answer that question.

Does all of the 240K or actually 200K (thanks to @seb calculator) has to come out of pocket
In my pay slip I am already contributing 56K in pension which as far as I know is not invested and I have no control of.
&
I started contributing 27K in DC contribution plan starting Sep-2020
If the 27K can be regarded as part of the total saving amount then I can comfortably shift more money into other spending goals.

That is to say, instead of saving 200K, I can save 173K per month. Would that work?