RetireJapan

Hi all. I've been doing a lot of reading over the past few weeks for my options in Japan as a self-employed person and have asked several questions here on the forum. Many thanks for all the great answers and comments. I've got loads of bits of information floating around in my head so I decided to write them all down for future reference. It was useful to see everything in one place. I thought I would share with you what I wrote in case I made any errors, in case I've misunderstood something or in case I've missed something. Also, I hope it might be useful for others to use to help them decide the best way for their personal situation. I've just put down the basic information without going into too many details and without going into the pros and cons. I've included Japan-specific options, focused on a self-employed person.

What do you think? Have I got this right and have I missed anything? Many thanks.

JAPAN-SPECIFIC OPTIONS TO FUND RETIREMENT FOR THE SELF-EMPLOYED


1. WHAT DOES THE GOVERNMENT OFFER?

NATIONAL PENSION - KOKUMIN NENKIN 国民年金

To qualify for a full basic pension, you need 480 months (40 years) of full contributions before you reach 60 years old. You can also pay between 60 and 65 years old. Contributions are currently 198,480 yen a year. The current amount you can receive for a full pension is 781,700 yen a year starting from aged 65 years old.


2. HOW CAN I INCREASE THE BASIC NATIONAL PENSION AMOUNT?

DELAYED PAYMENT

If you delay taking the national pension from 65 years old until 70 years old, you will get 142% of your pension amount. Today, that works out at 781,700 x 1.42 = 1,110,014 yen a year.


ADDITIONAL PREMIUM - FUKA HOKENRYO 付加保険料 / ADDITIONAL PENSION - FUKA NENKIN 付加年金

Pay 400 yen extra in contributions a month to receive 200 yen extra a year in pension payments. For example, pay this additional premium for 20 years and you will pay 400x12x20 = 96,000 yen. This will give you an extra 200x12x20 = 48,000 yen a year for your pension. You need to be paying the national pension to take advantage of this. You cannot do both Fuka Nenkin and Kokumin Nenkin Kikin.


NATIONAL PENSION FUND - KOKUMIN NENKIN KIKIN 国民年金基金

Pay extra contributions each month to receive additional pension. The amount you pay each month depends on the age at which you start paying. Males pay less than females. You pay a basic amount and then can add modules on top. You need to be paying the national pension to take advantage of this. You cannot do both Fuka Nenkin and Kokumin Nenkin Kikin.

For example, for a 40 year old male paying 229 months of contributions to stop at 60 years old. Pay 13,335 yen a month for the basic amount and one module of 4,445 yen a month on top for a total monthly payment of 17,780 yen a month. This would give a total payment of 4,071,620 yen. For that, you would get extra pension of 241,200 yen a year for life. You will break even when you reach 82 years old.



3. WHAT ELSE IS THERE?


INDIVIDUAL-TYPE DEFINED CONTRIBUTION PENSION PLAN (IDECO) - KOJIN GATA KAKUTEI KYOSHUTSU NENKIN (IDECO) 個人型確定拠出年金 (イデコ)

Pay a set amount each month between 5,000 and 68,000 yen until you are 60 years old. This amount can be changed once a year. If you pay either Fuka Nenkin or Kokumin Nenkin Kikin, the total of (iDeCo + Fuka Nenkin) or (iDeCo + Kokumin Nenkin Kikin) cannot be more than 68,000 yen a month or 816,000 yen a year. The amount is invested in a way of your choosing. You do not have access to this money until you are 60 years old. You can take the money out anytime between 60 and 70 years old.

For example, starting when you are 40 years old. Pay 50,000 a month for 20 years gives a total of 12,000,000. The total amount you can receive depends on the performance of how you have invested this money.


NIPPON INDIVIDUAL SAVINGS ACCOUNT (NISA) - SHOGAKU TOSHI HIKAZEI SEIDO (NISA) 少額投資非課税制度 (ニーサ)

The Japanese name directly translates as a small investment tax exemption system. You can invest money without paying capital gains tax or tax on dividends. In an ordinary NISA, you can invest up to 1,200,000 yen a year for five years. In a tsumitate NISA, you can invest up to 400,000 year a year for twenty years.

For example, pay 400,000 a year over twenty years gives a total of 8,000,000 yen. The total amount you can receive depends on the performance of how you have invested this money.


TAX-REPORTING AND TAX-WITHHOLDING INVESTMENT ACCOUNT - TOKUTEI KOZA 特定口座

This is a normal investment account. Capital gains tax and tax on dividends is paid for you. You get a summary at the end of the year for your tax return. There are no limits on how much you pay in and how much you make depends on the performance of how you invest the money.


SAVINGS ACCOUNTS

Banks offer differ kinds of savings accounts.

Regular Savings - Teiki chokin 定期貯金
Fixed Amount Savings - Teigaku chokin 定額貯金

You amount you can save in each one and the interest rate varies from bank to bank.




4. WHAT ABOUT LIFE INSURANCE?

In Japan, there are three kinds of life insurance - Seimei hoken 生命保険.

General Life Insurance - Ippan no seimei hoken 一般の生命保険
Long-term care medical insurance - Kaigo iryo hoken 介護医療保険
Personal annuity insurance - Kojin nenkin hoken 個人年金保険

An example of personal annuity insurance for a 40 year old. Pay 20,741 yen a month for 25 years for a total payment of 6,222,300 yen. If you die before reaching 65 years old, your heir receives a life insurance payout. If you reach 65 years old, you can take the money as a one-off payment or take it as an annuity over five, ten or fifteen years. The amount you get in both cases depends on the dividend the insurance company is paying that year. If your policy matured this year, you would get 6,860,000 yen for a one-off payment, which is 110.3%. If you were to take a ten year annuity, you would get a total of 7,310,000 yen, which is 117.5%.



5. NOTES ABOUT TAX DEDUCTIONS


Where does each item go on your tax return (kakutei shinko 確定申告 )?
The section on your tax return for deductions is called Shotoku kara sashihika reru kingaku 所得から差し引かれる金額, which literally translates as amount deducted from income.

Box 10. Social insurance deduction - Shakai hokenryo kojo 社会保険料控除. The total amount of your national pension contributions (Kokumin nenkin 国民年金 + Fuka nenkin 付加年金 + Kokumin Nenkin Kikin 国民年金基金) goes here. This total you need to put is shown on the postcard you will receive from the pension office. This amount is added to the total amount for your national health insurance contributions (Kokumin kenko hoken 国民健康保険).

Box 11. Small business mutual aid premium deduction - Shokibo kigyo kyosaito kakekin kojo 小規模企業共済等掛金控除. The maximum amount you can put here is 816,000 yen. This is where you put your iDeCo contributions.

Box 12. Life insurance deduction - Seimei hokenryo kojo 生命保険料控除. The maximum you can put here is 120,000 yen. For each of the three types of life insurance, you can claim up to 40,000 yen from your yearly contributions. 40,000 x 3 = 120,000.

Don't forget the SME savings fund if you are making a lot of profit as a sole proprietor or small business -can reduce your taxes and provide safe-ish savings: https://www.retirejapan.com/blog/the-me ... ving-plan/

RetireJapan wrote: ↑Mon Dec 14, 2020 5:41 am Don't forget the SME savings fund if you are making a lot of profit as a sole proprietor or small business -can reduce your taxes and provide safe-ish savings: https://www.retirejapan.com/blog/the-me ... ving-plan/

Ah good call. Thanks!

Great summary, thanks for the write-up

Gareth wrote: ↑Mon Dec 14, 2020 5:46 am

RetireJapan wrote: ↑Mon Dec 14, 2020 5:41 am Don't forget the SME savings fund if you are making a lot of profit as a sole proprietor or small business -can reduce your taxes and provide safe-ish savings: https://www.retirejapan.com/blog/the-me ... ving-plan/

Ah good call. Thanks!

This is a great resource. Maybe the basis for a RetireJapan Wiki? The best that exists now is the Boglehead Investing in Japan for Non-American guide, which is a little dated.

Just a note: I think KOKUMIN NENKIN KIKIN 国民年金基金 and IDeco should be in the same column. It is one or the other, so to speak.

Kanto wrote: ↑Mon Dec 14, 2020 6:39 am Maybe the basis for a RetireJapan Wiki?

We definitely need something like this. I'd like a way to keep good blog posts from the past visible (those few, those happy few) and also a place to direct people to... some kind of FAQ even?

I'll make a new topic to elicit ideas. Made it: viewtopic.php?f=15&t=1192#p10057

Kanto wrote: ↑Mon Dec 14, 2020 6:39 am
Just a note: I think KOKUMIN NENKIN KIKIN 国民年金基金 and IDeco should be in the same column. It is one or the other, so to speak.

How do you mean? Do you mean Kokumin Nenkin Kikin should be in section 3? Kokumin Nenkin Kikin is paid until you die. Is Kokumin Nenkin Kikin not added to your Kokumin Nenkin amount?

Gareth wrote: ↑Mon Dec 14, 2020 7:41 am

Kanto wrote: ↑Mon Dec 14, 2020 6:39 am
Just a note: I think KOKUMIN NENKIN KIKIN 国民年金基金 and IDeco should be in the same column. It is one or the other, so to speak.

How do you mean? Do you mean Kokumin Nenkin Kikin should be in section 3? Kokumin Nenkin Kikin is paid until you die. Is Kokumin Nenkin Kikin not added to your Kokumin Nenkin amount?

One can choose iDeco or Kikin. They use the same "Tax-fee pool".

Kikin is basically (MORE) nenkin. While iDeco is a self-controlled DC that can be paid out in a lump-sum or a yearly allowance.

My point is people need to decide between the two. They cannot have both.

Kanto wrote: ↑Mon Dec 14, 2020 7:46 am

Gareth wrote: ↑Mon Dec 14, 2020 7:41 am

Kanto wrote: ↑Mon Dec 14, 2020 6:39 am
Just a note: I think KOKUMIN NENKIN KIKIN 国民年金基金 and IDeco should be in the same column. It is one or the other, so to speak.

How do you mean? Do you mean Kokumin Nenkin Kikin should be in section 3? Kokumin Nenkin Kikin is paid until you die. Is Kokumin Nenkin Kikin not added to your Kokumin Nenkin amount?

One can choose iDeco or Kikin. They use the same "Tax-fee pool".

Kikin is basically (MORE) nenkin. While iDeco is a self-controlled DC that can be paid out in a lump-sum or a yearly allowance.

My point is people need to decide between the two. They cannot have both.

I really don't think that's right at all. You can do both as long as the total monthly amount doesn't go above 68,000. You can do iDeCo + Kikin or iDeCo + Fuka but you cannot do Fuka and Kikin together. See the details above in my post.