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Pension Payment/ Invest?

Posted: Sun Sep 04, 2022 2:07 pm
by Popochi
So 4 years ago I came to Japan as a foreign student and have applied for delayed payment for the kokumin nenkin (3 years worth). I went to the city hall and told them that I wanted to pay it and have received the payment slips (16k a month). Now i’m in a dilemma. Is it better to pay the kokumin nenkin or just invest the amount(16k) to a mutual fund? I’m currently using tsumitate nisa for 33k a month.

Re: Pension Payment/ Invest?

Posted: Sun Sep 04, 2022 11:46 pm
by goran
I think comments in this thread answers your question.
viewtopic.php?p=25698#p25698

Almost everyone recommends to go pay the pension before investing.

Re: Pension Payment/ Invest?

Posted: Mon Sep 05, 2022 4:19 am
by Popochi
thank you.. i was thinking of going back to my country after 10-15years and since im in a kosei nenkin right now, i thought that 3years of kokumin nenkin wouldn’t add much to my pension.. cheers

Re: Pension Payment/ Invest?

Posted: Tue Sep 06, 2022 12:38 pm
by Moneymatters
Popochi wrote: Mon Sep 05, 2022 4:19 am thank you.. i was thinking of going back to my country after 10-15years and since im in a kosei nenkin right now, i thought that 3years of kokumin nenkin wouldn’t add much to my pension.. cheers
You'll be able to tax deduct those back payments.
I think it reduces your income tax and resident tax burdens.
So you must first calculate the net cost of paying them back.

Then use a compound interest calculator to see from when you pay them back to age 65 what you might alternatively gain by investing that money privately instead.
Then deduct capital gains tax on any growth.
Then decide how you want to use that money, e.g. safe withdrawal rate.

Now compare that amount to the expected pension of 3 years kokumin nenkin contributions. 3/40ths of the full amount.

Just for fun, cos this counts as fun right?, let's assume you'll gain 15% though tax deductions. 
So about net 500,000 for 3 years back payment.

And you'd have the equivilant usd net amount to invest if you took that approach instead.(let’s ignore that 15% opportunity cost through choosing to pay the tax.)

So.. 500,000 equates to $3,571 and let's say you are age 30. So that 35 years.
at 5% interest you'd have approx $19,700
https://www.investor.gov/financial-tool ... calculator
But you'd pay, let's assume 20% gains on the growth so $19,700 - $3,571 = $16,129. Which is $3,225 so a net of $16,475

3 years of kokumin nenkin currently provides approx 58,500yen annually.

4% withdrawal on $16,475 = $659 or 92,260yen annually. (But you carry ALL the risk with that withdrawal.)

But why does this look quite easy to beat the pension? Great question and I’m glad you asked.
Because each monthly contribution into kokumin nenkin is treated equally.
Month 1 and Month 480 have equal bearing on the amount you recieve.
So obviously diverting some early months (as a lump sum) could potentially seem more attractive.

Loads of assumptions and guesstimations in my post, as usual.

And I can already hear the finger exercises from the folks lining up to correct me..

Re: Pension Payment/ Invest?

Posted: Thu Sep 08, 2022 5:29 am
by Popochi
Moneymatters wrote: Tue Sep 06, 2022 12:38 pm
You'll be able to tax deduct those back payments.
I think it reduces your income tax and resident tax burdens.
Is this automatic or do I need to tell my employer about the payments to kokumin nenkin that I have been making?

I’m not really sure what to say about the calculations you have made since im no expert but a good read. Although 5% yearly interest is too good to be true. I used to think that way when I was investing in stocks a few years ago (in my home country) but reality didn’t match what I was thinking of. Btw, im here to learn from everyone and i’m really thankful i found this forum.

Re: Pension Payment/ Invest?

Posted: Thu Sep 08, 2022 9:42 am
by Moneymatters
Popochi wrote: Thu Sep 08, 2022 5:29 am
Moneymatters wrote: Tue Sep 06, 2022 12:38 pm
You'll be able to tax deduct those back payments.
I think it reduces your income tax and resident tax burdens.
Is this automatic or do I need to tell my employer about the payments to kokumin nenkin that I have been making?

I’m not really sure what to say about the calculations you have made since im no expert but a good read. Although 5% yearly interest is too good to be true. I used to think that way when I was investing in stocks a few years ago (in my home country) but reality didn’t match what I was thinking of. Btw, im here to learn from everyone and i’m really thankful i found this forum.
Regular payments that you've been making, deducted at source, will automatically reduce your taxable income. Pension, health care, etc.
But if you make an additional payment, for example, I'm "voluntarily" paying my adult kid's pension whilst she's in University. So I need to claim to say I paid that. As you'd be making back payments I'm under the impression you'd need to do the same.

"Although 5% yearly interest is too good to be true."
You would be amazed, and I mean amazed by what the US based youtube financial adviser say to plan for. Amazed..
Anyway, as you see the main attraction of government backed pension is you don't rely on market performance when your investment is growing or when you are drawing from it..

Re: Pension Payment/ Invest?

Posted: Thu Sep 08, 2022 5:06 pm
by Tkydon
Popochi wrote: Sun Sep 04, 2022 2:07 pm So 4 years ago I came to Japan as a foreign student and have applied for delayed payment for the kokumin nenkin (3 years worth). I went to the city hall and told them that I wanted to pay it and have received the payment slips (16k a month). Now i’m in a dilemma. Is it better to pay the kokumin nenkin or just invest the amount(16k) to a mutual fund? I’m currently using tsumitate nisa for 33k a month.
If you're no longer eligible for the Student Exemption, you have no choice but to pay it. It's obligatory.

If you're going to be paying for more than 10 years, you'll qualify for a partial Japanese Pension.

If you go and come back you can keep paying...

If you leave, you can claim up to 5 years' refund, but not recommended.

https://www.nenkin.go.jp/international/ ... nsion.html

https://www.nenkin.go.jp/international/ ... index.html

https://www.nenkin.go.jp/international/ ... yment.html


If you pay in here, you also get to do iDECO if you want...