RetireJapan

My wife has paid into a private life insurance plan for many years that just finished and now converts into a sort of pension payout.

She has 2 options at this point:

1) Start receiving ¥700,000 per year for the next 10 years right now (first payment 9/2023). i.e. ¥7,000,000 received by 2032.

2) Defer for 5 years and receive ¥900,000 per year for 10 years. i.e. ¥9,000,000 received by 2037.

If she receives the money now, it will just get invested.

I have played around with some numbers and it seems like if she can get 5% or greater annual ROI, then by the time 2037 rolls around she would be better off taking the payments now (¥700,000 per year). So leaning towards that option.

Wondering if anyone else has been in this sort of situation and what option they went for.

And/or if there are other perspectives at looking at the numbers.

Thanks!

A very interesting question

Some things I would take into account before making this decision:

Is your wife comfortable investing the money?
Will she be maxing out her New NISA without this extra money?
Will the money be invested for the long term or will you need it within the next 5-10 years?
Does your wife have other investments and savings?

It's just under a 30% gain by waiting five years. You could get more by investing it in the stock market, but could also end up with less depending on the timing.

Another thing to consider as well is that this is "life insurance", and from the looks of it, this is whole life insurance.

I may be wrong, but I would assume that the payout will be well above 7M or 9M JPY if something tragic was to happen. You may want to think how much this would be needed in such a case and if it is necessary to liquidate the plan now.

Thanks for your reply.

Is your wife comfortable investing the money?

Yes, totally…she is already investing.

Will she be maxing out her New NISA without this extra money?

Yes, NISA already maxed out each year and will continue doing so.

Will the money be invested for the long term or will you need it within the next 5-10 years?

Long term. As I was running the numbers, I was thinking about where things would be at in 15 years.

Does your wife have other investments and savings?

Yes she does.

It's just under a 30% gain by waiting five years. You could get more by investing it in the stock market, but could also end up with less depending on the timing.

Exactly...which is what makes the decision kind of tricky. It is a decent guaranteed increase by deferring 5 years. Could do better with investing, but might not.

Another thing to consider as well is that this is "life insurance", and from the looks of it, this is whole life insurance.

I may be wrong, but I would assume that the payout will be well above 7M or 9M JPY if something tragic was to happen. You may want to think how much this would be needed in such a case and if it is necessary to liquidate the plan now.

The life insurance element is finished at this point. There is no longer any coverage on this plan. If she were to pass away the annual payout would continue to me until the full 10 year term completed. (Both of our life insurance is now packaged with our mortgage.)

Take the delayed annuity option. A diversified income stream is great I'd you're already investing.

TokyoBoglehead wrote: ↑Sat Jul 22, 2023 2:07 am Take the delayed annuity option. A diversified income stream is great I'd you're already investing.

I would tend to agree. All things being equal, diversification is attractive.

Thanks a bunch! The diversification element wasn't something I had considered.

I appreciate everyone taking the time to share their thoughts.