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Delaying pension
Posted: Thu Oct 26, 2023 2:08 am
by goodandbadjapan
There have been a few mentions on these boards about delaying taking a pension and therefore increasing the amount you get. Quick question: if you didn't think you would need to take pension until, say ten years after you are entitled, do you think delaying would be a better option than taking it when you can and just throwing the money into investments? I suppose it all depends on how long you might live, but to have ten years worth invested and (hopefully) accumulating until you are 75 or so seems quite attractive.
Re: Delaying pension
Posted: Thu Oct 26, 2023 2:31 am
by RetireJapan
Probably depends on your situation, but assuming you have enough and can afford to delay taking the pension, the benefits of a larger pension compared to a bigger investment portfolio are simplicity, diversification, and a guaranteed income for the rest of your life.
Getting a cash transfer every couple of months instead of dealing with an online broker and making decisions about selling might be much easier, particularly as you get older.
https://www.retirejapan.com/blog/when-t ... a-pension/
Re: Delaying pension
Posted: Thu Oct 26, 2023 2:32 am
by zeroshiki
The danger of investing (in equities?) is that after your 10 year period, if the market is in a downturn, you'd be out alot of money that you now actually need. Market grows over time but it's not a straight line up, there will be periods where it goes down. If you get caught up in one of those downturns when you're retired and can't work anymore, it will be a problem.
As for delaying receiving pension, the formula is 0.7% a month (8.4% a year) and according to
this site, the sweet spot is 70 years old (if you live to be over 81 then you "win")
If you go by your 75 plan, you'd need to live until 86 to go over the break even point.
Re: Delaying pension
Posted: Thu Oct 26, 2023 3:13 am
by Tsumitate Wrestler
Fantastic Topic.
It would really depend on your income streams. Employee/Private pension? IDeco? Nisa and taxable?
For many of us, we will need to decide on
A. A pension start date
B. An iDeco start date, and whether we want a lump sum or a pension style, or a hybrid.
You need to map it out with your SO (if any). Health is a huge consideration as well, as are kids etc etc.
.....
Japanese women may want to give holding off to 75 serious consideration, whereas a Western male may consider 65.
If you aren't sleeping well, drink too much, and are overweight....Take it early. 
Re: Delaying pension
Posted: Thu Oct 26, 2023 12:28 pm
by goodandbadjapan
zeroshiki wrote: ↑Thu Oct 26, 2023 2:32 am
The danger of investing (in equities?) is that after your 10 year period, if the market is in a downturn, you'd be out alot of money that you now actually need. Market grows over time but it's not a straight line up, there will be periods where it goes down. If you get caught up in one of those downturns when you're retired and can't work anymore, it will be a problem.
This is true, but I suppose similarly if you took the pension early and the market was in a downturn at that time you could use the pension instead of cashing in some of your investments to live when the market was down. So many variables! Guess I will just wait and see how my portfolio (and health etc) is looking much nearer the time.
RetireJapan wrote: ↑Thu Oct 26, 2023 2:31 am
Probably depends on your situation, but assuming you have enough and can afford to delay taking the pension, the benefits of a larger pension compared to a bigger investment portfolio are simplicity, diversification, and a guaranteed income for the rest of your life.
Getting a cash transfer every couple of months instead of dealing with an online broker and making decisions about selling might be much easier, particularly as you get older.
https://www.retirejapan.com/blog/when-t ... a-pension/
Yes, the simplicity would likely be good in later years.
Re: Delaying pension
Posted: Thu Oct 26, 2023 2:31 pm
by TBS
There was a similar
topic on this back in 2021. It includes some
calculations I did on the potential outcomes of starting at 65 or delaying to 70 or 75.
There are many factors at play, but from a purely financial point of view I think there is a very strong case for many people taking the Japanese pension at 65 or even earlier, i.e. before you may need it, in order to maximize the value you can extract from it (i.e. by investing it, even conservatively with a high bond/equity ratio).
Ben made similar points back in that thread, all of which I agree with. However to repeat two points I made, this is not a question of having a guaranteed income floor from the state pension or not, but a question of how large you want or need that income floor to be. And I highlight a risk that acts the other way: just because that's what the stated pension deal is now, doesn't mean that's what you'll get if you do in fact delay drawing the pension start by 10 years.
Re: Delaying pension
Posted: Thu Oct 26, 2023 3:07 pm
by Tkydon
I assume you are talking about the Japanese Pension?
And I assume you do not have a full 480 months at age 60 to qualify for the full Pension at 65?
If you reach 60, you can go to the Pension Office and apply to pay voluntary contributions to get your number of contributions up by another 60 months... You cannot pay voluntary contributions past age 65.
You can see the Mark-Down Factor if you decide to take the Japanese Pension before 65 (between 60 and 64 + 11 months) based on the number of Qualifying Months at the Time here:
(You will receive the Qualified Pension x (1 Minus Discount Factor shown)
https://www.nenkin.go.jp/service/jukyu/ ... 21-01.html
You can see the Mark-Up Factor if you decide to take the Japanese Pension ater 65 (between 65 + 1 month and 75) based on the number of Qualifying Months at age 65 here:
(You will receive the Qualified Pension x (1 Plus the Mark-Up Factor shown)
https://www.nenkin.go.jp/service/jukyu/ ... 21-02.html
There was some discussion on the Rational Investor Podcast some time ago at the end of one of their episodes asking the same question for Canadian Retirees, and based on different factors for the Mark-Up vs Cost-Of-Living adjustments, I think they came to the conclusion that for Canadian Retirees it did not make sense to delay receiving the Canadian Pension.
I think you'll find reference to the video in 'Recommended Videos'
Re: Delaying pension
Posted: Thu Oct 26, 2023 10:25 pm
by captainspoke
RetireJapan wrote: ↑Thu Oct 26, 2023 2:31 am
...Getting a cash transfer every couple of months instead of dealing with an online broker and making decisions about selling might be much easier, particularly as you get older.
...
I do understand the point, but couldn't that also be used as a sales pitch for the 'simplicity' of an annuity?
Tho I'm US and not in the loop on it (and people here are generally savers/investors--prospective retirees, rather than actually being retired), other than the viability of the 4% rule there seems to be little talk about the end game for NISA and ideco. Is it really that challenging to sell as needed, or in a planned way?
Re: Delaying pension
Posted: Thu Oct 26, 2023 11:42 pm
by goodandbadjapan
Tkydon wrote: ↑Thu Oct 26, 2023 3:07 pm
I assume you are talking about the Japanese Pension?
And I assume you do not have a full 480 months at age 60 to qualify for the full Pension at 65?
If you reach 60, you can go to the Pension Office and apply to pay voluntary contributions to get your number of contributions up by another 60 months... You cannot pay voluntary contributions past age 65.
You can see the Mark-Down Factor if you decide to take the Japanese Pension before 65 (between 60 and 64 + 11 months) based on the number of Qualifying Months at the Time here:
(You will receive the Qualified Pension x (1 Minus Discount Factor shown)
https://www.nenkin.go.jp/service/jukyu/ ... 21-01.html
You can see the Mark-Up Factor if you decide to take the Japanese Pension ater 65 (between 65 + 1 month and 75) based on the number of Qualifying Months at age 65 here:
(You will receive the Qualified Pension x (1 Plus the Mark-Up Factor shown)
https://www.nenkin.go.jp/service/jukyu/ ... 21-02.html
There was some discussion on the Rational Investor Podcast some time ago at the end of one of their episodes asking the same question for Canadian Retirees, and based on different factors for the Mark-Up vs Cost-Of-Living adjustments, I think they came to the conclusion that for Canadian Retirees it did not make sense to delay receiving the Canadian Pension.
I think you'll find reference to the video in 'Recommended Videos'
Both UK and Japanese pensions, but was thinking more of UK one as my Japanese one won't be a full 40 years and will be fairly scant anyway. I will probably delay it and keep paying in till 65. With UK one I am undecided.
Re: Delaying pension
Posted: Fri Oct 27, 2023 12:22 am
by RetireJapan
captainspoke wrote: ↑Thu Oct 26, 2023 10:25 pm
I do understand the point, but couldn't that also be used as a sales pitch for the 'simplicity' of an annuity?
Absolutely. I will certainly be taking a look at moving some of our capital into annuities later, provided I can find reasonably priced ones. I don't fully trust that I will remain compos mentis, and my wife certainly is not prepared to manage our portfolio if something happened to me. Far better to have guaranteed cashflow that would be enough to live on.
captainspoke wrote: ↑Thu Oct 26, 2023 10:25 pm
Tho I'm US and not in the loop on it (and people here are generally savers/investors--prospective retirees, rather than actually being retired), other than the viability of the 4% rule there seems to be little talk about the end game for NISA and ideco. Is it really that challenging to sell as needed, or in a planned way?
No, it seems easy. With mutual funds, you can even set it up to be automatic.
But I have seen my grandparents get scammed out of their savings, and my wife's parents have dementia and are incapable of handling anything other than cash in a bank account now. So I want to hedge for those outcomes too if possible.