The problem in the first year and a half after retirement:
e.g. Assuming you were to finish work mid-2024 (if later, adjust all years below), and as your Husband will also be retired, assuming you will be on National Health Insurance:
Your Residents' Taxes for July 2024 - June 2025 and National Health Insurance Premiums for June 2024 - March 2025 are based on your Taxable Income for 2023 and your household's Total Taxable Income for 2023 respectively. Therefore, charged on a full year's pre-retirement income. You need to be prepared for this shock (it comes up here time and time again).
Your Residents' Taxes for July 2025 - June 2026 and National Health Insurance Premiums for June 2025 - March 2026 are based on your Taxable Income for 2024 and your household's Total Taxable Income for 2024 respectively, which may still be pretty high based on a partial year of full pre-retirement income an your Pension Income.
Only in 2026/7 will your Residents' Taxes for July 2026 - June 2027 and National Health Insurance Premiums for June 2026 - March 2027 be based on your Taxable Income for 2025 and your household's Taxable Income for 2025 respectively, so this would be your first year assessed only on your retirement income, in the third year after retirement.
National Pension (and US Social Security, or other National Pension, etc. in aggregate) are eligible for the Public Pension Tax Deduction, which is (variable) about Y1.1M over the Individual Allowance of Y550k and any other deductions, such as medical expenses over Y1M, so the tax rate will be zero for income below about Y1.7M; very low compared to the tax rate when you were in employment. You would have to compare Net Take-Home, and not gross.
See Page 8 (Page 12 of the PDF) here. 'Calculating the Public Pension Plan Deduction (Calculation Table)'
https://www.tax.metro.tokyo.lg.jp/book/ ... k2023e.pdf
Also, Pages 22-23 here:
https://www.nta.go.jp/taxes/shiraberu/s ... df/050.pdf
You would need to get over the first 18 months when the Residents' Tax and National Health Insurance payments will still be based on 18 months prior income level, but there may be an exemption for National Health Premiums due to low income. You would have to discuss with your local City Hall / Pension Office.
I would suggest you plan by squirrelling away some portion of income every month/year so that you have 10% Residents' Taxes and 13% National Health Insurance Premiums for a year and a half's income prior to retirement, so 35% of your last year's gross income IN ADDITION to your emergency fund to cover the expense.
After that, your taxes should be virtually zero... though none of that takes into account any other income you may have.
They will withhold National Income Tax, Residents' Taxes and NHI at source when you receive your pension payments, and you would have to file tax returns for National Income Tax refunds.
How to Increase Benefits:
https://www.nenkin.go.jp/international/ ... nsion.html
For your National Pension, they will stop collecting National Basic Pension Contributions on month of your 60th birthday, regardless of how many months' contributions you have accumulated. You need 40 years' - 480 months' contributions to qualify for the Full Basic Pension.
If you do nothing, and start collecting your Pension at 65, then they will pay your pension based on the accumulated contributions to age 60.
You can increase this by going to the Local Pension Office anytime on or after the day before your 60th. birthday to apply to continue to pay Voluntary Contributions to age 65 to get your total months' contributions up by a maximum of another 60 months to 65. Currently Y16,980 per month.
If you do that, and start collecting your Pension at 65, then they will pay your pension based on the accumulated contributions to age 65.
You can also increase the amount by going to the Local Pension Office now to apply to pay Voluntary Additional Pension Plan Fuka Nenkin Contributions to increase your monthly payout. Currently Y400 per month.
You can then consider whether to delay taking your pension to increase the monthly payments.
You can start taking National Pension from Age 60 - Early Payment - at a reduced rate on the contributions accumulated (not recommended) (1 minus the Discount Rate Shown - 30% is 1-0.3 = 0.7 = 70% of Pension amount on accumulated contributions at age 65)
https://www.nenkin.go.jp/service/jukyu/ ... 21-01.html
or
You can delay taking National Pension after Age 65 - Delayed Payment - at an increased rate on the contributions accumulated to age 65 (Maybe beneficial to you if you have money to live on for the first couple of years) (1 plus the Increased Rate Shown - 30% is 1+0.3 = 1.3 = 130% of Pension amount on accumulated contributions at age 65)
https://www.nenkin.go.jp/service/jukyu/ ... 21-02.html
If you continue to pay Voluntary Contributions, you can start / continue paying in to an Individual Defined Contribution Pension Plan - iDeCo - until you are 65, in which case it would probably be better not to do the Fuka Nenkin, and put the money into iDeCo instead. You would have to check with your iDeCo provider, but if you are working you would be able to contribute up to Y23,000 or maybe even Y68,000 per month.
So, max Y16,980 + Y23,000 = Y40k
National Pension and iDeCo Pension Contributions are Pre-Tax, which means If you have paid tax through withholding thoughout the year, you can file a Tax Return in March to get back the taxes paid on the Pre-Tax Income that you used to pay into National Pension and iDeCo at your Marginal National Income Tax Rate.
The Tax Refund would be equal to (Contributions Paid / (1 - Marginal Income Tax Rate)) - Contributions Paid, which you could than immediately deposit into a NISA where it can continue to grow, and can be withdrawn at any time completely Tax Free.
So, say (Y40k / (1- say 30% Marginal Tax Rate)) - Y40k = (Y14k / 70%) - Y40k = Y17k Tax Refund. (More if your marginal Tax rate is higher, Less if lower)
This is effectively paid for you by the Government. Think of it as Government Matching
This will also reduce your Total Taxable Income, so will also have the effect of reducing your Residents' Taxes and Household National Health Insurance Premiums in the following year (see above), so the benefit would also be an additional approx 20%
(Y40k / (1- 20%)) - Y40k = (Y14k / 70%) - Y40k = Y10k in reduced Residents' Taxes and Household National Health Insurance Premiums in the next year, which can also be dropped into the NISA...
If your Spouse is still working, he would probably also be able to start / continue paying in to an Individual Defined Contribution Pension Plan - iDeCo - until 65, in which case he would probably be able to contribute at the max Y68,000 per month level.
NISA:
If you have anything left over after National Pension and iDeCo contributions, then you can consider paying in to NISA, upto Y1.2M Per Year into Tsumitate and upto Y2.4M Per Year into Growth Portions of NISA per person. See many other threads on New NISA.
