RetireJapan

I have my SBI iDeCo application form here in front of me and I am trying to work through the page on fees (see https://drive.google.com/file/d/17w6BP8 ... sp=sharing).

It looks like I have the following to consider:

1. Initial set up fee of ¥2829
2. A fee of ¥171 per deposit
3. Then upon receipt of the pension as an annuity, I incur ¥440 fee per payment of the pension.

Is someone with a better understanding of the iDeCo and Japanese confirm this?

I am unsure of the other fees in the bottom two rows of the attachment.

The SBI iDeCo seems to only be payable as a 5 or 10 year annuity.

Assuming I am paying for 19 years and receive it as a 10 year annuity, my calculations have the total costs before fund fees as ¥94617 (2829)+(171*12*19)+(440*12*10)

With a full contribution of ¥23000 that is 1.8% of contributions.
With a contribution of ¥15000, it is 2.8% of contributions.

Am I right in thinking the lower your monthly contributions the more damage these fixed fees are going to be? If I only contributed the minimum of ¥5000/month, the SBI fees alone would be 8.3% of contributions. I think most funds would have to perform better than admirably for a 9% profit.

I know I am ignoring the advantages of compound growth and am only focusing on the contributions, but are these fees common across all providers? And do the tax breaks provided counterbalance these fees to a point?

Hey Chris!
Although I think you are getting the idea, you are making some wrong assumptions in your calculations.

First, 0.8% and 1.2% of your contributions are vastly different from 0.8% and 1.2% of your portfolio.

Example (making contributions of ¥15000 per month):

After one year of contributions (average growth of 6% and taking the first-time fee and monthly fees into account):
((¥171*12) / ¥195,691) * 100 = 1.0486%
After two years of contributions (〃):
((¥171*12) / ¥390,222) * 100 = 0.5259%
After three years of contributions (〃):
((¥171*12) / ¥596,426) * 100 = 0.3440%
After four years of contributions (〃):
((¥171*12) / ¥815,002) * 100 = 0.2518%
After five years of contributions (〃):
((¥171*12) / ¥1,046,692) * 100 = 0.1960%
…
In the last year of your contributions (〃):
((¥171*12) / ¥5,683,987) * 100 = 0.0361%

As you can see, the fixed fees will dip below 20 basis points of your total portfolio after five years and when paying ¥15000 per month. When maxing out your monthly contributions (¥23000 in your case) this will go down even faster.

Second, you have to calculate the deposit fees and withdrawal fees separately from each other, because you do not have to pay the ¥440 per month fee while contributing for 19 years, and after 19 years you do not have to pay the ¥171 per month fee anymore.

Withdrawal fees in percentage of your portfolio during the first year (having made contributions of ¥15000 per month):
((¥440*12) / ¥6,207,816) * 100 = 0.0851%

You can also wait 10 years (till being 70) and pay ¥66 per month in management fees. In this case your portfolio will grow to ¥11,106,530.
Making a withdrawal now will result in a yearly fee of:
((¥440*12) / ¥11,106,530) * 100 = 0.0478%

*All these calculations do not take the management fees of the individual funds into account.

Conclusions:
1. 0.8% and 1.2% of your contributions are vastly different from 0.8% and 1.2% of your portfolio!
2. Your fixed iDeCo account fees dip below 20 basis points of your total portfolio after 5 years when contributing ¥15000 per month and having an average rate of return of 6%.
3. Withdrawal fees are relatively small.
4. You can minimize your fixed deposit fees in percentage of your contributions AND of your portfolio by maxing out your monthly deposits (¥23000 in your case).
5. You can minimize your fixed withdrawal fees in percentage of your portfolio by waiting until age 70 and then withdraw as a one-time lump sum (letting your portfolio grow an extra 10 years and paying a one-time withdrawal fee of ¥440). Something I am personally planning to do.
6. Management fees of your individual funds matter a lot more, as these fees are a fixed percentage of your holdings, and not a fixed amount like the iDeCo account fees.
7. You will pay (¥2829 + (¥171*12*19)) = ¥41,817 in deposit fees, and ¥105,600 (when taking the max. duration of 20 years annuity) in withdrawal fees. Making your total fees over a course of 39 years: ¥41,817 + ¥105,600 = ¥147,417 (which I do not think is an awful lot if you compare it to your total portfolio after the 19 years of contributing and growing (¥6,207,816 when ¥15000 p/m and ¥9,561,169 when ¥23000 p\m))

I hope you understand my explanation . It took me quite a while to get it clear on paper .

Thank you so much for taking the time to get this written out. It has helped me immensely.

I can't thank you enough.

ChrisFukuoka wrote: ↑Mon Feb 24, 2020 12:24 am Thank you so much for taking the time to get this written out. It has helped me immensely.

I can't thank you enough.

You're welcome Chris!
I'm glad I was able to help you out.
Although there is a lot of room for improvement in the way iDeco works, it is still the single best tool to make a tax-efficient part of your nest-egg for when you retire (I say 'part', because I think even a maxed-out iDeco account won't get you through retirement, if you don't have any other assets than a state pension + iDeco).
After maxing out your iDeco, you can start thinking about Tsumitate NISA and/or a taxed account (特定口座).