So you think you have what it takes?
Ha ha! You took the bait…you should be so lucky my friend.
Retirement, for you, looks unlikely.
The deck is stacked against you. You and everybody else. Occupational and state pension plans worldwide have the largest funding deficits ever seen throughout history. Social support systems designed to provide an income for the populace in their latter years have not changed significantly in the past 100 years. One significant change in that same populace however, is life expectancy. If people are living 30% longer than they were in the 1950’s, but the pension system is STILL structured to cater for somebody living for 30% less time, and the ratio of contributors|receivers is decreasing, then the building is on fire and you better hope that you are not at the end of the queue for the door. You are on your own.
So, in Japan, what are your options? How can you do the responsible thing and make your own retirement preparations? What accounts are available?
1) NISA: Nippon Individual Savings Account
The Ferrari of Japanese retirement planning tools. If by “Ferrari” you actually mean donkey, and by “retirement planning tool” you actually mean poorly thought-out, politically motivated gesture towards encouraging investment into a flagging economy and synthetically inflated stock market. You may be forgiven for thinking that they have stolen the concept from the Brits and their “ISA”, which has been a staple of personal finance in the UK since 1999. You should be so lucky! You can only open one NISA. You can only contribute 1.2 million yen a year. Any remaining allowance is not transferable to the next year. TAX BREAKS ONLY LAST FOR FIVE YEARS. Any proceeds from investments sold within your NISA cannot be invested for the following 5 years. A fine retirement planning tool…for those retiring in 5 years time who are aiming to die within 10 years.
2) iDeco Account(個人型確定拠出年金口座)
What is an iDeco? Can I use my old iPhone headphones or do I have to buy new ones?
Its a tax privileged retirement savings account.
Ok. So far so good….
You cant take out the money until you are 60 (five years before current statutory retirement age, which is an admitted improvement)、unless you get your legs chopped off or you die. You cannot hold equities. You are restricted to a list of funds deemed suitable by your chosen Japanese bank. You are only allowed to work with one institution. Transferring to another one takes two months during which time your account is frozen. You cannot make automatic contributions. That’s right. Enjoy making a bank transfer 12 times a year for the next 30 years (did I mention that your bank quite likes these accounts?). Contributions are limited and woefully low (less than 25,000 JPY for company employees). The best part? When you die the proceeds miraculously stop being treated as pension and become a “special gift” (to the tax-man?) and have inheritance tax levied upon them….which is marginal, topping out at 55% of your assets.
3) Other Options For Retiring In Japan
– Continue to contribute to the national GPIF and hope that its current administration are all dead before your time comes to line up for your peanuts. At this time, the fund has returned year on year losses since 2014 and is forecast to be subject to a multi-billion dollar shortfall in the coming decade with the natto really hitting the fuusen by 2050.
– Save and invest with your online broker on your own and hope that by the time you have accumulated one million dollars you understand enough about portfolio management so as to not blow off your entire face in retirement.
– Find, and work with a financial advisor using offshore/international accounts. Beware the fat ones. Also beware those that have zero substantive knowledge about financial planning and investment. Ask lots of questions. A big shark fin stuck to their back is a dead giveaway. Also avoid the “part-time model/ english teacher/ ex IT guy turned real estate mogul” self-professed financial experts.
– Resign yourself to abject poverty and die a meager death. The “1%ers” cheated their way to the top and everyone else had easier jobs than you. I jest, I jest! It is important to see the funny side of personal finance in Japan. Just beware of false prophets.