Nenkin Pension System in Japan: How Much Pension is Enough?

Can one live in Japan relying on the nenkin pension system alone?

a couple taking rest under the tree and watching the sunset

After the Financial Service Agency has released its report about the pension payout projections and the following wave of concerns, long-term residence and citizens of Japan are on the lookout for alternative ways to sponsor their retirement. While at the first sight projections are rather gloomy (presuming that pensioners-to-be are lacking at least JPY 20 million to sustain their current lifestyle), not everything is lost. Let us take a closer look at the data interpretation of the report and examine what it means for pension payouts.

Understanding the data

To begin with, it is important to know how the data was collected. Researchers obtained the data by surveying retired people about their monthly income level and spendings. It is only natural that survey participants might have wanted to report lower income in contrast to higher spendings to potentially stir the policy changes and pension plan revisions. While there is no way to prove that it was the case for the above-mentioned report, we cannot dismiss this scenario as improbable. And here is why.

 iDeCo investment programs can supplement one’s nenkin pension savings in Japan.

According to the report, pensioners are JPY 50,000 at loss every month of their retirement. By doing some simple calculations of multiplying the deficit of JPY 50,000 per month by assumed 30 years of retirement one gets about JPY 18 million in missing funding. However, one has to be critical of the statement.

The point of the report, after all, was not that the system is failing but that it might need revision. If pensioners were indeed lacking JPY 50,000 every month, we would see a drastic worsening in lifes conditions among retired people over the course of past years. However, even though there are issues to address, the nenkin pension system was, is, and will be able to provide enough money for pensioners to live on.

Moreover, it is highly unlikely that a person that has overused the monthly budget by 50,000 yen once, would consistently do so for the next 30 years. It is more likely that one would try to match income and spending. In case someone is not aware of their current pension savings status, they can check it online at Nenkin Net (in Japanese).

Is nenkin enough for retirement?

As we have discussed above, the amount of necessary saving depends on the lifestyle you want to have and all the expenses associated with it. If you plan to travel around the world, you might need more than if you plan to enjoy walks in the local park. It is never to late to make a rough calculations about how much money you would need in the future.

Consider what kind of spendings you will have and what kind of costs you will cut: maybe you will spend less on transportation to work and business lunches, but more on healthcare. It is worth mentioning that Japan does tremendous job in sustaining accessible healthcare for elderly compared to other countries.

Still, if you have concerns about the current nenkin pension system and you look for additional ways to save for retirement, you might want to take a look at iDeCo and NISA investment programs. These are essentially a self-managed pension that allows you to invest a certain amount of money into mutual funds, insurance products or cash savings and used them after you retire. You can find out more at the governmental web portal or from our dedicated article.

"Otsumami" - a bite size snack:

Now is a good time to start accumulating additional savings for retirement.

What do you think?

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