Many people move to Japan for a temporary stay but end up staying long-term—and even choose to retire in Japan. I arrived in 2000 for a two-year stint on the JET Programme, but over 20 years later, I’m still in Sendai, near my first apartment. Whether you plan to stay or retire in Japan, getting your finances in order early is crucial. Retirement isn’t something to leave to chance—you might not be able to work forever, and foreign residents can’t rely on welfare in Japan. Here is my advice for how to retire in Japan.
The Basic Strategy
In Japan, traditional retirement is funded by an employee’s contributions (and employer matching) to nenkin, the national government pension system, or literally “year money,” possibly a retirement bonus as well as any personal savings and investments.
A government panel issued a report in 2019 stating that the average married couple would need ¥20 million in savings to supplement their nenkin in retirement.
Saving up ¥20 million is a formidable task. Fortunately, we can invest the money to speed things up a little—and Japan has several tax-advantaged accounts to help people invest for retirement.
Japanese Pension
If you live in Japan, you have a legal obligation to pay nenkin (Japanese national pension plan) payments in one form or another, but it is also a good idea. A government-backed income in retirement is very valuable.
Most of us will pay kosei nenkin (employee’s pension insurance) via our employer’s deductions to our paycheck. Still, if that isn’t an option, you should pay kokumin nenkin (national pension) through the ward office or city hall. You need to pay ten years (120 months) of nenkin to receive a pension in old age, and a full pension requires 40 years of payments.
If you leave Japan before paying 120 months, you can get a refund of up to five years of contributions, and many countries have treaties with Japan to transfer pension credits.
For a deep dive into nankin, check out our GaijinPot guide to “Understanding the Japanese Pension System.”
Investing in Japan
Investing can seem daunting due to the language barrier and the fact that relatively few individuals here invest, which may be a hangover from the bubble bursting in the 90s. Nevertheless, Japan is actually a pretty good place to invest, and recent competition between brokers has seen fees come down and the range of products increase.
I should mention briefly that U.S. citizens do not have many suitable options for investing in Japan due to US tax laws and regulations. Most people find it easiest to invest with a U.S. broker. More on that later.
For the rest of us, here is the basic strategy:
- Open an account with an online broker: Popular brokers like Rakuten Securities, Monex, and SBI offer accounts, but their websites are in Japanese. If this is a barrier, check out U.S.-based options below.
- Apply for an iDeCo account: If you plan to stay in Japan until retirement, an iDeCo account lets you invest tax-free and lowers your income taxes. Most banks and brokers offer iDeCo, but big online brokers often have lower fees. You can read more about iDeCo here.
- Apply for a NISA account: With NISA, your investment profits (dividends or capital gains) are tax-free. There are two types: ippan (ordinary) NISA, which lets you invest up to ¥1.2 million per year tax-free for five years, and tsumitate (regular) NISA, which lets you invest up to ¥400,000 per year tax-free for 20 years. More information here.
- Decide what to invest in: The simplest option is low-cost mutual funds. The eMaxis Slim range is a great choice. You can set up automatic monthly investments directly from your bank account.
Getting Started
If you are not currently saving or investing, the biggest hurdle is going to be starting. Fortunately, you can start with small amounts—as low as a few thousand yen a month—and as you get more comfortable and start to see the results, you can increase your monthly investments.
I would recommend just doing one thing rather than trying to do everything perfectly from the start. Open a broker account, choose one fund and set up an automatic investment. Start with a small amount of money.
Once you get that one thing done, you will likely feel motivated to do more, so you can increase your monthly investment or look into the tax-advantaged accounts.
How Do U.S. Citizens Retire in Japan?
U.S. tax laws and regulations mean that Americans have few options in Japan. You should avoid Japanese mutual funds and exchange-traded funds (ETF), which means you can’t use iDeCo or tsumitate NISA at all. Most brokers will only let you buy Japanese individual stocks, so that is one option but not a great one for most people.
So, in practice, you may want to just invest with a U.S. broker. If you don’t already have an account, you will have to find one that will take on non-resident clients. Interactive Brokers is one option.
Japanese banks and brokers will ask you to close accounts if you leave Japan permanently.
The benefit of using brokers based in the U.S. is that you can use it in English and likely have access to a greater range of products. The disadvantage is that you can’t take advantage of Japanese tax-advantaged accounts and your tax reporting will be a bit more onerous.
People who cannot use Japanese brokers due to the language barrier can also use Interactive Brokers. Another benefit with them is if you are planning to leave Japan, you will be able to keep your accounts after leaving the country. Japanese banks and brokers will ask you to close accounts if you leave Japan permanently.
Keep in mind, Donald Trump has promised to end double taxation, so this could change from 2024.
More Information
In this article, I present a brief overview of some of the issues and options around retiring in Japan. Hopefully, you are not confused at this point!
If you are, there are several places to get more information, advice and encouragement:
- The OG of English-language information on personal finance in Japan, the RetireJapan website and forum.
- New this year, but there are some very knowledgeable people on the r/JapanFinance subreddit.
- It just started, but RetireWiki already has a lot of helpful information.
- The Bogleheads forum is not Japan-specific but has lots of information about effective investing, mainly from a U.S. perspective.
- You can get a free consultation with an independent financial planner through the Japan Association of Financial Planners.
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This is an old article. Why is it being re-published with a new date?
Because it was updated and still has valuable information. Is anything out of date to you?
Dear Ben,
Very Nice Article…
Retirement Topic is Universal. Relevant Always..
Love from India,
Ganga
No mention about the Visa problems with retiring and living in Japan
Such as?