Japan’s elderly are becoming more diverse, and so are their financial challenges.

The definition of “elderly” in Japan is those who are 65 and over, and as of December 2020, there were about 191,000 elderly foreign residents in Japan, up 20,000 from January 2019, according to the government-affiliated Council of Local Authorities for International Relations. The elderly made up 7% of all foreign residents in the country in 2021, NTT Data Institute of Management Consulting said in a white paper.

This cohort is increasingly born overseas and facing issues that non-Japanese living here haven’t had to grapple with as much in the past: retirement and ensuring financial security in old age. Navigating these waters can be a challenge.

Municipalities in Tokyo and Aichi Prefecture are grappling with how to help foreign residents facing not only old age but the complexities of the country’s tax, welfare and pension systems, among others. As more non-Japanese seniors decide to spend their later years in Japan, I asked people familiar with these issues for their perspective.

Have a plan B ... and C

Kim (who asked for his real name not to be published for privacy reasons) is a 62-year-old from Canada who works in media. Following jobs in teaching and journalism, he found work with a major Japanese securities firm. After 16 years on that job, however, he was effectively laid off when he turned 60, simply due to his age. In a move ostensibly aimed at following government directives to provide jobs for older workers, the company offered to continue his employment until age 65 at 25% of his previous salary. There was no retirement payout for foreign contract workers.

Kim refused the offer and, due to financial constraints, was forced to move to a smaller apartment with his family of four. He now works as a freelancer. Having never drawn up a retirement plan and with no substantial savings, Kim has no prospects of retiring anytime soon.

How would you describe your financial situation now, and what are your thoughts on working in Japan?: My financial situation is fairly stable after having built up a roster of clients. My wife is also working at a large American firm in Japan. If you are dependent on various visas, work choices are sometimes limited. But wages can be good for specialists and the cost of living here is relatively reasonable compared to Canada. In terms of retirement and senior living in Japan, I would say always have a plan B or even C.

Issues of inheritance tax

Stefanie Richert, 56, is a senior adviser at Banner Asset Management Japan K.K., a Tokyo-based financial planning firm. Originally from Germany, Richert moved to Japan in 1996 and has been assisting foreign residents with their personal finances, including retirement planning, since 1999.

What are the main financial issues that senior foreigner residents face in Japan?: If seniors are not well prepared, they have to continue working, and many do — Japanese as well as foreigners. Crucial differences between the two are language and visa issues (especially in the case of divorce from or death of a Japanese spouse). Some foreign residents I know have retired to other Asian countries such as Thailand, where their portfolios last longer.

Issues that foreign residents — as well as Japanese — may run into have to do with inheritance tax: when they inherit assets located abroad, and when the focus shifts to passing on their own assets that are located in Japan and abroad. These are not financial problems per se but can be complicated matters that require timely and careful planning and preparation.

As more non-Japanese seniors decide to spend their later years in Japan, the realities of taxes and pension payments may not keep up with many's ideas of rosy retirements.
As more non-Japanese seniors decide to spend their later years in Japan, the realities of taxes and pension payments may not keep up with many's ideas of rosy retirements. | GETTY IMAGES

Foreign seniors also have to keep potential tax obligations in their home country in mind. Furthermore, their planning should take into account overseas pension benefits they may be entitled to. If they are U.S. nationals, matters during their working life are already much more complicated, as they have an annual reporting obligation to the IRS whether tax is payable in the U.S. or not.

What’s the best way for seniors to deal with or avoid these problems?: Seniors should have an independent adviser and tax accountant look into their circumstances. If they have already retired, it doesn’t hurt to check with an adviser on how to optimize their planning. It is paramount for older investors to have income-generating investments, such as carefully selected shares which give regular dividends and funds — a good financial adviser can explore these options.

In an ideal world, everyone should have retirement planning on their radar as soon as possible when working life begins. Time is the greatest factor to financial success and a comfortable retirement.

Live within your means

American Mark Schreiber, 76, is a writer and translator who has worked for The Japan Times and has lived in Japan for 55 years. He credits his secure finances to luck and hard work.

How would you describe your financial situation now?: While my 40-year-old house has zero resale value, the land it sits on in one of Tokyo’s 23 wards should hopefully serve as a nest egg when the time comes to sell. I receive six payments a year from the national pension fund, from which health insurance and kaigo hoken (care insurance) are deducted. I received a small inheritance on the deaths of my parents and life insurance on the death of my spouse.

What have been the advantages and challenges in terms of being financially stable during your time in Japan?: I obtained my permanent residence in 1986, and thanks to that was able to go freelance. When you work for yourself it means keeping your clients happy, and that often means working on weekends and holidays. Fortunately, I love writing and translation work, so it was a labor of love, and especially during the years of the bubble economy, there was a lot of work available, so I paid off the mortgage on my house. I always tried to invest a portion of my earnings into the business — upgrading my computer and peripherals, buying reference materials and software, etc. — which made the operation more efficient.

Do you have tips or strategies you can share for other people looking at retirement and senior living in Japan?: I have always endeavored to live within my means. I also found an activity I loved — writing — and was able to turn it into a source of income. When someone excels at a job, they seldom hate it. Most important of all, I guess, was the encouragement and support of my Japanese friends, beginning with the family I lived with in Chofu while I was a university student from 1966. They gave me advice on how to save and, after seeing that I followed their advice, were willing to guarantee my first home loan.

Get educated on pensions

Ben Tanaka, a 46-year-old Briton, retired from full-time work last year after 13 years at Tohoku University. He founded RetireJapan in 2013 as a resource on personal finance and investing for residents of Japan.

With social welfare not accessible by foreign residents in Japan, some retirees without retirement plans see pension payments as their only sources of income later in life.
With social welfare not accessible by foreign residents in Japan, some retirees without retirement plans see pension payments as their only sources of income later in life. | GETTY IMAGES

What kinds of problems should potential retirees be wary of?: Not just foreign seniors but many people in Japan do not understand nenkin (Japanese pensions) or have a good idea of how much pension they can receive in retirement. They might also not understand how kaigo hoken works, or they might not know that they qualify for it. They might not have saved enough (the government mentioned a married couple needing ¥20 million in savings to supplement nenkin for a comfortable retirement). Some people may have difficulty renting after retirement as landlords may be reluctant to rent to older people.

Have you seen or heard of any particularly difficult examples?: My experience has mostly been having very difficult conversations with people close to retirement as they realize that their nenkin is not going to be enough to live on, their income is likely to go down due to compulsory retirement ages, and their savings and investments are not enough for a normal retirement. In that situation, people don’t have many options: They can cut their spending to the bone, keep working as long as possible or rely on family or government support. Currently non-Japanese residents are not guaranteed seikatsu hogo (welfare support) but can receive it at the discretion of their local authority.

What’s the best way for seniors to deal with, or better yet avoid, these issues?: The best way to avoid financial difficulties, not only in retirement but all through life, is to have a basic understanding of personal finance, understand your current situation, have an idea of what your nenkin and other pensions are going to be, estimate how much you’ll need in savings and investments to supplement that, and put some money aside to cover it. Getting any necessary insurance and using tax-advantaged accounts like iDeCo and NISA, as well as corporate and private pensions, is also a good idea. Many people see this as difficult or boring, but it doesn’t have to be. And once you have an idea of the basics, it is easy to automate everything so that you don’t need to spend much time thinking about it and can just get on with your life.”