Business / Economy | YEN FOR LIVING

Cash shortfall among the elderly could push Japan over the edge

by Philip Brasor and Masako Tsubuku

Last summer the welfare ministry reported that a record number of households were receiving government assistance, and 47.1 percent of these households were made up of either elderly people only or the elderly and unmarried family members under 18. The media has been reporting for years that an increasing number of seniors are joining the welfare rolls. National pensions were never meant to cover every retiree’s living expenses, but it’s obvious that many are not prepared for their old age.

How much do you need to save in order to guarantee a comfortable life when you retire? The anonymous 30-year-old who writes the popular investment blog Setsuyaku Toshi no Susume recently wondered the same thing when he realized his parents would be broke by the time they retired. He will support them in their old age, but he doesn’t want to be a “burden on my own children.”

He cites a 2013 survey by the Japan Institute of Life Insurance, who questioned more than 4,000 married couples about their retirement plans. One-third of the respondents said they needed “at least” between ¥200,000 and ¥250,000, and another third answered between ¥250,000 and ¥400,000. Only 5 percent thought they could make it on less than ¥150,000, and 1.7 percent couldn’t do with less than ¥400,000. The average for all responses was ¥220,000.

Then JILI asked the same people how much money they needed for a “comfortable” life. The average for all responses came to ¥354,000, or ¥134,000 more than the minimum they said they required.

How does that stack up to reality? According to a study carried out by the Ministry of Internal Affairs and Communications last year, the average expenditure of a hypothetical couple whose husband is over 65 and whose wife is over 60, neither of whom work, was ¥239,485, down from ¥242,598 in 2013. After subtracting taxes and insurance, this couple’s income came to ¥177,925 for 2014, down from ¥185,006 in 2013. That means they needed to find an extra ¥62,560 a month, which is ¥4,968 more than they needed in 2013. Things are tougher for single retirees over 60, who in 2014 needed on average ¥41,516 a month extra to make ends meet.

Based on current longevity statistics, the model couple’s husband should live to be 80 and the wife 87. Under those circumstances, they would need, over the years, ¥18.5 million more than their income just to survive, and that figure doesn’t take into consideration probable changes in pension outlays or retirement age.

Since these figures are averages, some have it easier and some harder. The ministry calculates that the average expenditure for housing by the aforementioned couple was ¥16,158 a month in 2014. Many retired couples own their homes outright, but others are either still paying off loans or renting. Also, average income decreased between 2013 and 2014. More specifically, the couple’s total pension-derived income went from ¥200,309 to ¥190,800. For a single senior it went from ¥114,415 to ¥103,767.

At the high end of the pension spectrum are couples where the husband was enrolled in the company-sponsored kōsei nenkin system and also receives a basic pension (kiso nenkin), while the wife, as a full-time homemaker, qualified as a “No. 3” national pension subscriber, and thus receives her own basic pension. Such a couple could receive up to ¥230,000 a month in pension payments when they reach retirement age.

But most seniors don’t fit that model. First, the retiree has to have paid into the system his or her whole working life to receive the maximum amount. Second, people whose employers didn’t belong to the kōsei nenkin system only receive the basic pension — but only if they have paid into it for at least 25 years, regardless of whether or not they worked.

The basic pension maxes out at ¥70,000 if you’ve paid at least 40 years, but many people haven’t. Ever since employment practices were deregulated in the ’90s, more workers have been designated as nonregular employees, which means they don’t have to belong to the kosei nenkin system. They still have to pay into the basic pension system, but many don’t, because they can’t afford the fixed premiums.

Since the retiring boomer generation is large and a good portion has managed to save, it may not be a big problem in the short run, but if all of them tap into their savings at the same time, it could have an effect on the national debt. Banks use that enormous savings pool to buy Japanese government bonds, which keeps the government afloat.

The current pension system was designed for a different economic climate. Basic pensions were meant for self-employed people, who could sell or live off their businesses when they retired. They weren’t meant for part-timers or contract workers, who tend to live from hand to mouth.

Yen for Living covers issues related to making, spending and saving money in Japan on the second and fourth Sundays of the month. For related online content, see