Recently I posted a question about kokumin kikin for an American freelancer, but the more I looked into it the more it appeared to be a bad idea. You can't receive a lump sum payment of even the principal put in up front, and there's no adjustment for inflation. On top of that, the risk of the fund going under is non-zero. It might be worthwhile if I were younger, but I didn't do those calculations. Fuka nenkin does look good for a small amount of money, so thanks everyone for that tip.
SO I've been thinking about saving money by doing iDeco with fixed-term cash deposits, and here is my math comparing that to allowing the same income to be taxed and investing what's left over in something else.
Let's say I am in the 30% marginal tax rate. (TBH I hope to be higher soon, but let's take 30%.) If I put in 25,000 yen per month in cash deposits over 16 years years, that's 4.8 million yen, give or take, with a bit of interest added in and fees subtracted. Contrast that with the opportunity cost of investing 70% of the income (17,500 yen per month) over the same period. In a conservative investment with 4% annual return, you essentially break even (¥4,695,933). But then you're taxed on your gain, so you lose vis-a-vis iDeco.
So as one safe "investment" in a balanced portfolio, it might not be a bad idea to put money away in iDeco, just to avoid being taxed? In the very least, it's kind of forced savings… Am I missing something????
by JPcoolstar
2 comments
>am I missing something????
Yea, you’re a U.S. tax payer
You should do Kikin, because you utilize the same tax deductible allowance as iDeCo, but you increase your pension annuity in retirement.
If you invest in ideco, youre limited to the basically “0%” funds, unless you want to navigate the PFIC issue
You might also want to look at the 小規模企業共済. It’s easier to effectively access early if needed because you can borrow against it at 1.5% interest.
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