The Basic Structure of Japan's Pension System

Japan's public pension system has a two-tier structure. The first tier, the National Pension (Kokumin Nenkin / Basic Pension), covers all residents aged 20 to 59. The second tier, the Employees' Pension (Kosei Nenkin), covers company employees and public servants. National Pension premiums are a flat amount (16,980 yen per month in fiscal 2024), while Employees' Pension premiums are proportional to salary and split equally between employer and employee.

With 40 years of full contributions, the National Pension pays approximately 816,000 yen per year (about 68,000 yen per month) as of fiscal 2024. Employees' Pension benefits vary by enrollment period and average salary, but for a typical company employee (average annual income of 5 million yen, 38 years of enrollment), the combined National and Employees' Pension comes to roughly 150,000 yen per month.

Pension Benefit Simulations by Income Level

Because the earnings-related component of the Employees' Pension is substantial, benefit amounts vary significantly by working-life income. With an average annual income of 3 million yen and 38 years of enrollment: about 115,000 yen per month. At 5 million yen: about 150,000 yen. At 7 million yen: about 180,000 yen. At 10 million yen: still only about 210,000 yen. Doubling your income does not double your pension.

Self-employed individuals and freelancers are enrolled only in the National Pension, so their benefits are limited to about 68,000 yen per month (at full contribution). To bridge this gap, enrolling in iDeCo (individual-type Defined Contribution pension) or the National Pension Fund is effective. With iDeCo, you can contribute up to 68,000 yen per month, and the entire amount is tax-deductible.

The "20 Million Yen Retirement Shortfall" Problem

The "20 million yen retirement shortfall" that made headlines in 2019 was based on a calculation showing that the average elderly couple household runs a monthly deficit of about 55,000 yen, totaling approximately 20 million yen over 30 years. While this figure is an average and varies greatly by individual lifestyle and health, it highlights the reality that pension alone is unlikely to cover all retirement living expenses.

Bridging this gap requires building assets during your working years. Investing 30,000 yen per month at 5% annual return for 30 years yields approximately 24.97 million yen - more than enough to cover the 20 million yen shortfall. By utilizing iDeCo and NISA, you can prepare retirement funds efficiently with tax advantages. Books explaining the pension system help you understand your expected pension benefits and how to estimate the shortfall.

How to Increase Your Pension Benefits

Deferring the start of pension benefits beyond age 65 increases the monthly amount by 0.7% for each month of deferral. Deferring to age 70 yields a 42% increase; to age 75, an 84% increase. A pension of 150,000 yen per month deferred to age 70 becomes approximately 213,000 yen per month, covering most living expenses from pension alone.

You will need to draw down assets to cover living expenses during the deferral period, but this is an effective hedge against longevity risk. The break-even point is roughly 12 years after the deferred start date - for someone deferring to 70, the strategy becomes advantageous if they live past 82. Given Japanese life expectancy (81 for men, 87 for women), the benefit of deferral is particularly significant for women. Retirement fund planning guides help you create a concrete plan for bridging the gap that pension alone cannot cover.

Next Steps - Check Your Own Pension Amount

By registering for "Nenkin Net" (the Japan Pension Service's online portal), you can check your pension enrollment history and projected future benefits. Start by understanding your current situation and calculating how much pension alone will fall short. Once you know the shortfall, the required monthly savings amount becomes clear.

Use our simulator to build an accumulation plan that bridges the gap. Combining pension with investment returns will give you a clear and reassuring retirement funding plan.