Ok, it seems like most people are in the camps of drawing the pension at 65 or deferring till later.
The table in the
diamond article comparing different scenarios didn't take into account taxation or potential opportunity costs, so I decided to run some calcs to gain some insights. I did just one scenario: a ¥2 million pension at 65 (from kokumin+kousei). This rises to ¥2.84 million if deferred to 70, or ¥3.68 million from 75. Net of tax (national, residential, healthcare, nursing etc., estimated using
these sites) the incomes are ~ ¥1.85m, ¥2.5m & ¥3.17m per year respectively.
I considered the case of drawing from 65, then saving or investing the annuities in a nest egg until you reach 75 (or 70). From then, you start using the annuity and drawing down the nest egg to give a monthly income equal to the 75- (70-) level annuity. The simulations show how far you would get before the nest egg is depleted, from which point the deferral option will start paying off.
First up - 65 vs 75:
By just saving the annuity as cash until reaching 75 means you will be better off until you hit 89. With cautious investing of the nest egg (e.g. 1% return bonds or deposits), the pay off age moves to 90.5. With these payback ages, it is almost impossible to end up spending decades in retirement with the downside of a smaller pension, as you are unlikely to have decades left.
Using a moderate investment strategy (4% return, e.g. 50/50 split stocks & bonds), the payback age is 99 on average. Note I would not necessarily recommend this strategy. Nothing is not guaranteed and market fluctuations are a real risk. It is just there for fun
Next - 65 vs 70:
The argument for deferring to 70 appears more sound in comparison. It means foregoing only 5 years of payments, and the payback for deferring is from ~85 for cash or low risk (1% return) investments. This age is comparable to the expected lifespan at 65 of Japanese men (85), so the change of living years longer than the payback age is much higher. For 65 yo women the expected lifespan is 90.
The payback age with the gung-ho invest your pension option is ~92 (4% return, green line).
So, why did I post this? The point is the downside of living decades longer than expected with only a small pension to live on is not the only risk in play. Living costs in retirement may spike upwards in our final years due to medical or care facility costs. See the discussion in this
thread. Taking the pension at 65 then putting it aside until you need it creates an additional large nest egg (millions of yen, as shown by the graphs) that may help sustain these costs through the years when we are statistically most likely to need it.
