How much will ¥100,000 in 2017 be worth in 2050?!

[Dan]

There are things available in Japan such as inflation protected savings plans and inflation protected bond funds. But returns tend to be minimal on these savings plans and fees are usually very steep on these bond funds.

If you want to have an income of 200,000 month for 65 to 85, that is a period of 20 years, so 240 months. 240 x 200K = 48 million, so you would need to save up 1.6 million a year for the next 30 years, or 133K per month.

If you want to build your own financial spreadsheet to factor in returns and inflation over a 30 or 50 year period, it may be good to have a look at the YouTube video series by Lars Kroijer on doing just that: https://www.youtube.com/watch?v=1LUIQa5hgMg

[Neil]

*cough* compound interest *cough*

[Dan]

*cough* compound interest *cough*

[Jamo]

If you want to have an income of 200,000 month for 65 to 85, that is a period of 20 years, so 240 months. 240 x 200K = 48 million, so you would need to save up 1.6 million a year for the next 30 years, or 133K per month.

I think that's the calculation for 200,000/month in today's money? He wants the equivalent in 2050 money.

Assuming an inflation rate of 2% over the next 30 years, 200,000 yen in today's money will be worth 110,414 yen in 2050 money. To have 200,000 in 2050 you need 362,272 in today's money. (According to this calculator: http://www.buyupside.com/calculators/inflationjan08.htm)

So 362,272 x 240 = 86,945,280 yen. So over 30 years you would need 86,945,280/30/12 = 241,514 saved per month in today's money. This is a pretty crude calculation though. We don't know what will happen with inflation. Also, 10 years from now when you're still saving 241,514 yen each month, it will be worth more than it is today. So theoretically the amount you need to save would decrease slightly each year due to inflation.

The biggest issue with the above calculation is that it is just cash savings. And saving for your retirement in cash is going to make it pretty difficult. Retirement savings should be mostly made up of shares, which increase in value faster than inflation. Assuming an average annual return of 6% for shares and a principal investment of 0 yen, you could reach this value (86,945,280) with 1,030,000 yen invested per year (around 90,000 per month). As a rough estimate. If you pay nenkin/iDeco and have a principle investment of more than 0 yen, the money you need to put aside separately is going to decrease.

[RetireJapan]

There are a couple of really rough ways of looking at this.

If you want to live solely off dividends and not worry about selling things, the yield on world stock ETFs is about 2%. In today's yen that would mean you'd need 120 million yen. This is of course total overkill as the principal alone would fund your lifestyle for 50 years and this plan assumes that you never touch the principal.

Another way to look at it is to use the idea of a safe withdrawal rate, the amount you should be able to take out without running out of money. Safe withdrawal rates for a stock/bond diversified portfolio range from 2.5 to 4.5, which would mean you'd need 53-96 million yen, a bit more achievable.

Let's take a 4% SWR which means you need 60 million yen in today's yen.

If we assume you invest and get a return of 5% over inflation, you'll need to put away 75,000 yen a month (or 900,000 yen a year). Just to be safe, I would try to invest a bit more than that and max out an ordinary NISA (1.2m a year).

If we are pessimistic and assume you will only make 3% over inflation, the 1.2m a year should also get you pretty close to your target of 60m.

Of course, any planning will not survive contact with the real world. You may find you can save more than this (it can be addictive), you may find your investments do better than the numbers above, or worse. You may find that you will need more than 200,000 yen a month. The important thing is to make changes to the plan as necessary.

[RetireJapan]

Double post with Jamo

Fortunately we seem to have come up with similar numbers.

[Jamo]

Double post with Jamo

Fortunately we seem to have come up with similar numbers.

Nice!

In Australia the government makes your employer pay at least 10% (up to around 15% for government workers) of your wage into a separate personal account (superannuation). This is on top of your salary, and is for retirement. If you're lucky enough to get 15% you will have a pretty comfortable retirement. Superannuation funds are mostly made up of shares. I'm trying to stick to their strategy (although more is always better). As it happens, 15% of the average Australian wage works out pretty close to the numbers I posted above (around 100,000 yen a month)

[RetireJapan]

As it happens, 15% of the average Australian wage works out pretty close to the numbers I posted above (around 100,000 yen a month)

I wish I was getting an Australian salary...

[eyeswideshut]

I think it is an impossible question because no one knows the future. However, I would approach it like this.
1. Work out your yearly expenses in retirement – seems like you are guessing 2.4 million per year in today’s cash.
2. Work out what part of that would be covered by existing entitlements (gov’t or company pensions; annuities, etc.) and subtract that amount from the 2.4 million.
3. For the remainder you will need to rely on drawdowns from saved capital. If you assume a safe withdrawal rate of 3% then take that amount and multiply it by 34. Thus, if you have no entitlements you would need 81.6 million invested by the time you retire to safely cover your retirement income. If your entitlements guarantee you 1.4 million in income then you would only need 34 million invested.

With regard to inflation, the only way you can address this issue is to ensure that your investments increase in value at an equal or greater rate than inflation. Investing in a balanced and diversified portfolio would be the safest way to ensure this.