How to retire in Japan decades earlier than you think – The Japan Times

When he was 30, Yuiki Hotaka bid farewell to Japans notoriously long working hours and crowded commutes forever.

He wasnt merely quitting his job at a Mitsubishi group company he had worked for since graduating university. He was retiring after saving around 70 million ($637,000) in financial assets. Based on his calculations, that would allow him to live off stock dividends for the rest of his life and pursue his interests and hobbies: Farming, hiking and enlightening readers of his blog about the alternative lifestyle he practices known as FIRE an acronym that stands for financial independence, retire early.

To me, its more about securing time and freedom rather than money, says Hotaka, who now lives in the countryside in the Kanto region. I didnt want to spend my life tied to the corporate office.

Hotaka is among the pioneers of the nations FIRE movement a U.S.-born concept embraced mainly by millennials that involves minimizing ones expenses to maximize savings while accruing income-generating investments.

Despite the idea being around for a few decades, it has been rapidly gaining attention in Japan over the past year as a means of being liberated from the daily grind perhaps a reflection of the economic uncertainty many young professionals harbor as a result of nearly three decades of chronic deflation and low growth, a sentiment exacerbated by the ongoing COVID-19 pandemic.

More than a dozen books have been published in Japanese on the phenomenon, including one Hotaka himself has penned. Those who have fired also share their experiences in magazine articles as well as on their blogs and other social media platforms, often amassing hordes of followers interested in learning about the movement.

So how do people achieve FIRE? Proponents of the philosophy often refer to the 25x rule and 4% rule. The former helps estimate the total amount of money one needs to save for retirement, while the latter is the theoretical amount a retiree can withdraw from their portfolio in the first year of retirement and then withdraw the same amount, adjusted for inflation, for at least 30 years without running out of money. The figures are based on how multiplying 4% of something by 25 will get 100% of the original value.

In Japan, the 4% rule is often described as income generated from investments, with popular options including high-yield dividend stocks that arent as affected by short-term stock price volatility. For example, if a persons monthly living expenses came to 300,000, that would total 3.6 million annually. If one can manage to accumulate assets worth 90 million and garner a 4% annual return, they will technically be earning the equivalent of their living expenses without depleting their portfolio.

Hotaka says he invests heavily in high-yield and dividend growth U.S. stocks and managed to collect an average of around 200,000 a month after taxes from returns by the time he left his job in 2019. He says his assets have since topped 100 million, thanks to royalties from his book and income from writing gigs and advertisements on his blog. Hes enjoying a laid-back lifestyle now, helping out local farmers in his spare time for minimum wage.

I do it for the experience, not the money, he says. The rent is also cheaper out in the countryside compared to Tokyo.

Yuiki Hotaka says his assets have topped 100 million since he left his job in 2019, thanks to royalties from his book and income from writing gigs and advertisements on his blog. | COURTESY OF YUIKI HOTAKA

The personal finance strategy, however, is not for the indulgent since its based on the premise that one aggressively builds their nest egg during a relatively short period of time.

Hotaka, for example, says he saved around 80% of his income and significantly cut down on expenses while preparing for FIRE. He adopted a frugal consumption habit, avoiding buying products from convenience stores that are generally more expensive than supermarkets and carrying around a thermos instead of purchasing bottles of water.

For those who want to maintain a more typical standard of living, theres also side FIRE or barista FIRE, for example, which refers in Japan to those who take on side jobs and start small businesses to support themselves while pursuing early retirement. But whatever its called, opting out of the workforce well before retirement age seems like a radical prospect in a nation traditionally known for its lifetime employment system.

Fueling the trend may be the fear of retirement poverty as permanent jobs disappear and wage growth is limited, says Shunsuke Yamazaki, a financial planner who frequently writes about the FIRE movement in Japan.

An oft-cited 2019 panel report by the Financial Services Agency estimated that a couple who will live until 95 years old 30 years after retirement will need at least 20 million more than what their pension benefits will provide as the nation rapidly ages.

While the government effectively withdrew the report and played down this figure, I believe the incident was a wake-up call for the public, and a reminder that each individual needs to be more alert and proactive about securing adequate retirement funds, Yamazaki says.

In the meantime, a set of bills urging businesses to let employees work until 70 took effect in April as the nation seeks to expand the working population to cover rising social security costs in an era of 100-year lifespans.

Its not a very promising landscape from the perspective of young workers looking ahead, Yamazaki says. They must be asking themselves, Do I need to toil away for the rest of my life?

Advocates say that FIRE offers a chance to exit the rat race.

Last fall, Okeydon who uses a pseudonym to protect his privacy left the company he had worked at for 25 years after amassing approximately 100 million in assets.

In a book outlining his experiences, Okeydon says he left the company he had worked at for 25 years after amassing approximately 100 million in assets. | COURTESY OF OKEYDON

The 47-year-old now lives with his parents in the Kansai region, and says he earns on average around 350,000 a month: 100,000 from stock dividends, and the rest from writing assignments, his blog and the royalties from a book he published this year about FIRE, among other income streams.

In my late 30s, a retirement age system was introduced at my firm that would have cut my salary by 20% at the age of 55. In addition, regular working hours were extended, which was effectively a wage cut, he says. These things gradually affected my motivation to work, while I realized that investing in stocks would likely bring in more money than hoping for wage hikes.

Okeydon says he has been buying Japanese stocks since he was 25, and has since invested in a variety of shares, from growth and high-dividend stocks to small-cap and large-cap stocks.

He says he became aware of the FIRE movement when he was 39, and started buying foreign shares on the back of the U.S. stock markets bull run. He now invests in 17 countries and territories around the world, focusing on high-yield and dividend growth stocks in Japan and the United States.

The newfound freedom has allowed him to take care of his sick father and be more attentive to household needs, something that wasnt possible when he was a corporate employee.

I used to work my tail off when I was younger, convinced that a happy old age would be waiting for me if I made it to retirement. But despite giving it my best and being commended for my work, my salary didnt increase. Only my workload did, he says. I realized that I was harboring an illusion. Employees can no longer depend on their companies to take care of them. Perhaps thats whats driving people toward FIRE.

True, wage growth in Japan has been stagnant since the asset price bubble burst in the early 1990s. According to data from the labor ministry, inflation-adjusted real wages fell 1.2% in the whole of 2020, down for a second straight year and marking the fastest pace of decline since 2014 as the pandemic batters the economy.

The infrastructure surrounding asset management, however, has substantially improved over the past several decades, says Yamazaki, the financial planner.

The fees and other hurdles for investing in stocks, for example, were much higher when those in their 70s now were in their 40s and 50s, he says.

The government has also been promoting a shift from savings to investments, introducing private retirement products such as iDeCo, short for individual-type defined contribution pension plan, and a small-lot, tax-free investment program called the installment-type Nippon Individual Savings Account.

In a report titled Japans Asset Management Business 2020/2021, Nomura Research Institute describes how Japanese households have traditionally been wary of shifting their assets out of saving deposits to investment trusts or other investment products.

But that habit is changing, with more and more people starting to invest in risk markets in regular installments, it says. With securities investments public image improving households professionally managed assets will definitely grow over the long term.

The FIRE movement is a U.S.-born concept embraced mainly by millennials that involves minimizing ones expenses to maximize savings while accruing income-generating investments. | GETTY IMAGES

Still, the FIRE movement may not be for everyone. Intense frugality is called for to save at the rate necessary to retire early. Achieving financial independence will also require an income large enough to cover regular expenses while saving, and theres always the possibility of unexpected setbacks health issues, job changes and so on derailing plans.

I understand the appeal of being free from work and financial worries, but doubt that its a lifestyle many can adopt, says Yuki Honda, a professor at the University of Tokyo and an expert on the youth labor market.

Wages arent rising and many younger workers are struggling to make a living. A fair amount of knowledge on financial markets is also imperative for the practice to yield results, she says. Is FIRE the right answer for those dreaming of escaping the vicious cycle of work life? I dont know.

Theres also the fear of a looming stock market crash. Hotaka says his portfolio took a hit when the stock market tumbled last year due to pandemic-induced panic selling, but has recouped his losses by investing primarily in U.S. stocks during the downturn. He has since cashed out a chunk of his assets.

At one point, around 90% of my assets were investments, but Ive cut down on that ratio to prepare myself for the unexpected, he says. And even if my assets became valueless, I think I can live with it. Ive learned a lot by adhering to this lifestyle. Im sure Ill be able to make a living somehow.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.By subscribing, you can help us get the story right.

PHOTO GALLERY (CLICK TO ENLARGE)

See the original post:

How to retire in Japan decades earlier than you think - The Japan Times