When the best financial advice is free: An interview with RetireJapan’s Ben Tanaka

Ben Tanaka is an English teacher based in Sendai. He’s been working in Japan since July 2000, and running the personal finance website RetireJapan since 2013. He kindly answered questions about personal finance from Patrick Sherriff who began the interrogation by asking what exactly RetireJapan was, oh, and who sent him…

BEN TANAKA: Well, the short answer is that RetireJapan is a website and online community to help people living in Japan learn more about personal finance. I believe it is the only site writing about personal finance in Japan in English.

The longer answer requires a bit of backstory. My interest in personal finance started quite late, in my 30s, and arose due to three key events. I received an inheritance and wasted a lot of it due to poor money management skills. I lost my job at short notice and had to scramble to keep my family afloat. And we experienced the 3/11 earthquake here in Sendai, which led to us leaving everything behind and evacuating to Kanazawa.

I learned (eventually, I’m a slow learner) that I needed to understand money better, that I needed to be more financially resilient, and that having savings and investments makes life easier. The website for RetireJapan was born in December 2013, after a conversation with a friend of mine. I learned he had trusted his retirement money to an ‘advisor’ in Tokyo who was taking a lot of it in fees. After hearing the details, I was so angry that I went home and registered the domain, put the website together, and published the first blog post that very day.

Since then we have published almost 500 blog posts, two ebooks, started a successful forum and made a community on Facebook.

The site is free, features no advertising, and at this point doesn’t make any money. We published our ebooks last year and started a coaching service this year, so the site almost breaks even now. It’s basically a combination of hobby and public service for me. I have a lot of fun running the site, and it feels amazing when people email me to say they started getting their finances sorted out after finding RetireJapan.

PATRICK SHERRIFF: Wow. I’m assuming you are back on your financial feet now. How did you go about figuring out what to do, and how should a newbie to the idea of retiring in Japan go about getting serious about preparing for retirement?

Actually I just finished writing a short ebook on this very topic! People can get it for free by signing up for the RetireJapan mailing list on the site.

What I did to learn about money was read a lot, start trying things, make a lot of mistakes, and keep at it. Personal finance is actually very simple, it just seems complicated because a lot of people have a financial incentive to make it look harder than it is so they can take your money.

Basically you want to: earn as much as possible, spend as little as you can without reducing your quality of life, and save/invest the difference. That’s it. Do it every month from now until you retire and you’ll be in a better place than 90% of the population. Of course there are details like which investments to choose, or what accounts to open. But these are also pretty straightforward.

The best way for many people is to automate the whole thing. Set it up so your savings and investments are taken out of your account the day you get paid, so you don’t have to think about them. Start small and increase the amounts over time. It works like the frog in the boiling water, except that instead of getting cooked you end up comfortably well-off instead.

I really believe anyone can improve their financial situation with a bit of knowledge and a bit of discipline. And that will make a huge difference when they get older and start thinking about how they are going to pay the bills when they stop working or work dries up. I meet a number of people who say things like “I’ll never be able to retire so I’ll just keep working ’till I drop”, but this assumes that they will be able and willing to. Why not give yourself the choice instead?

Yes, I’ve been guilty of saying such things, but as you say, you never know when things take a turn for the worse and you could do with having a plan B at the ready, which requires cash. Are there any specific pitfalls that we face as foreigners in Japan, and equally any specific advantages we face because of that status?

That is a great question, and one that I haven’t really considered in that way before.

Japan’s actually quite good with regards to investing for foreign residents. I haven’t come up against any rules that bar us from specific investments. It also makes things very easy from a tax-reporting perspective, as you can set your accounts up so you don’t really have to do any paperwork. There are a number of tax-advantaged accounts you can use to reduce your taxes too.

I guess the main barrier is going to be the language. I am not aware of any options to invest in Japan in English, and the sign up process in particular can be very confusing. For most investments, once you know the 2-3 buttons you need to click it becomes very easy after that (or you can set things up so your investments are automated and just happen every month without you touching them).

US citizens have a lot of problems, but they are all caused by the IRS tax reporting requirements. Basically, US citizens can’t really invest in Japan and should do so using existing accounts in the US or open a new one with Interactive Brokers.

Sadly, I don’t know of any advantages foreign residents have other than maybe not having to declare foreign income you don’t bring to Japan for the first five years.

That’s surprisingly refreshing to hear. I thought I had to be investing in Iceland or some tax-efficient thing I have no idea about to take advantage of living away from the UK. Do you see a mistake that people constantly make? Or to put a positive spin on it, is there something most of us could do today to push our finances in the right direction that people frequently forget or are ignorant of?

We’re back at the ‘seems difficult and complicated, but really isn’t’ theme again 🙂

The biggest thing most people could do is to get started. Take the first step. In order, that would probably be: (1) get a good idea of your current financial situation, (2) pay down debt, (3) save up some cash for emergencies, (4) start investing. Each of these is fairly simple, but I’m always surprised at how many people are not doing them.

If you have already done all four, you are well ahead of most people, and just need to review your plan from time to time and hopefully slowly increase the amount you are saving and investing over time.

Of course, this can be pretty intimidating to someone who is starting out, so I recommend coming to the RetireJapan forum and asking questions there. It’s a very supportive crowd, and some of our members know a lot more than I do. If you need a bit more help and are willing to pay a fee you could also book a coaching session through the site.

The biggest mistake I see, on the other hand, is to trust someone who has a financial incentive to give you bad advice. This could be an expat ‘financial advisor’ who will do their best to sell you some “tax-efficient” scheme in the Isle of Man, or it could be someone from your local bank who recommends you get life insurance with a big investment component on the side. Both of these tend to be suboptimal for most people. If you’re not sure about something, drop by the forum and ask -people will soon let you know if you’re contemplating a lemon!

I’m beginning to detect a theme. I know what you mean about financial advisors. Had one that seemed legit but I didn’t like the way he wanted me to cash in all my and my wife’s private assets in the UK (such as they are) and invest them with his help in … the Isle of Man.  Is there ever an occasion when it’s a good idea to trust a financial advisor? And a related question, if RetireJapan is charging for coaching sessions, isn’t there a danger of becoming what you were born to oppose?

That is a wonderful question. Basically this boils down to incentives, and possible conflicts of interest. There are two possible dangers when seeking out financial advice: that the person giving you the advice (1) doesn’t know what they are talking about, and/or (2) has a reason to give you bad advice.

If the advisor you are talking to works for a bank, then you can assume they will recommend products that are profitable for the bank, and perhaps not so profitable for you. If they are a ‘no-fee’ advisor then you can assume that they will be paid a commission by the company whose products they persuade you to buy. These commissions can be substantial. The offshore, ‘tax-efficient’ plans touted by expat ‘advisors’ can pay out up to $10,000 as a commission to the salesperson. Naturally this comes straight out of your investment, which is the main reason the redemption penalties are so stiff on this kind of product.

A couple of years ago someone commented on the RetireJapan site that “strangely it might turn out that the best place to get financial advice in Japan is from a bunch of strangers on the internet”. And in a way this makes sense. Strangers on the internet don’t have any incentive to sell you specific products, and the wisdom of crowds means that you can usually get more accurate results from a number of people than from a single person. That is why I always advise people to come and ask a question in the forum before signing a contract for a financial product.

As for the RetireJapan coaching, we’re not financial advisors so don’t recommend specific products or investments. Instead what we do is provide information and options, and give feedback. Specifically, clients tend to ask us to: take a look at their financial situation and provide comments/advice, help them open an account with a broker (going through the website together with screen sharing), help them decide on an investment strategy and start buying products, or talk about a specific approach and possible pros and cons. We don’t get any commissions and have no financial interest in any of the transactions. Clients pay for our time and attention.

At the end of the day though I strongly recommend people take the time to read a couple of books about personal finance. That should be enough to get a rough idea so you know what you want and can tell when someone is trying to pull a fast one on you. You can find lists of suggested reading (books, blogs, etc.) on the RetireJapan site 🙂

Does it put a spanner in the works if you don’t have a clue where you’ll retire to (eg Japan or your home country, or a third country for that matter)?

Generally speaking, wherever you end up living you’ll be better off with good financial habits and a decent amount of savings and investments.

If you end up leaving Japan you will need to close all your accounts, so if this is likely to happen you may wish to invest with Interactive Brokers or a broker in your home country/the country you will be moving to.

The Japanese national pension can be received anywhere in the world, so as long as you have 120 months paid you should be able to claim your pension when you reach pensionable age.

The only account that may cause friction is iDeCo. You cannot access your money in an iDeCo account until you are at least 60 years old. If you leave the country before then you will not longer be able to pay into the account (but will be able to manage the account and change your investments, etc.). Once you reach 60 you will be able to have the funds sent to a bank in another country.

Regardless of whether you plan to stay in Japan or leave eventually, I think it really makes sense to start thinking about the future and taking steps to make it a more comfortable one for you and your family.

Tell me more about your ebooks:  Where can folk get their virtual hands on them, and do you have any grander publishing goals?

Right now we have two RetireJapan Guides (more are planned for the future). These are PDFs written in English about some aspect of personal finance in Japan. We wrote them because there were no existing resources in English on these topics. The first two guides are to NISA accounts and iDeCo accounts and are available now through the RetireJapan website. If you can read Japanese there are also links on the site to recommended books on the subject. The next guide will probably be a guide to mortgages in Japan.

Where can we go to find out more about you and RetireJapan?

The best place to find out about RetireJapan is the website: www.retirejapan.com. I particularly recommend the forum if you have any questions. We have a blog that posts twice a week, and an email list that goes out every Monday.

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Patrick Sherriff publishes a monthly newsletter highlighting good fiction published in English about Japan. He lives in Abiko with his wife and two daughters.