Summary
Retirement bankruptcy is a term used to describe a situation in which a person's pension and savings alone cannot cover their living expenses after retirement, and the household finances are no longer viable.
The important thing is not to decide that you will definitely need 20 million yen in retirement. The amount you need will vary greatly depending on your expected pension amount, living expenses, housing expenses, medical and nursing care expenses, work style, and family structure.
The first step to avoiding bankruptcy in old age is not to be afraid of the future, but to quantify your expected pension amount and living expenses. In this article, we will discuss the 20 million yen problem in retirement, the risk of being single, the characteristics of people who can live on pensions alone, and a roadmap by age group.
What is retirement bankruptcy?
Retirement bankruptcy is a situation in which your expenses become larger than your income in retirement, making it difficult to maintain your lifestyle even if you withdraw your savings.
This term does not only refer to legal bankruptcy procedures.
In the context of investments and household finances, the following conditions are often collectively referred to as old-age bankruptcy risk.
- Pension alone is not enough to cover monthly living expenses
- The pace of withdrawal of savings is faster than expected
- Household finances suddenly deteriorate due to medical and nursing care costs
- Mortgage and rent burdens remain heavy even after retirement
- Funds will decrease due to support for children and relatives
- Losing assets due to poor judgment or fraud
Bankruptcy in old age doesn't just happen one day, it happens when monthly deficits accumulate.
Therefore, if you can visualize how much you are likely to be short of each month at an early stage, it will be easier to take countermeasures.
The essence of the 20 million yen problem in retirement
When talking about retirement funds, the "20 million yen retirement problem" often comes up.
This became widely discussed in 2019 when the Financial Services Agency's Financial System Council Market Working Group published its report, "Asset Formation and Management in an Aging Society." (Financial Services Agency)
However, it is important to note that this does not mean that everyone needs a uniform amount of 20 million yen.
The amount you need for retirement will vary depending on the following conditions:
| Conditions | Impact on required amount |
|---|---|
| Pension amount | There is a difference depending on whether you have an employee pension or a national pension. |
| Housing | Depends on whether you own a home, rent, or have a mortgage |
| Living expenses | There are differences in food expenses, communication expenses, cars, hobbies, and entertainment expenses |
| Health status | Affects medical expenses, nursing care costs, and length of time you can work |
| Family structure | Risk changes depending on whether you are a married couple, single, or have children |
| How to work | The amount of shortfall changes depending on whether you can earn income even after retirement |
In other words, what you should be looking at is not "Do you have 20 million yen?"
What you should look at is the following formula:
Retirement shortfall = Retirement spending - Retirement incomeIf this shortfall is 30,000 yen per month, it will be approximately 10.8 million yen over 30 years.
If you pay 80,000 yen every month, it will be about 28,800,000 yen in 30 years.
Even for the same retirement age, the amount of preparation required varies greatly depending on the shape of the household budget.
Example Scenarios: How Retirement Bankruptcy Can Develop
The following hypothetical cases show how retirement bankruptcy risk can build up gradually.
Case 1: A couple who relied too much on retirement benefits
Mr. and Mrs. A retired at the age of 65.
At retirement, they had 15 million yen in savings and expected pension income, so they did not feel much anxiety at first.
However, their spending stayed close to the level they had during their working years.
- Owned two cars
- Communication costs and insurance premiums are high
- Eating out and travel did not decrease quickly
- Home repair costs occurred
- Continued financial support for adult children
The monthly deficit was about 50,000 yen.
This may not seem like a lot, but it is 600,000 yen per year.
If it continues for 10 years, it will be 6 million yen.
If medical or nursing care costs are added on top of that, savings can shrink even faster.
The problem in this case is not simply the amount saved at retirement. It is that spending was not adjusted to fit retirement income.
Case 2: Single person living in rent
Mr. B is single and spent money freely during his working years.
Because he continues living in a rental home after retirement, monthly rent remains a fixed expense.
Although he receives pension income, little is left after paying rent, food, utilities, communication bills, and medical costs.
If his health worsens and he cannot work, his options for increasing income become limited.
For a single person, there is no spouse's pension or income to rely on. At the same time, housing and basic living costs do not fall to zero just because the household has one person.
The problem in this case is not singleness itself.
The problem was that housing costs, emergency contacts, and a medical or nursing care support system had not been planned early enough.
How Retirement Bankruptcy Progresses
The most serious risk of retirement bankruptcy is that life options gradually narrow.
Typically, households experience financial hardship in the following order:
| Stage | What Happens |
|---|---|
| 1 | Withdraw from savings every month |
| 2 | Reduce hobbies, travel, and entertainment expenses |
| 3 | Postpone medical expenses and home repairs |
| 4 | Rely on children and relatives |
| 5 | Rely on borrowing or revolving payments |
| 6 | Consider relocation, public assistance, or debt restructuring |
Of course, there is no shame in using public assistance or counseling services.
If the situation becomes serious, it is important to consult local government offices, a social welfare council, legal aid services, or a pension office as soon as possible.
However, for investors and people still in their working years, the goal should be to prepare before the situation becomes urgent.
Before trouble appears, review fixed costs, expected pension income, savings, and work style.
Characteristics of People Who Can Live Mainly on Pension Income
Whether you can live mainly on pension income is not determined only by the pension amount.
Low expenses and preparation for unexpected costs are just as important.
People who are more likely to manage on pension income tend to have the following characteristics:
| Feature | Why It Helps |
|---|---|
| Mortgage is already paid off | Fixed costs are easier to keep low in retirement |
| Rent is low or housing costs are predictable | The monthly shortfall can be kept smaller |
| Car, insurance, and other fixed costs are not heavy | Expenses are easier to adjust |
| Medical and nursing care costs are planned for | Sudden expenses are easier to absorb |
| Estimated pension amount is known | The shortfall can be calculated early |
| There is an option to keep working for a while | Asset withdrawals can be delayed |
On the other hand, even if you have a decent pension amount, your household finances will be strained if you have heavy mortgages, rent, cars, insurance, communication costs, and debt repayments.
Managing your retirement funds is not just about increasing your assets.
Reducing fixed costs is also a powerful retirement strategy.
Retirement Bankruptcy Risk for Single People
Single people may have more freedom in retirement, but the following risks are often overlooked.
- Income may be concentrated in one person's pension
- Daily support may be harder to secure when sick or injured
- Rent, utilities, and other fixed costs must be paid alone
- Asset management becomes difficult when judgment is impaired
- A guarantor may be required for hospitalization or nursing care facilities
For single people, it is important to prepare reliable support systems in addition to financial assets.
Specifically, the following preparations will be helpful:
| Preparation | What to Organize |
|---|---|
| Organize emergency contacts | Make a list of relatives, friends, professionals, and local government contact points |
| Housing plan | Consider owning, renting, relocating, or moving into a facility |
| Medical and nursing care wishes | Record your wishes for life-sustaining treatment, nursing care, and hospitalization |
| Asset management | List accounts, insurance, securities, and debt |
| Monitoring services | Check regional comprehensive support centers and private services |
For single-person retirement planning, both money and human support networks matter.
Roadmap by age group
The priorities for preventing retirement bankruptcy change by age.
20s/30s
At this age, the goal is not to build a perfect retirement fund immediately.
It is about creating a foundation for household finances.
| What to do | Purpose |
|---|---|
| Build an emergency fund | Avoid selling investments because of unemployment or illness |
| Avoid taking on too much debt | Keep future fixed costs from becoming heavy |
| Start small regular investments or savings | Let time work in your favor |
| Understand the pension system | Know your future income sources |
The first priority is to create a monthly surplus.
40s
Your 40s are the time to turn retirement planning into realistic numbers.
| What to do | Purpose |
|---|---|
| Check estimated pension income | Know the baseline for retirement income |
| Check your mortgage balance | Understand fixed costs that may remain after retirement |
| Separate education costs and retirement funds | Avoid using too much retirement money for child-related expenses |
| Review insurance | Reduce unnecessary fixed costs |
The key in your 40s is to move from "I feel vaguely worried" to "How much will I need each month?"
50s
Your 50s are the time to make retirement finances concrete.
| What to do | Purpose |
|---|---|
| Decide how to use retirement benefits | Avoid losing a lump sum too quickly |
| Estimate living expenses after retirement | Adjust spending to retirement income |
| Consider how long to keep working | Fill the gap before pension benefits begin |
| Reduce investment risk | Avoid losing living capital in a large market decline |
The most dangerous pattern in your 50s is rushing into large risks.
Trying to cover a shortfall with financial products you do not understand can actually increase retirement bankruptcy risk.
Over 60s
From your 60s onward, making assets last is usually more important than trying to increase them aggressively.
| What to do | Purpose |
|---|---|
| Consider when to start receiving pension benefits | Balance income and work style |
| Create withdrawal rules | Prevent overspending |
| Review housing | Adjust rent, repair costs, and relocation burden |
| Prevent fraud | Protect assets |
| Find someone to consult | Avoid making decisions alone |
In retirement household finances, controlling spending can be more effective than increasing income.
Three Actions to Take Today
The first actions for preventing retirement bankruptcy are simple.
1. Check your estimated pension amount
First, check your estimated pension amount.
The Ministry of Health, Labour and Welfare's public pension simulator lets you estimate your pension based on your work style and the age at which you begin receiving benefits. (Ministry of Health, Labour and Welfare)
The public pension simulator is a simple estimate. For a more precise estimate, check your "Nenkin Teikibin" pension notice or "Nenkin Net."
2. Estimate your retirement living expenses
Next, estimate your likely living expenses in retirement.
According to the 2024 Family Income and Expenditure Survey by the Statistics Bureau of Japan, an unemployed household consisting of a married couple aged 65 or older had average monthly actual income of 252,818 yen, consumption expenditure of 256,521 yen, and non-consumption expenditure of 30,356 yen, resulting in a shortfall of 34,058 yen. For a single unemployed household aged 65 or older, actual income was 134,116 yen, consumption expenditure was 149,286 yen, non-consumption expenditure was 12,647 yen, and the shortfall was 27,817 yen. (Statistics Bureau of Japan)
However, this is an average.
Your household budget will vary greatly depending on housing costs, car costs, insurance costs, medical costs, nursing care costs, and entertainment costs.
3. Reduce the deficit amount
Finally, work on reducing the shortfall.
There are three methods.
| Method | Specific example |
|---|---|
| Increase income | Consider working longer, side jobs, and pension claiming age |
| Reduce expenses | Review housing costs, insurance, communication costs, cars, and subscriptions |
| Grow your assets | Use NISA, iDeCo, savings, and diversified investments |
The basic rule is to first review your fixed costs and then use the surplus funds to build long-term assets.
Relatedly, retirement funding systems are easier to understand together with iDeCo basics and how to build assets while reducing taxes.
Checklist
The more of the following items apply to you, the higher your risk of bankruptcy after retirement.
□ You do not know your estimated pension amount
□ You do not know your monthly living expenses
□ Mortgage payments or rent will remain heavy after retirement
□ Fixed costs such as car, insurance, and communication fees are high
□ You have not decided how to use your retirement allowance
□ You have no reserve for medical or nursing care costs
□ You are single and have not organized emergency contacts or advisers
□ You are trying to make a comeback through investment
□ You find it hard to refuse financial support for children or relatives
□ You are not confident you can spot fraud or high-yield product risksIf three or more apply to you, start by visualizing your household budget and pension.
Summary
- Retirement bankruptcy occurs when insufficient income and excessive spending continue for a long period.
- The 20 million yen retirement problem does not mean that everyone needs the same amount.
- Whether you can live on pension income alone depends heavily on fixed costs, not only on the pension amount.
- For single people, it is important to prepare not only money but also housing, medical care, and support systems.
- In your 20s and 30s, household foundations matter; in your 40s, putting numbers on the plan matters; in your 50s, retirement design matters; and from your 60s onward, withdrawal management matters.
Your first action should not be to look for difficult investment products.
List your estimated pension amount and monthly living expenses.
Once you can see the shortfall, you can consider reviewing fixed costs, work style, and systems such as NISA and iDeCo.
This article is an explanation for educational purposes and is not intended to recommend specific products or provide individual financial advice. Please check the latest official information as program details and statistics are subject to change.
Sources
- Financial Services Agency, "Publication of the Financial System Council Market Working Group Report"
- Ministry of Health, Labour and Welfare, "Public Pension Simulator"
- Statistics Bureau of Japan, "Annual Report on the Family Income and Expenditure Survey 2024: Summary of Household Accounts"