You often hear that “iDeCo is the way to build retirement savings,” but it’s actually not a system suited for everyone.
Starting it without considering immediate cash flow or life events can pose significant risks.
This article clearly explains the disadvantages and points to note about iDeCo, without sugarcoating anything.
- 1. Funds cannot be withdrawn until age 60 (the biggest drawback)
- 2. Fees apply (may incur losses even if left untouched)
- 3. For those without tax savings benefits, it’s “just a restriction”
- 4. Risk of Principal Loss
- 5. Taxes may apply upon withdrawal
- People Suited for iDeCo and Those Who Aren’t
- Summary: Starting iDeCo with “surplus funds” is the right approach
1. Funds cannot be withdrawn until age 60 (the biggest drawback)
Since iDeCo is designed for “building retirement savings,” you cannot withdraw any funds midway, unlike a regular savings account.
Even if you need cash for marriage, childbirth, home purchase, sudden illness, or unemployment, you cannot access your iDeCo assets.
The golden rule is to start only with surplus funds after securing emergency savings (equivalent to 3-6 months of living expenses).
2. Fees apply (may incur losses even if left untouched)
iDeCo incurs monthly fees not only upon enrollment but also throughout the investment period.
- Initial Fee
¥2,829 (tax included) upon enrollment - Management Cost
Minimum ¥171 monthly (¥2,052 annually or more) - Risk
If your savings amount is too small or the investment return rate is low, fees may exceed returns, potentially causing your assets to decrease.
3. For those without tax savings benefits, it’s “just a restriction”
The biggest advantage of iDeCo is the “full income tax deduction on contributions.”
However, the following individuals cannot receive this benefit:
- Full-time homemakers
Since they do not pay income tax or resident tax in the first place, they cannot utilize income deductions. - Individuals whose income tax is zero due to mortgage interest deductions
If they have already exhausted their deductions, the tax savings effect from iDeCo becomes limited.
4. Risk of Principal Loss
With iDeCo, you select your own investment products (such as mutual funds).
If investment performance is poor, there is a risk that the assets received at withdrawal may fall below the original principal invested, resulting in a “principal loss.”
While you can choose “principal-protected” options like fixed-term deposits, the aforementioned fees often result in a net loss.
5. Taxes may apply upon withdrawal
This is known as the “exit strategy” issue.
Contributions are tax-free, but withdrawals are taxable.
While you can utilize deductions like the public pension deduction or retirement income deduction, individuals with substantial company retirement benefits may face higher taxes due to combined income.
It is crucial to perform withdrawal simulations beforehand.
People Suited for iDeCo and Those Who Aren’t
| Features | Suitable for | Not suitable for |
| Income | Has a stable income and pays income tax | No income or very low income |
| savings | I already have enough savings to cover my immediate living expenses. | With little savings, I feel anxious about unexpected expenses. |
| Age | 30s to 50s (can extend the tax-saving period) | Your 20s (a time when cash is needed for marriage and home purchases) |
Summary: Starting iDeCo with “surplus funds” is the right approach
Starting iDeCo without understanding its drawbacks will leave you suffering from “locked-in funds” until age 60.
The smart strategy is to first consider systems like NISA that allow withdrawals anytime, then combine iDeCo only if you want to pursue further tax savings.
Check!
Start by entering your annual income and contribution amount to run a “simulation” of how much your annual taxes will decrease.
