[Is It a Bad Idea to Start Receiving Your Pension at Age 65?] An Explanation of the Most Advantageous Age to Start Receiving Benefits and the “Deferral for One Spouse” Option

Although the standard age for beginning to receive pension benefits is 65, recent amendments to the law now allow you to freely choose when to start receiving them between the ages of 60 and 75.

However, many people struggle with questions like, “Is it better to start receiving benefits sooner?” or “Should I delay receiving them to build up a larger amount?”
In fact, the optimal decision regarding when to start receiving benefits varies greatly depending on an individual’s income, tax situation, health, and marital status.

In this article, we’ll outline the pros and cons of “early retirement” and “deferred retirement” for pensions. We’ll also explain a “trick” called “deferring for only one spouse”—which increases your benefit amount while maximizing tax savings—as well as the optimal strategies for married couples.

How Does “Early” or “Delayed” Retirement Affect Pension Benefits?

The amount of your monthly pension payment will vary depending on when you choose to start receiving it.

Early Retirement (Starting Benefits Between Ages 60 and 64)

This is a way to receive benefits earlier than the standard age of 65.

• The rate
  of change is reduced by 0.4% for each month the adjustment is brought forward (*Revised rate effective April 2022 and thereafter)
• Maximum reduction rate: 24% if retirement is moved up by 5 years before age
  60
• Features
  : While the benefit amount will remain reduced for the rest of your life, this option allows you to receive cash sooner, making it suitable for those who want to retire early or start investing their assets sooner.

Deferred Benefits (Benefits Begin Between Ages 66 and 75)

This is a way to start receiving benefits later than the standard age of 65.

• The rate increases by 0.7% for each
  month the adjustment is delayed
• Maximum Increase Rate: An 84% Increase if Retirement Is Delayed by 10 Years Until Age
  75
• Because
  the benefit amount increases significantly over the course of your lifetime, the longer you live, the more you stand to gain.

[Simulation] For someone receiving 2 million yen per year (approximately 166,000 yen per month) at age 65

• Benefits begin at age 60: 1.52 million yen per year (a 24% decrease)
• Benefits begin at age 65: 2 million yen per year (standard)
• Benefits begin at age 75: 3.68 million yen per year (an 84% increase)

As you can see, the total annual benefit amount varies significantly depending on when you start receiving benefits.

What You Need to Know About the “Public Pension, etc. Deduction” and Tax Pitfalls

It’s easy to think, “If my benefit amount increases, it’s definitely better to defer until age 75,” but there’s a pitfall here related to “taxes (income tax and resident tax).”

What Is the Pension Deduction (Public Pension, etc., Deduction)?

The public pension system offers a “public pension deduction” designed to reduce the tax burden.
For individuals aged 65 or older, pension income of up to 1.1 million yen per year is tax-exempt (*provided there is no other miscellaneous income, etc.).

If you defer too much, you’ll end up forfeiting your “deduction limit.”

If you completely defer your pension for the 10-year period from age 65 to 75 without receiving a single yen, you will forfeit the tax-exempt deduction limit of “1.1 million yen × 10 years = 11 million yen” that you would otherwise have been able to use.

Furthermore, once you begin receiving the significantly increased amount—an 84% increase starting at age 75—your income for that year will skyrocket, creating the risk that you’ll be subject to higher tax rates or face higher National Health Insurance and Long-Term Care Insurance premiums.
Even though the face value of your benefits increases, there are cases where your take-home pay percentage (take-home rate) actually decreases.

What Is the “Defer Only One” Trick to Avoid Losses?

Japan’s public pension system has a two-tier structure as follows.

1. Basic Old-Age Pension (National Pension): All individuals aged 20 or older but under 60 are required to enroll.
2. Old-Age Employees' Pension: Covering Company Employees and Civil Servants

Many people assume that “the Basic Pension and the Employees’ Pension are supposed to start at the same time,” but under the system, it is possible to begin receiving them at different times.

The Benefits of “Receiving the Employees’ Pension at Age 65 and Deferring the Basic Pension”

For example, what would happen if you started receiving only the “Old-Age Employees’ Pension” when you turn 65 and deferred the “Old-Age Basic Pension” until you are between 70 and 75 years old?

• Make the most of the “Public Pension Deduction”—which allows for an
  annual deduction of 1.1 million yen for recipients of the Employees’ Pension—to receive cash while taking full advantage of the tax-exempt limit.
• By deferring the start
  date of your Basic Pension, you can reliably increase your future benefit amount by up to 84%.

By implementing this “deferral of only one portion,” you can adopt a rational investment strategy that allows you to avoid tax losses while also preparing for future inflation and longevity risks.

Pension Strategies for Couples! “Supplementary Pensions” and “Longevity Risk”

To maximize pension benefits for the household as a whole, a strategy tailored to the specific circumstances of both spouses is necessary.

It’s often a good idea for my wife to “defer” her pension

From the perspective of life expectancy, wives generally tend to live longer than their husbands.
Therefore, deferring a wife’s pension (particularly the Basic Pension) to increase her lifetime benefits serves as a strong form of “reverse insurance” (a measure against longevity risk) to safeguard her living expenses after her husband passes away.

Benefits of My Husband Receiving the Employees’ Pension at Age 65 (Supplementary Pension)

If a husband who has been enrolled in the Employees’ Pension Insurance for 20 years or more begins receiving his pension at age 65 and has a younger wife, there is a system in place whereby a “supplementary pension” (similar to a family allowance under the pension system) is added to his benefits (*certain requirements apply).

If my husband defers his Employees’ Pension, we will no longer be eligible to receive the supplementary pension during that period.
Therefore, to maximize the total pension benefits for our household, the following combination is a strong option.

• Husband: Began receiving the Employees' Pension at age 65 (secured the full supplementary pension)
• Wife: Deferring the basic pension until age 70–75 (to increase the benefit amount and prepare for longevity risk)

[By Type] The Best Benefit Claim Strategy for You

There is no “single right answer that applies to everyone” when it comes to receiving pension benefits.
It is important to make a choice based on your own health, financial situation, and work arrangements.

① People who want to retire early or manage their own investments

• Recommended Strategy: Early Retirement (Ages 60–64)
• Reason: Although the amount is reduced, you receive the funds sooner, making this option suitable for those who want to enjoy their hobbies while they’re young or who wish to start investing early through programs like the New NISA.

② People who continue to work after age 65 and have a high income

• Recommended Strategy: Defer only one of them (Employee Pension at age 65 and up / Basic Pension at ages 70–75)
• Reason: Your tax rate increases when your salary income and pension income are combined. By receiving only the Employees' Pension and taking advantage of the 1.1 million yen deduction, while simultaneously building up your Basic Pension, you can manage your tax burden.

③ People who are confident in their health and want to prepare for the risk of living a long life

• Recommended Strategy: Defer Both (Ages 70–75)
• Reason: Since you can maximize your benefit amount (up to an 84% increase), you’ll receive the highest total benefit amount if you live to be 80 or older.

④ Couples who want to efficiently increase their household income

• Recommended Strategy: Husband starts receiving benefits at age 65 / Wife defers receiving benefits
• Reason: This allows you to ensure you receive your husband’s supplementary pension in full while also increasing the base amount of the wife’s pension, given her higher likelihood of living longer.

Summary: Understand the system and make the choice that’s right for you

Let’s review the key points regarding pension benefits.

• You can choose when to start receiving your pension anywhere between the ages of 60 and 75.
• If you focus solely on the increase resulting from deferral, you may lose out on tax benefits because you cannot claim the pension deduction (1.1 million yen).
• The "one-sided deferral" approach—where you start receiving the Employees' Pension at age 65 and defer the Basic Pension—is highly rational in terms of balancing tax savings with increased benefits.
• For married couples, develop individual strategies that take into account “spousal pension benefits” and “the wife’s longevity risk.”

The public pension system may be revised in the future. Consider your current salary, assets, and anticipated life plans to determine the optimal time to begin receiving benefits for you and your family.