Japanese people are living longer, but with a struggling pension system and the highest inflation in decades, more are delaying retirement until their 70s or later to make ends meet.

Michie Hino is one of them. She works at an elderly care home east of Tokyo, where she spends eight hours a day cleaning the facility and washing laundry even though she’s 77 years old herself. She’s part of the workforce supporting Japan’s growing ranks of aged and infirm.

Her monthly pension is just ¥40,000 ($272), far from enough to cover her expenses. She earns ¥160,000 from her work to help pay for basic needs and enable her to save a little.

Japan has some of the longest lifespans in the world, with men living an average of 81 years and women 87 years. This longevity strains the nation’s pension system, making it a case study for other developed countries with similar demographic trends.

The issue will likely be a central theme in the presidential election of Japan’s ruling party this month, with candidates looking to address how rising living costs affect voters, especially the elderly. The election will determine who replaces Prime Minister Fumio Kishida, who is stepping down due in part to declining support over persistent inflation concerns.

“There’s a tendency for the government to prioritize issues for the youth, such as the declining birthrate,” said Nobuhiro Maeda, a senior analyst at NLI Research Institute. “But issues for the elderly remain extremely important.”

Japan’s experience with its pension system will offer important lessons for policymakers in China, South Korea, Europe and the United States, all of which are grappling with similar aging demographics. However, Japan’s challenges are more acute, as its population is already much grayer than in these other regions.

According to the Organisation for Economic Co-operation and Development, about 1 in 5 citizens in Japan over 65 was living in poverty compared with an OECD average of 14.2%. That was before inflation took hold in Japan for the first time in more than a generation.

Few can hope to live on pensions alone. The average for combined welfare and public pension payments is ¥144,982 per month, little more than half the amount that households with two or more people spent on living costs in June. The estimated average pension payment in the U.S. was $1,907 (¥276,000) as of January 2024, according to the Social Security website.

Hino enjoys her work at Reikouen in Chiba Prefecture because of the stimulation it provides, which helps her fend off the ravages of old age. She also needs to keep working to pay the bills, especially now that consumer prices have risen by 2% or more for more than two years.

“Everything seems more expensive now,” she said. “Every time I go shopping, the prices are getting higher.”

A report published by the Financial Services Agency in 2019 triggered a wave of anxiety with its conclusion that citizens would need up to ¥20 million in savings to supplement pensions. Amid the furor, Taro Aso, the finance minister at the time, effectively retracted the report, saying it had caused “misunderstanding” and that it was possible to live on public pensions.

Concerns continue to simmer as Japan’s public pension system sees dwindling inflows and rising outflows. In the past two decades, the number of those paying into it has fallen by about 3 million, while the number of recipients has risen more than 40%, according to the welfare ministry.

The government, with a debt load more than twice the size of the economy, allocated about 34% of this year’s national budget to welfare, up from 20% in 2000. With resources limited, the government is looking into reform steps that would include extending the pension premium period by five years to age 65.

Since 2004, administrators have made annual tweaks to benefits depending on prices and wages. They’ve faced lawsuits in years that resulted in cuts.

Against that backdrop, the government has created incentives aimed at shifting more of the burden to the private sector. The labor ministry is seeking billions of yen to fund initiatives including job placement assistance for seniors and the provision of gear including assistive suits as part of next year’s budget.

To coax companies to keep elderly people employed, the government is already providing subsidies to firms employing those age 65 and older.

The Japanese already work far beyond the age when their peers in other developed economies have decided to take it easy. The labor participation rate for men between ages 65-69 and 70-74 has jumped. For the latter group it rose to 43.3% in 2023 from 29.8% two decades earlier, according to the OECD. The corresponding figure in the U.S. was 22.4%, and for the OECD average country, 17.3%.

If there’s an upside to working longer, it’s the sense of purpose and community that comes with it. Nearly half of elderly workers cited factors other than money as their main incentive, according to a Cabinet Office survey in 2020. Some wanted to make use of their skills, while others said they felt working helped them stay healthy.

“Senior workers are thanked by their employers and customers, which gives them a sense of being useful to society,” said Fumio Murazeki, president of Koureisha, a company that dispatches senior workers. The average age of staff registered with the firm is 72.1.

Still, more needs to be done to help people get by, according to Maeda at NLI Research Institute. He cited a Cabinet Office survey of those age 65 and older that showed over 80% of respondents felt their household budgets were tight. “Many elderly are struggling,” he said.

As they read the writing on the wall, more younger citizens are turning toward financial planning to build nest eggs. That’s increased consultations at Kinyu Joshi, a company that conducts financial seminars targeted primarily at younger women. “Everyone has a certain degree of concern about the pension system,” said CEO Mariko Suzuki.

The share of equities and investment trusts in Japan’s household assets rose to a record 19.7% at the end of March, according to Bloomberg calculations based on the Bank of Japan’s quarterly flow of funds data released in June.

That’s still relatively low by global standards, but the government’s tax-free investment program introduced in 2014 continues to spur more interest from people like Asami Masuda, a 35-year-old mother of one who began investing six years ago.

“I was worried about what happens when I’m older,” Masuda said. “Investing has given me peace of mind.”

Women have it especially hard in Japan when they near retirement age. Among senior single women, an estimated 44% live below the poverty line, according to an estimate by Aya Abe, a professor at the Tokyo Metropolitan University.

To maintain pension benefits, the government may have to formally prolong the working lives of its citizens, according to Naohiro Yashiro, a visiting professor at Showa Women’s University.

“If benefits are reduced, people will have a hard time making ends meet,” Yashiro said. “The most reasonable approach would be to set a later starting age for receiving pension benefits.”

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