A Too-Early Look at Pension Refunds and Mortality

The other day, a question from an ex-JET regarding our pension refund led me to the U.S. Social Security Administration website, a place I did not want to go—a place where, while there, I couldn’t help but think about the two things I hate thinking about most: money and mortality. But, I did learn whether or not it’s a good idea to not take the pension refund, so I guess it was a tradeoff.

I try to think about retirement as little as possible in my own life. It’s not retirement itself that bothers me, but some combination of the prospects that a) I have to work for 40 more years, and b) this will probably involve having to grow older. It’s almost too much responsibility to bear to consider how 25-year-old me has to start thinking about how his decisions will affect 67-year-old me, a guy I’ve never seen nor met and who is probably a huge jerk anyway. The decision of whether to apply for the pension refund after JET falls squarely in this scary category.

See, most ex-JETs grab the pension refund as soon as they hit the shores of their home country. But, thanks to a treaty between the U.S. and Japan, you can also choose to forego the refund and instead count your time working in Japan towards your eventual social security benefits. My self-appointed task was to figure out if there are any benefits to not taking the pension refund. This question is particularly vexing for me because I am a Group C arrival, which means my contract is slightly less than a year. Pension refunds are only given in 6-month increments. That is, 36 months on JET will give you 3-years worth of benefits, but 35 months on JET will only earn you 2.5 years worth – a difference of about $1,500. If you apply those 35 months to Social Security, though, you get credit for 3 years (12 quarterly credits, or QCs). Normally, I am a gimme-it-in-cash kind of guy, but I also don’t like the idea of losing $1,500. What to do? Enter www.ssa.gov.

The SSA website embodies a deep contradiction. It’s a website catering to the needs of retired Americans, most of whom don’t know what a website is. Celebrities familiar to an older generation have been incorporated in an effort to smooth the transition to the digital age, but can we still count Chubby Checker and Patty Duke as celebrities? In 40 years, will Justin Bieber and the cast from Jersey Shore take their place? More disturbingly, as I navigated federal codes regarding social security benefits and the attendant menagerie of acronyms, I was followed by a question lingering helpfully on every screen: “Need larger text?” It was bland, government-sponsored memento mori.

My insecurities about a squandered youth aside, I found the information I was looking for. It turns out the SSA will count each 3 months you spend working in Japan as a quarterly credit (QC). Everyone born after 1929 needs 40 of these QCs to receive benefits when they turn 62 (older for full benefits). However, the baseline monthly amount of these benefits, called your principal insurance amount (PIA), is calculated using the Average Indexed Monthly Earnings (AIME) method, which is based on your inflation-adjusted income during the 35 years that you had the highest income: the higher the income, the higher your PIA, the bigger your monthly social security check. Because of the US tax exclusion, your income from Japan is a fat zero, but if you apply QCs from Japan, the SSA calculates your PIA based on what your income would have been had you worked your whole life in the states (in what I can only imagine as a hellishly complex Excel worksheet). However, your PIA is prorated if you use QCs from Japan. The more QCs from Japan as a proportion of your total, the less you get in that monthly check. Say you work 10 years (you lazy bum), earning the 40 QC necessary to get benefits, but 12 of those QCs are from JET. Your PIA will be reduced by 12/40 = 30% = lame. What’s more, if you earn enough credits for benefits under the American system, then your Japanese credits will be lost.

If the above seems abstruse, the conclusion you should take away is that under most circumstances, take the pension refund and run. Don’t run to Switzerland, though, because you still have to pay taxes on that refund; this I learned after a virtual run-in with another temple of bureaucracy: the IRS. An epic tale for another day.

Now that that’s taken care of, it’s time for more pressing issues. Like finding a job. In case you were wondering, the SSA website has a “Careers” link.