A colleague cornered me at the cafe

teria last Tuesday with his smartphone showing his Rakuten Securities account. "Look," he said proudly, pointing at the screen. "¥287,000 in dividends this year. My portfolio is finally working for me."

I did quick mental math while nodding. His portfolio had to be around ¥7.5 million with a 3.8% yield. Good dividend ETF. Quarterly distributions.

But all I could see was the invisible number: ¥58,000.

That's how much he paid in taxes on those dividends. 20.315% of ¥287,000. Automatically withheld. Gone before he even saw it.

"That's great," I said. "Are you reinvesting them?"

"Of course. Automatically."

I nodded again. What I didn't say: that ¥58,000 in tax drag this year becomes ¥580,000 over ten years. Over thirty years, with compounding losses? We're talking millions. For a ¥10 million portfolio, the difference between dividend funds and accumulating funds is roughly ¥13 million by the time you reach 65.

That night I pulled up my own account. ¥42 million, all in a low cost global index fund. Zero dividends paid out. Zero taxes on dividends. Just the fund quietly reinvesting everything internally while I sleep.

My wife walked into my office. "What are you looking at?"

"Calculating how much we saved by not chasing dividends."

She leaned over my shoulder. "How much?"

"About ¥8.5 million so far. Probably ¥13 million by the time we actually retire."

She was quiet for a moment. "That's Charles's university."

Exactly.

Here's what dividend investors in Japan don't talk about enough: the tax drag isn't a one-time haircut. It's an annual compounding penalty.

Every year, 20.315% of your dividends disappears before you can reinvest it. That's 15.315% national income tax plus 5% local resident tax. Automatically withheld from every distribution.

Let me show you what this looks like with real numbers.

Scenario: ¥10,000,000 portfolio, 30-year horizon

Option A - Dividend Fund (3.8% yield):

Option B - Accumulating Fund (same 7% total return):

The math works like this: you're not just losing 20.315% of this year's dividends. You're losing the future growth on that tax payment. Forever.

Over 30 years at 7% returns:

That's the tax termite. It doesn't feel dramatic when you see ¥77,000 withheld from your ¥380,000 dividend. But compound that over three decades and you've given up a third of Charles's inte

rnational school education. Or two full years of retirement spending. Or the emergency fund that lets you weather a market crash without panic-selling.

Where Dividends Actually Make Sense:

I need to be clear: dividends aren't evil. In three specific situations, the tax drag might be worth it.

1. Inside NISA (tax-free growth): If your entire portfolio is in NISA, both dividends and capital gains are completely tax-free. The 20.315% penalty disappears. At that point, dividend vs accumulating becomes mostly a psychological choice.

But there's a catch: dividend reinvestment inside NISA uses up your annual investment allowance. If you have ¥10 million in NISA generating ¥380,000 in annual dividends, reinvesting those dividends consumes ¥380,000 of your ¥3.6 million annual limit. You're paying yourself with your own allowance.

2. You're already FIRE'd and psychologically need visible income: Some people cannot stomach the idea of "selling principal" even when the math says it's identical to receiving dividends. If seeing quarterly ¥75,000 deposits keeps you from panic-selling during a crash, the tax drag might be worth the behavioral benefit.

3. Your father-in-law will disown you otherwise: I'm only half joking. Generational pressure around 配当金生活 (dividend lifestyle) is real in Japan. Sometimes family peace has a price.

For everyone else during accumulation years in taxable accounts: the tax drag is too expensive to ignore.

Here's what changed my entire thinking about dividends: Japanese brokerages invented a way to create artificial dividends without the tax penalty.

It's called 定期売却サービス (systematic withdrawal service). Rakuten Securities launched it in 2019. SBI Securities expanded their version in 2025.

The concept is simple: instead of waiting for companies to pay you dividends (and losing 20.315% first), you systematically sell small portions of your accumulating fund on a schedule you control.

How it works at Rakuten Securities:

You set three parameters:

The system automatically sells that amount, deposits proceeds to your designated bank account, and withholds taxes (20.315% on gains only, not the total withdrawal) through your 特定口座源泉徴収あり (Designated account with withholding tax).

The difference from dividends:

With dividend funds, you have no control. The company decides when to pay, how much to pay, and whether to cut dividends during recessions (looking at you, 2008 and 2020).

With 定期売却サービス, you control everything. Need more money this month for Charles's school trip? Increase the withdrawal. Market crashed and you want to preserve capital? Pause withdrawals for six months. Want to shift from 3.5% to 4% withdrawal because your pension kicked in? Adjust the percentage.

It's dividend income with a remote control.

Tax comparison in taxable accounts:

Dividend approach:

定期売却サービス approach:

In NISA, both are tax-free. But 定期売却 doesn't waste your reinvestment allowance.

After reading through RetireJapan forums, Early Retirement Now's research on sequence risk, and running our own numbers, here's the framework I built:

Phase 1: Accumulation (Working Years)

Phase 2: Transition (5 Years Before FIRE)

Phase 3: Withdrawal (FIRE'd)

Option A - Math Maximizer (what I'm planning):

Option B - Hybrid Comfort:

Option C - Full Dividend (accept the cost):

None of these are "wrong." The question is: what's the tax drag cost of your psychological comfort worth?

For us, with a ¥42 million portfolio, going full dividend would cost roughly ¥6-8 million over 30 years. That's too expensive for peace of mind we can get by just automating 定期売却サービス.

But if you genuinely cannot sleep at night without seeing dividend deposits, the math-optimal solution isn't optimal for you.

Our current allocation across all accounts (iDeCo, NISA, 特定口座):

Zero dividend funds. Zero dividend income. Zero annual tax on distributions.

In five years when I hit my FIRE number (¥60 million based on Part 3 calculations), here's the execution plan:

Years -5 to 0 (building bond tent):

FIRE Day (Day 0):

Years +1 to +10 (descending bond tent):

Years +10 to +30:

Total taxes paid on dividends over 30 years: ¥0.

Total control over withdrawal timing: Complete.

Total stress about companies cutting dividends during recessions: None.

I need to tell you about the allocation decision I almost got wrong.

Two years ago, when my portfolio hit ¥25 million, I started reading Japanese FIRE blogs. Every successful story involved dividends. ペリカン with his ¥200 million generating ¥6.1 million annually. かんち with ¥540 million and ¥12 million in dividend income. 三菱サラリーマン who FIRE'd at 30 on dividend cash flow.

I got seduced by the narrative. "Real FIRE means dividend income." I was ready to switch from オルカン to a basket of high-dividend ETFs.

Then I ran the actual numbers.

Switching my ¥25 million from accumulating to dividend funds would save me zero in taxes (it's all in NISA anyway). But it would:

The only benefit was psychological: seeing deposits labeled "配当金(dividend)" instead of "売却代金.(Proceeds of sale.)"

That psychological comfort would cost our family roughly ¥8 million over 30 years in a taxable account. In NISA, it would cost nothing in taxes but everything in flexibility.

I showed my wife the comparison. Her response: "So we can create our own dividends on our schedule instead of waiting for companies to decide?"

"Exactly."

"Then why would we choose dividends?"

I didn't have a good answer.

We stayed with オルカン. Set up a small ¥50,000/month test withdrawal using 定期売却サービス just to learn the system. It works exactly like dividends, except I control when, how much, and from which funds.

That decision will likely save us enough to cover four years of Charles's international school tuition. Maybe more.

🎨 Image Prompt: irasutoya-style illustration of person at laptop late at night doing comparison calculations, two columns visible on screen showing "Dividend Strategy" vs "Accumulating + 定期売却", highlighting ¥8M difference circled in red, wife standing beside with questioning expression pointing at screen asking "Why choose dividends?", person with thoughtful expression realizing they don't have good answer, warm home office lighting with family photos visible on desk showing stakes of decision.

📋 This Week's Actions:

The question isn't whether dividends are good or bad. The question is: what's the tax cost, and what do you get for that cost?

In Japan's tax system, dividends in taxable accounts cost you 20.315% annually. Over 30 years, that's millions in compounding losses. What you get is psychological comfort and visible income.

定期売却サービス gives you the same visible income, the same regular deposits, the same behavioral structure - but with complete control and zero tax drag during accumulation.

For our family, with a ¥42 million portfolio targeting ¥60 million by FIRE day, the choice was clear: accumulating funds during working years, systematic withdrawals during retirement.

That framework saves us roughly ¥13 million over 30 years compared to dividend funds. That's not abstract financial optimization. That's Charles's university education. That's two years of retirement spending. That's the buffer that lets us weather a 2008-style crash without panic.

Your psychological needs might be different. Your family situation might be different. But run the numbers for your situation before you chase 配当金生活 just because the blogs make it sound aspirational.

The math matters. Especially in Japan's tax system.

Your future self will thank you.

If you’re looking to set up your own NISA this year book a call!

Stay Wealthy

Jason

Building wealth for English-speaking permanent residents in Japan, one story at a time.