Cash-flush Japanese retirees shun risky investments

By Chikako Mogi and Naomi Tajitsu

TOKYO (Reuters) - Many of Jun Ogawa's friends frown on his playing the stock market, but he's not bothered.

The 68-year-old retiree has built up a nest egg to fund his hobbies -- skiing, cycling and overseas travel -- by investing in domestic stocks using a slice of his retirement payout.

"It's because I invest that I have the means to enjoy retirement," said Ogawa, who has earned an average of 1.5 million to 2 million yen ($13,000 to $17,000) each year since retiring from an electronics parts manufacturer five years ago.

But Ogawa is not typical of Japan's 7 million baby boomers.

Many of them realize they must earn income from investments to supplement their pensions in order to live life to the full, but unlike younger investors most retirees park their savings in low-yielding bank deposits and opt for domestic government bonds and stocks over foreign currency deposits.

"They are keenly aware of the need to invest to cover pension shortfalls," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. "They also can't tolerate losing even a penny from their retirement allowances."

Born between 1947 and 1949, they make up nearly 6 percent of the nation's population of 127 million.

They floated on the nation's bubble economy before it burst in the mid-1990s, and their careers wound down just as Japan's financial system crumbled under the weight of bad loans in 1998.

They are also the last generation benefiting from corporate Japan's generous retirement allowances and government pensions, which they will begin receiving when they reach 65. Their retirement packages are estimated to total around 50 trillion yen ($430 billion), with a portion seeking investments.

For many of them, daily living expenses are covered by average monthly pension income of around 120,000 yen ($1,000) per person per month, on top of savings and a hefty lump-sum retirement payment from employers.

RISK VS RETURN

Many younger investors took advantage of the recent sell-off in financial markets to pick up stocks and other risky assets on the cheap, but 59-year-old Hiroo Ban wasn't one of them.

Ban, who retired from a top-tier consumer electronics firm a year and a half ago, said he sat tight during the week that the Nikkei share average dived 9 percent to a one-year low.

"It's very important to contain risk. Otherwise, it's bad for your heart," Ban said, adding that he would wait until markets calmed to decide whether to sell any of his stock and investment trust holdings or pick up new ones.

"This generation is typically very conservative about asset management because they saw Japan's biggest banks fail and the economic bubble burst at the end of their careers," said Naoki Sugihara, a spokesman for Sumitomo Trust and Banking.