[2020 Gold Age] "With COVID-19, the 'Momentum Zero' Era Approaches... Retirement Strategies Must Change"

The 'Momentum Zero' Era of Declining Interest Rates, Income, and Population
Prepare Two-Track Strategies for Guaranteed Lifetime Income & Income Assets

Kim Kyung-rok, head of the Mirae Asset Retirement Research Institute, is giving a presentation titled "Retirement Accelerated by COVID-19, How to Prepare" at the 2020 Gold Age Forum held on the 9th at the Bankers Hall in Jung-gu, Seoul. Photo by Moon Ho-nam munonam@

[Asia Economy Reporter Minwoo Lee] There is a growing outlook that the arrival of a 'momentum zero' era?where interest rates, income, and population all freeze?has accelerated due to the novel coronavirus infection (COVID-19). Accordingly, there are claims that asset management strategies must be revised and adapted.

On the 9th, Kim Kyung-rok, head of the Mirae Asset Retirement Research Institute, made this diagnosis at the '2020 Gold Age Forum' held at the Bank Federation Building in Jung-gu, Seoul. He first cited interest rates as an example. Last month, the Bank of Korea's Monetary Policy Committee lowered the base interest rate by 0.25 percentage points (P) to an all-time low of 0.50% per annum. This is effectively close to a zero interest rate level, aimed at preventing an economic slowdown caused by COVID-19. Kim explained, "This means not only that interest rates themselves are low, but also that there is no momentum for further rate cuts," adding, "It also means that the momentum in the real estate market has disappeared."

He also pointed to the decline in the working-age population as a key factor in the loss of momentum. Kim said, "The domestic actual working-age population aged 25 to 64 has reached its peak and has now entered a declining phase," forecasting, "While this age group increased by 10 million over the past 40 years, it is expected to decrease by 14 million over the next 40 years." Even if income per working-age individual rises, the shrinking number of working-age people will inevitably cause per capita income to stagnate.

According to the Bank of Korea, the per capita national income was $32,000 last year, which is 4.8 times the $6,600 recorded in 1990. However, the growth rate has stagnated around 2%. Moreover, as the working-age population declines, the growth rate is expected to converge to the 0% range. Since South Korea's economy is still manufacturing-based, it is explained that overcoming the '30,000-dollar trap' will not be easy. Kim stated, "The U.S. and the U.K. also struggled significantly before surpassing $30,000, and Japan has not been able to exceed it for 30 years," adding, "South Korea has been in this situation for 4 to 5 years, and with COVID-19 and population decline, escaping momentum zero is difficult."

In response, Kim advised revising asset management strategies. He proposed a 'two-track' strategy of securing a fixed amount of guaranteed income and obtaining returns through risk assets. He argued that it is stable to guarantee about a 1% interest rate through a minimum guaranteed interest rate variable whole life annuity while composing about 30% of stocks in promising growth technology companies to aim for a 4% return. Kim emphasized, "A 4% return has a certain compound interest effect while maintaining a low level of risk," and stressed, "It is important to diversify fixed lifetime income centered on the National Pension, housing pension, and minimum guaranteed interest rate variable whole life annuities, along with deposit assets and real estate assets into global income assets."