[Square] Retirement Preparation of the Millennial Generation

Byeon Hyewon, Research Fellow at the Korea Insurance Research Institute

These days, the term MZ generation is often heard. It refers to the combined group of Millennials, born between 1981 and 1996 (aged 25 to 40), and the subsequent generation, Generation Z (born 1997?2012).

Characterized as digital natives, ethical consumers, and advocates of work-life balance, their traits are transforming our society. The frequent appearance of lectures, books, and articles on topics like "How not to become a Kkondae" and "How to work with Millennials" suggests that Millennials are indeed quite different from previous generations.

Should the retirement preparation of the distinctly different Millennial generation differ from that of their parents' generation? First, let's address the question of whether Millennials, who are mostly in their 20s and 30s, need to think about retirement preparation already.

Compared to their parents' generation, Millennials generally have longer life expectancies, resulting in longer post-retirement survival periods, and they tend to start working later, leading to shorter working years. Moreover, while fixed deposit interest rates (for over one year) were 18.6% in 1980 and 10% in 1990, current savings deposit interest rates (weighted average of deposit banks) are below 1%.

In other words, the amount of money that needs to be prepared has increased, but the time available to prepare has decreased, and growing that money has become more difficult. Therefore, retirement preparation is much more important for Millennials and should begin earlier than for previous generations.

So, what should be done to prepare for retirement, which may feel very distant? First, concretely imagine how, with whom, and doing what you want to spend your life after retirement. It is also important to check how much income you can secure after retirement.

You can check your expected pension amount after retirement on the Financial Supervisory Service’s Integrated Pension Portal, and if you have other assets, you can estimate the income those assets might generate. This will help you understand whether the retirement life you desire is feasible and, if not, gauge the gap between your current preparation level and the required level.

Second, if there is a gap between the income needed for your desired retirement life and the expected income, make a plan to fill that gap. There are various ways to prepare retirement funds, but besides the basic National Pension, representative methods of securing old-age income include retirement pensions and private pensions.

The government provides tax benefits for retirement pensions and pension savings (tax-qualified private pensions) to encourage retirement savings, so in addition to the retirement pension accumulated by your company, it is advantageous to save additionally in an Individual Retirement Pension (IRP) or tax-qualified private pension.

In particular, since early withdrawal from retirement pensions or pension savings is not easy, they serve the role of protecting the "future me" from the "present me." Next, consider working longer. Plan a second job in advance after retiring from your main job. You can prepare by turning hobbies you enjoy into sources of income or by choosing jobs that are less affected by age.

Third, cultivate good money management habits. You might wonder where the capacity to save is when your salary immediately disappears into jeonse loan interest, maintenance fees, and credit card bills.

However, by reviewing and managing your spending habits, you can create saving capacity. Silence notification functions that constantly alert you about chances to win prizes or the possibility of items selling out, and delete overly convenient shopping or delivery apps to give yourself time to think. Setting a single goal and automatically saving a fixed amount is also effective.

Starting retirement preparation early is less burdensome than starting later. Since you start early, abandon the mindset of solving everything at once, and prepare steadily with a long-term perspective. Seeing that I want to tell younger colleagues unsolicitedly to do what I couldn’t do makes me realize that I am getting older too.