In Your 30s, Invest Aggressively with Diversification; In Your 40s, Balance Returns and Risks; In Your 50s, Manage Risks for Stability Portfolio [Geumjjok Pension Snowball⑥]

[Asia Economy Reporter Lee Seon-ae] With the introduction of the default option system for retirement pensions, individual investors are showing increased interest in retirement pension investment strategies tailored by age group. For those in their 30s, 40s, and 50s, the one thing they desire most is sufficient discretionary funds to hold after retirement. Experts advise that age-specific customized investment strategies are necessary to improve retirement pension returns. What is the smartest portfolio? NH Investment & Securities' 100-Year Life Research Institute recommends setting retirement pension returns at 8%, 5%, and 3% for those in their 30s, 40s, and 50s respectively, and establishing investment plans accordingly.

Kim Eun-hye, a researcher at NH Investment & Securities' 100-Year Life Research Institute, advised, "For those in their 50s, risk management is more important than seeking returns; those in their 40s should balance return pursuit and risk management; and those in their 30s should pursue aggressive investments through diversification."

First, for those in their 50s who are nearing retirement, the accumulated retirement pension savings (4 million KRW x 20 years of service) are greater than the savings to be accumulated in the future (4 million KRW x 10 years), so consideration should be given to lump-sum investments rather than installment investments. Since retirement is near, risk management is more important than seeking returns. Therefore, experts diagnose that stable investments with an annual return of around 3% are appropriate. Investing with a target annual return of 3% can secure 153.37 million KRW in retirement pension at retirement, allowing for annual pension withdrawals of 17.46 million KRW over 10 years after retirement.

For those in their 40s with about 10 years of work experience, both lump-sum investments of accumulated retirement funds (4 million KRW x 10 years of service) and installment investments of future savings (4 million KRW x 20 years) should be considered. This means pursuing a balance between return seeking and risk management. Medium-risk, medium-return investments with an annual return of around 5% are suitable. Investing at 5% annually can secure 238.4 million KRW in retirement pension at retirement, allowing for annual pension withdrawals of 27.13 million KRW over 10 years after retirement.

Those in their 30s, with nearly 30 years until retirement, can benefit from installment and long-term investment effects through retirement pension investments. Additionally, if diversified across various assets, aggressive investments with an annual return of around 8% are possible. Investing at 8% annually can secure 453.13 million KRW in retirement pension at retirement, allowing for annual pension withdrawals of 51.57 million KRW over 10 years after retirement.

So how should one manage investments? Pyeon Deuk-hyun, a specialist at NH Investment & Securities WM Masters, recommended ▲ 30s (70% stocks, 30% bonds) with a target return of 8%, ▲ 40s (50% stocks, 50% bonds) with a target return of 5%, and ▲ 50s (30% stocks, 70% bonds) with a target return of 3%. He emphasized that within the stock and bond allocation, setting the proportion of overseas stocks and overseas bonds is important. For those in their 30s, a higher proportion of overseas stocks and bonds is advised; for those in their 40s, the proportion should be slightly lower than in their 30s; and for those in their 50s, the proportions of overseas bonds and domestic bonds should be equal.

Pyeon stated, "Analyzing the average annual returns of asset classes over the past 20 years, the U.S. Standard & Poor's (S&P) 500 recorded 9.5%, making it the most outstanding performer among all asset classes globally, so U.S. stocks should be the benchmark for generating returns." However, he advised, "Although the KOSPI recorded 7.6%, its volatility is relatively high, making it inappropriate to allocate a high proportion."

He continued, "Even with asset allocation, there are about two years in every ten when annual returns are negative, as seen this year. Although the overall trend is upward, to avoid the risk of such events occurring in the retirement year, it is advisable to keep the stock allocation below 30% for those in their 50s." He added, "Since overseas bonds carry currency exposure risk, assuming similar interest rates, it is preferable to increase the proportion of domestic bonds as one gets older."