CEO Kang Chang-hee "70 Million Won Retirement Fund?.. Start with 3-Tier Pension" [Geumjjok Pension Snowball⑦]

Listening to Pension Gurus' Management Know-How
Focus on Your Future Rather Than Retirement Asset Amount
Start with the Three-Tier Pension: National Pension, Retirement Pension, and Personal Pension

Kang Chang-hee, CEO of Truston Pension Education Forum. / Photo by Hyunmin Kim kimhyun81@

Editor's NoteExperts known as "pension gurus" advise that to turn my pension into a precious "snowball," one must actively manage it. In an era where people live to 100, if you do not pay attention to what kind of pension product will become your retirement fund's snowball, how it is managed, and what it invests in, you risk ending up with a "pension bust." Asia Economy spoke with Kang Chang-hee, head of the Truston Asset Management Pension Forum and a first-generation retirement pension expert, and Kim Kyung-rok, advisor at Mirae Asset Global Investments, about pension asset management methods for office workers in their 40s-50s and 20s-30s, respectively.

"Is about 700 million KRW enough for retirement funds?"

Kang Chang-hee, a first-generation retirement planning expert who is busy lecturing nationwide, cited this as the most frequently asked question. Ultimately, the answer depends on "how seriously you have studied your own life." However, when approached with a "how much is enough" mindset, one ends up trapped. He says, "In countries like the U.S., where awareness of pensions is high, pension millionaires can emerge, but in Korea, it is also possible to become a half-millionaire if managed well." However, he believes this depends not on recent institutional changes like the introduction of default options, but on how much individuals contemplate and study their lifestyle and future.

Should you prepare for retirement?

▲ "If unlucky, you might live to 120." This is a joke, but most office workers actually plan their retirement based on living until 80. But does death come suddenly and quietly? My elderly mother was ill for about three years before passing. Most elderly people are like that. They suffer from financial issues and loneliness for anywhere from two to ten years. They live just feeling good if they can walk to the bathroom on their own. This concerns human dignity. Retirement planning should be wise by looking at life as a whole and designing accordingly.

Where should one start?

▲ Countries that have a few billion won in retirement funds are not necessarily advanced. Advanced countries are those that secure minimum living expenses through public and private pensions until death. To design such an advanced lifestyle, you must carefully assess what you already have. If you work for a company, you will be enrolled in the National Pension and retirement pension plans. This is the starting point. Managing these is then up to the individual. You need to grow your personal pension. The three-tier pension system is the starting point.

What factors should be considered?

▲ I’m not sure if the term "child risk" is appropriate. However, there are still parents who expect or rely on their children or place expectations on them. Some of these people say, "At least I should leave a house for them when I go." But what meaning does it have to leave a house to a 70-year-old child when you pass away at 100 after living a harsh life? It is right to include only your spouse in your retirement planning. Relying on children is unreasonable. In the 1980s, children's help accounted for 72% of retirement income, but last year it dropped to 14%, which should be noted.

When is the optimal time for retirement planning?

▲ Most people start retirement planning when they succeed in getting a job in their 20s or 30s. However, the accumulation and growth of adequate funds are likely to occur in their 40s or 50s in the life cycle. If expenses for marriage, childbirth, and education are mostly settled, it is wise to focus on retirement. If both spouses work, preparing for retirement may not be difficult, but if there is a full-time homemaker, it is recommended to enroll in the National Pension. Even paying the minimum monthly amount of 90,000 KRW can yield about 500,000 KRW monthly pension after 30 years.

What should be prepared specifically?

▲ For personal pensions, especially so-called pension savings, you need to carefully check what kind of product it is. Many people enroll through insurance companies, but in reality, many are variable insurance, not pension savings. Confirming this is the first step. You should check what product you have enrolled in and how much you will receive based on your contributions.

You should also check your retirement pension. Retirement pensions are divided into Defined Benefit (DB) and Defined Contribution (DC) types. I categorize these as company-responsibility type (DB) and subscriber-responsibility type (DC). DB plans require less attention because if something goes wrong, the company must cover it with company funds. But DC plans are your responsibility, so you must examine them carefully. Depending on management results, the amount received later can differ by twice as much. Recently, when dividing retirement pensions by accumulated amount, DB accounts for 60%, and DC and IRP account for 40%, but by number of subscribers, DC and IRP exceed half. This will become the trend. However, those enrolled in these products must manage them with a sense of ownership. Otherwise, they will face losses.

In the U.S., where there are many pension millionaires, one of the criteria for employment is the retirement pension. How much the company contributes relative to your contribution and how well they educate you. American fund investors often cite "joining a company" as the reason to start investing. They begin studying investment due to DC-type retirement pension enrollment. But how about us? Even if enrolled in DC-type, people cling to principal-guaranteed products or neglect management. They even engage in margin trading ("debt investment"). DC-type retirement pension is essentially a long-term installment fund investment. You should use the knowledge gained here to invest in other assets and grow your wealth.

With the introduction of default options

▲ I do not expect a revolution in the pension market just because the system is introduced. Unlike the U.S., where principal-guaranteed products are not included, Korea’s default option includes principal-guaranteed products. I expect investment patterns will not differ greatly from before. What is more necessary is mandatory education. DC-type is ultimately subscriber-responsibility, and companies should educate employees so they can manage DC plans well for their retirement.

The stock market is declining

▲ You must believe in the power of long-term installment investment. For example, suppose there is a stock priced at 10,000 KRW per share, which falls to 2,000 KRW after five years and then recovers to 10,000 KRW after another five years. If you invest 100,000 KRW monthly in an installment plan, the evaluation amount after 10 years will be 24.1 million KRW. This is because you bought many shares cheaply during the price drop. Even if there is short-term price fluctuation risk, long-term investment in investment-type products is necessary to earn returns. Companies should educate on how to select quality stocks and how to diversify investments to spread risk.

How to manage funds after retirement

▲ It is better to abandon the idea of investing 200 million KRW retirement money in stocks to multiply it. It is better to spend minimum living expenses and prepare for future expenses such as hospital bills. If possible, working after retirement is also an option. After age 80, judgment declines. You can keep funds in bank deposits and spend them until you pass away. The remaining funds can be left as inheritance.