[Debt-ridden Twilight②] In a Super-Aged Society... Retirement Debt as a Social Time Bomb

# Park In-ja (64, female, pseudonym), residing in Seoul, filed for personal bankruptcy earlier this year after becoming unable to manage a debt of 20 million won that she had been rolling over. Due to her husband's business failure, she had been barely getting by, moving from one monthly rental room to another since her youth. Recently, her financial hardship worsened as her health declined, making it difficult to work, and she also had to care for her elderly parents who had mobility issues.

# Kim In-hwan (62, pseudonym), who worked for over 20 years at a mid-sized company in the Seoul metropolitan area before retiring, opened a restaurant four years ago to secure a stable retirement. However, the outcome was unfavorable. Lack of experience combined with the COVID-19 pandemic led to difficulties. Although he managed to close the restaurant and fortunately found reemployment, his situation remains challenging. Despite having sold his home, his remaining debt exceeds 100 million won.

The background of the "debt-ridden twilight years" lies in the poor financial conditions of the domestic elderly population aged 60 and above. During their younger years, they were not proactive in preparing for retirement due to supporting their children and parents, and most of their assets are concentrated in real estate and other tangible assets, resulting in a shortage of disposable income. 'Debt-ridden Twilight Years'

"Insufficient income... no choice but to borrow for business"

According to the '2021 Household Financial Welfare Survey' released by Statistics Korea last year, the average debt held by households aged 60 and above was 57.03 million won as of the first quarter of last year. This represents an 8% increase compared to the previous year.

While the absolute debt amount of the elderly aged 60 and above is relatively low compared to other age groups except those in their 20s, the rate of increase shows a different pattern. The debt growth rate among the elderly exceeds the average for all age groups (6.6%) and, except for those in their 30s (11.0%) who have high loan demand due to marriage, childbirth, childcare, and investment, it is the highest.

The reasons for the increasing debt include a decrease in earned income and, consequently, a reduction in disposable income. In the same survey, the disposable income of households headed by someone in their 60s was 36.6 million won in 2020, which was the lowest level except for the 20s generation, who are just starting their careers (31.89 million won).

A legal sector official stated, "In cases of bankrupt households, many belong to the lowest income quintile, which are effectively deficit households, and among them, the largest proportion is elderly single-person households. Many file for bankruptcy not due to difficulties from reckless business ventures but because they cannot repay relatively small debts of 10 to 20 million won caused by financial hardship."

As a result, many elderly people borrow money to invest or start self-employment to increase their income. According to a report released by the Korea Capital Market Institute in February, as of August last year, there were 1.93 million self-employed individuals aged 60 and above, a 9.6% increase compared to 2019 before the COVID-19 pandemic. This contrasts with a 1.9% decrease in the total number of self-employed individuals during the same period.

In particular, the loan size of self-employed individuals aged 60 and above is rapidly increasing. As of the first quarter of 2020, loans to individual business owners aged 60 and above increased by 17.9% compared to the previous year, nearly double the 9.4% increase seen among self-employed individuals in their 30s to 50s during the same period.

Growing debt-ridden twilight years amid super-aging... a threat to financial stability?

The problem is that the aging process is accelerating. According to Statistics Korea's future population projections, the population aged 65 and above, which was about 8.15 million in 2020, is expected to surpass 10 million by 2024, just four years later.

Especially, while the elderly held 82.2% of their assets in tangible assets such as real estate as of the first quarter of last year, their annual disposable income is the lowest among all age groups, raising concerns that this could become a financial and economic vulnerability.

As of the third quarter of last year, the average propensity to consume (consumption expenditure relative to disposable income) for those aged 60 and above was 63.6%, the lowest among all age groups. Furthermore, as of 2020, borrowers exceeding the total debt service ratio (DSR) of 70%, which indicates a heavy debt repayment burden, held more than half of the total debt in this age group.

The Korea Capital Market Institute noted, "With rising interest rates, interest burdens will increase for vulnerable borrowers among the elderly who have multiple debts, low credit, or low income, potentially leading to delinquency risks. It is also necessary to consider the impact of future housing price fluctuations on the household assets and debts of the elderly."

Professor Kim Ji-seop of Yonsei University's Department of Economics also stated, "If interest rates rise and the real estate market declines accordingly, the burden on the elderly, who often have their home as their only asset, could be relatively greater, which may have a cascading effect on overall asset and financial market stability."