[Debt-ridden Twilight③] "Elderly Bankruptcy to Rise Over Next 10 Years" Need for Social Safety Nets and Retirement Preparation

The phenomenon of 'debt-ridden twilight years' is likely to persist for some time. This is because Korean society has entered a super-aged society, and the history of social security systems such as the National Pension is relatively short, making this 'transitional' phenomenon inevitable. Experts advise that on a social level, expanding social security to reduce elderly poverty rates is necessary, and on an individual level, active efforts to reduce debt are required. 'Debt-ridden Twilight Years'

"Debt-ridden Twilight Years Will Increase Over the Next 10 Years... A Social Safety Net Must Be Established"

The fundamental cause of the increase in debt-ridden twilight years is 'elderly poverty.' According to Statistics Korea, Korea's elderly poverty rate was 38.9% as of 2020, having fallen below 40%, but it still approaches three times the average of 13.5% among OECD countries (as of 2019).

Professor Yoo Kyung-won of the Department of Economics and Finance at Sangmyung University stated, "In the case of bankruptcies, many belong to the lowest income quintile, which are effectively deficit households, and among this quintile, the largest proportion is elderly single-person households." He added, "Since Korea's national-level social security systems such as the National Pension have only been fully established for less than one generation, until the baby boomer generation is fully incorporated into the National Pension system, bankruptcy and debt adjustment cases among elderly who do not benefit from it are expected to increase over the next 10 to 15 years."

He continued, "As a solution, during this transitional period, government fiscal transfers and expansion of social security expenditures are necessary," explaining, "Although the elderly poverty rate is currently the highest among OECD countries, it has been steadily declining, which indicates that the basic pension system is effectively fulfilling its redistributive role."

Kim Yong-beom, former First Vice Minister of Strategy and Finance, also proposed a temporary increase in the basic pension to address elderly poverty in his book published this year, Upheaval and Balance. For example, considering life expectancy and fiscal issues, a special pension could be added for 10 years for impoverished elderly aged 75 and over at a certain point, and for those aged 65 and over, fiscal jobs and special pensions could be added sequentially for 10 years each.

Strict Debt Management Is Essential as Retirement Approaches

On an individual level, middle-aged and older adults approaching retirement and old age are advised to manage their debts carefully. As the base interest rate is rising, interest burdens increase, while generating earned income after retirement becomes difficult.

Kwack Jae-hyuk, Senior Specialist of the WM Advisory Group at KB Kookmin Bank, advised, "If you are still before retirement, you must manage your debts," adding, "If repaying debts is difficult, you should at least reduce repayment burdens through refinancing or maturity extension." He also noted, "The same applies to house-poor individuals. Once their creditworthiness disappears, it becomes difficult to exercise the right to request interest rate reductions."

For middle-aged individuals around the age of 50 approaching retirement, utilizing housing pensions and private pensions is also an option. Choi Jae-san, PB Team Leader at Shinhan PWM Yeouido Center, said, "If you own a home, you can consider using a housing pension to repay part of your loan while securing pension income. If not, you should consider ways to maintain some earned income." He added, "For those around age 50, it is also important to prepare a stable income source before the start of National Pension benefits (at age 65) through private pensions such as annuity insurance."