[Practical Finance] Healthy Retirement Life Recommended by a Financial Supervisory Service Team Leader

▶Order of Articles
<1> Early Career Financial Management
<2> Newlywed and Childbirth Financial Planning
<3> Preparing Education Funds for School-age Children
<4> Financial Planning for Adult and Independent Children
<5> Healthy Retirement Life

It is said that the French divide life into three stages: student life, working life, and retirement life. Students have dreams but no money; workers have money but no time. Only upon retirement do they finally have the dreams they've kept, the money they've saved, and the time to enjoy them. Retirement is the most exciting beginning of a life where you can achieve what you want. However, to realize your desires and find meaning in life, physical health and stable financial life must be prerequisites. For a sparkling silver retirement, let's learn about the Financial Supervisory Service and financial tips.

Worrying about living expenses, is there a way to steadily generate income?

# Mr. Yang Hanbin succeeded in buying his own home before retirement and prepared some pension funds, thinking that even if income stopped after retirement, he could live reasonably by reducing expenses. He calculated his expected monthly living expenses after retirement reasonably and prepared retirement funds, but every time he sees news about soaring inflation, he feels a strong premonition that his retirement plan will face major setbacks. Moreover, recently his health has deteriorated, leading to unexpected large medical and nursing care expenses, causing anxiety that his funds might run out before the end of his life. For those like Mr. Yang who own a home but lack sufficient retirement living funds, there is a 'Home Pension System' that allows receiving a pension by utilizing the owned house.

The Home Pension is a product where you pledge the house you live in as collateral, continue to reside in your own home, and are guaranteed lifelong pension payments. Even after the subscriber's death, the same amount is paid to the spouse without reduction. When both spouses pass away, pension payments end after final settlement. If the total pension received exceeds the sale price of the house, the heirs are not charged the excess, but conversely, if the house price is higher than the pension received, the difference is returned to the heirs. For more details about the Home Pension, you can inquire at the Korea Housing Finance Corporation.

I protect my assets... Protecting retirement funds from financial fraud

# Ms. Lim Hyunjung met a classmate at a reunion who said they were investing in a rotating savings group that guarantees double the investment as fixed returns. Half of the returns are paid in cash immediately, and the other half is automatically reinvested. The earlier you join the group, the higher the guaranteed returns. Ms. Lim felt foolish for keeping her retirement funds in a bank deposit with a 4% interest rate, and as her classmate explained that timing and vested rights are important, she gradually lost her composure. When she asked about the business details of the investment destination where the rotating savings group funds go, her classmate said to come to the office for a detailed explanation and added that only those introduced by existing investors can join the group. Ms. Lim felt like a once-in-a-lifetime opportunity had come her way.

Readers who know the basic investment principle that "high returns always come with high risks" would have noticed by now that Ms. Lim has become a target of financial fraud. Why are retirees without income targeted by financial fraud? Because retirees have no earned income but possess saved retirement funds or severance pay, their liquid assets are relatively abundant. Also, during retirement, the speed of information gathering slows, making it difficult to adapt to rapidly changing financial environments. The anxiety over diminishing retirement funds leads to concerns about generating new income, making retirees vulnerable to financial frauds that lure with promises of high returns.

Therefore, it is necessary to abandon the thought of "It won't happen to me" and pay attention to and be cautious about various types and methods of fraud in daily life. The Financial Supervisory Service issues 'Consumer Alerts' to warn financial consumers in advance when financial fraud is expected. Regularly check the Financial Supervisory Service's 'Consumer Alert' press releases and stay informed about new fraud methods to avoid becoming a victim of financial fraud.

Receiving severance pay: lump sum vs pension, which is better?

# Mr. Ko Giyeong, approaching retirement, does not feel empty about retirement when thinking about the severance pay he has steadily accumulated. He wants to receive a lump sum to have a large amount of money at once and also wants to use his own investment know-how to manage the funds directly. Meanwhile, an old friend who heard about the severance pay asks to borrow some money for his business, and since Mr. Ko usually finds it hard to refuse, he is deeply troubled about which method of receiving the severance pay is better.

If you receive severance pay as a retirement pension (IRP) instead of a lump sum, you get regular income, which provides economic stability and tax benefits compared to lump sum receipt. When receiving severance pay, you must pay retirement income tax, but if you receive it as a pension, you only pay 70% of the retirement income tax on the lump sum, resulting in a 30% tax saving. Also, if you receive severance pay as a lump sum and invest it in general financial products, the interest and dividends received are included as income subject to health insurance premiums, which may increase your health insurance costs. On the other hand, pension payments received through IRP are not included as income subject to health insurance premiums, which can reduce health insurance costs.

Everyone wants to finish life beautifully. Spending the final stage of life healthily and warmly and leaving a spiritual and material legacy to loved ones after death is something everyone desires. Use the Financial Supervisory Service's financial education materials as a foundation to design a prosperous retirement. More information can be found in the Financial Supervisory Service website's 'Financial Life Guidebook by Life Cycle Volume 5: Retirement.'