[The Editors' Verdict] Common in Advanced Countries... Why There Are No 'Dividend Wealthy Seniors' in Korea

A Common Retirement Dividend Lifestyle in Advanced Countries
Heavy Tax Burden in Korea Due to Lack of Separate Taxation
A Major Shift in National Tax Strategy Is Needed

The reporter dreams of becoming a 'dividend wealthy' person in old age. Believing that steady accumulation will ensure a stable monthly cash flow during retirement, they buy dividend stocks whenever they have extra money. However, concerns arise about facing hefty taxes if dividend income increases. Is taxation the reason why the common 'retirement dividend lifestyle' seen in developed countries is rare in Korea?

Korea will enter a super-aged society (where the population aged 65 and over exceeds 20%) next year. According to Statistics Korea's population projections, by 2072, nearly half of the total population?47.7% (17.27 million people)?will be elderly. As life expectancy increases, everyone living in this era must secure retirement funds to prepare for the 'longevity risk.' According to the 2023 Statistics Korea Household Finance and Welfare Survey, the average appropriate monthly living expense for a two-person household after retirement is 3.24 million KRW, with the minimum living expense at 2.31 million KRW.

To avoid the risk of asset depletion, a retirement fund plan must be established. Currently, the best financial strategy is to stay in the labor market as long as possible to continue receiving a 'salary,' or to utilize lifelong pensions such as reverse mortgages, but there seem to be no other effective options. Capital market experts point out that the best method is to create lifelong cash flow, and from that perspective, 'dividend investing' is an attractive investment tool, according to their advice. While this is common knowledge for securing retirement funds, they say that the reason there are few dividend wealthy elderly in Korea is largely due to 'tax policy.'

The reason why there are many dividend wealthy elderly in advanced capital markets is that their governments recognize dividends as an important investment tool for growing wealth in old age and actively encourage such investments. Governments promote this because enabling the elderly to sustain their retirement through pensions and dividends reduces the national treasury burden. To this end, dividend separate taxation policies are implemented. Tax policies have been adapted early in response to demographic changes.

In the United States, dividend income tax is separately taxed at 15%. The United Kingdom and Hong Kong have no dividend income tax at all. Japan allows taxpayers to choose between comprehensive taxation (combining with other income) and separate taxation (calculating dividends separately), paying whichever is more advantageous. Most Japanese retirees choose the separate filing system that integrates all stock and dividend gains and losses. For example, if they received 10 million KRW in dividends but incurred a 10 million KRW loss in stocks, the losses offset the gains, resulting in no tax owed.

Korea does not have separate taxation for dividends. For 11 years since 2013, retirees have long demanded either raising the fixed comprehensive financial income tax threshold (20 million KRW) or allowing separate taxation only on dividend income.

Fortunately, the government has stepped forward this time. On the 3rd, when announcing the 'Dynamic Economy Roadmap,' it stated that individual investors who invest in value-up companies will receive low-rate separate taxation. The withholding tax rate on dividend income increase up to 20 million KRW will be lowered from 14% to 9%, and for amounts exceeding 20 million KRW, taxpayers can choose between comprehensive taxation or separate taxation at a flat 25% rate.

It is 'fortunate' that the start has been made, but the road ahead is long and 'worrisome.' This is an amendment to the Restriction of Special Taxation Act (RSTA), and considering the current divided National Assembly, it is uncertain whether the amendment will pass. The National Pension is heading toward depletion. Since reliance on the National Pension alone is impossible, individuals must solidify a 'second layer' of security such as 'dividends' and 'private pensions' for a stable life in old age. To minimize the financial risks citizens will face in retirement, a major shift in tax strategy is necessary. This is the government's responsibility. The government must actively persuade the opposition party to realize the policy. The opposition party should also not delay by focusing solely on 'political strife.'