[Financial Planning for the 100-Year Life] Asset Management After Retirement Begins with Saving

“I am about to receive several hundred million won as severance pay. Can I invest this money in stocks to prepare for my retirement funds?”

This is a frequently asked question in retirement planning education sessions for those about to retire. It is a rather difficult question to answer. You might think that simply recommending promising stocks would suffice, but that is not the case.

Although one can guess the age of the person asking, it is impossible to say “Buy stock OO” without considering their financial status, family situation, investment preferences, and investment period. More importantly, the mindset toward asset management of the person asking does not seem much different from that of young workers currently employed. Due to anxiety about insufficient retirement funds after retirement, they focus solely on investment itself as the goal.

When I receive such questions, I recall what a foreign journalist said when finishing his term as Seoul correspondent and returning home: “Koreans are very diligent about how to make money, but they are poorly educated on how to live according to their given circumstances.” He pointed out that true economic independence is about developing the ability to adapt oneself to the given economic situation, yet people show little interest in this issue.

In fact, most asset management books available in bookstores are aimed at the younger generation actively accumulating assets. It is difficult to find books about how to live according to one’s given economic circumstances.

The first thing to consider when planning assets after retirement is that the survival period is much longer than imagined. Many cases assume the survival period by subtracting one’s current age from the average life expectancy, but this should not be the approach. Instead, it is advisable to base the survival period on the age with a 20% survival probability. For example, a person born in 1980 who is 44 years old this year has a 20% survival probability age of 100 for men and 102 for women.

While life expectancy is this long, the amount available for management is much smaller than expected. Depending on the amount saved during one’s working years, the amount available for management should be considered only a portion of that. Based on long experience in financial markets, making money through investment products after retirement is not as easy as it sounds. Also, during working years, even if investments fail somewhat, there is time to recover, but after retirement, there is not much time left. Therefore, before thinking about increasing income through investments, one should first consider reducing household expenses?in other words, start with saving.

When I talk about saving during asset management lectures for retirees, many people show disappointed expressions. Their faces seem to say, “I came here to learn how to increase assets through financial technology, but now I am told to think about saving first. Why do I have to hear such obvious advice here?” However, if those people truly recognized the importance of managing expenses, they would not show such expressions. We have lived through a very special era of high growth over the past 30 to 40 years, a rare period in world history. We think we live frugally, but from the perspective of people in advanced countries like the United States or Japan, our society has many wasteful and bubble factors. In this era of low growth and aging, it is impossible to prepare for retirement without a special determination to reduce such expenses.

Expense amounts can be managed according to one’s will. On the other hand, no one can control interest rates or stock prices. Income is also difficult to manage solely through one’s efforts. Ultimately, the only thing one can manage by oneself is household expenses. The strategy called ‘saving’ is also an important investment method. Not saving is like throwing away the highest-yield investment product. For example, if you have to spend 100,000 won but finish the task with 90,000 won, you have effectively earned a 10% return compared to someone who did not save at that moment. There is no financial product that can yield such high returns without risk. Regardless of how interest rates or stock prices move, saving is the most reliable asset management method.

Kang Chang-hee, Representative of the Happy 100-Year Asset Management Research Association