[Insight & Opinion] In a Society Where One in Five Is Elderly, What Must We Change?

10.24 Million People Aged 65 and Over: Entering a Super-Aged Society
Shift Asset Management Focus to Cash Flow
Urgent Need for Jobs... Retirement Age Must Be Delayed

Finally, our country has entered a super-aged society. According to the announcement by the Ministry of the Interior and Safety, the registered population aged 65 and over is 10,244,550, accounting for 20% of the total registered population of 51,221,286. In other words, one out of every five people is aged 65 or older, marking the arrival of a super-aged society. Entering a super-aged society goes beyond the numerical meaning of having 20% of the population aged 65 or older. The world we will experience in the future will be vastly different from the past. The speed of change is also an issue. It is too fast. At this rate, it is clear that the population aged 65 and over will exceed 40% in 20 years. This change is similar to a car that used to run at 30-40 km/h suddenly racing at 300 km/h like an F1 race.

The way to survive change is either to create change yourself or to adapt; there is no other way. From an individual perspective, aging is entirely a matter of adaptation. However, this is not easy. First, the speed is too fast. Life has inertia, making it very difficult to change habits like bad ones. This is why change is fast, but adaptation is slow. Another reason is that we view the present and future through the lens of the past. Future aging issues should not be seen as a continuation of the past. Just as new wine must be put into new wineskins, we must think on a different level. Discontinuous thinking from the past is necessary.

Focusing on the area of asset management, we must first shift from asset-centered management to cash flow-centered management. In a situation where real estate assets account for 70-80% of household financial assets, individual investors approach the market focusing on the rise and fall of asset prices. However, in the future, holding many assets that do not generate cash flow will make it difficult even to cover necessary living expenses. The government authorities also need to provide institutional incentives so that citizens can secure more cash flow. Corporate dividends should be encouraged to become quarterly dividends like in the United States, and dividend income should be taxed separately like in Japan or the U.S. to help generate cash flow. The same applies to REITs investing in real estate. Most REITs currently pay dividends semiannually, but the system should be improved as soon as possible to allow monthly or at least quarterly dividends like overseas.

The job issue is also urgent. Although discussions on extending the retirement age are underway, this requires much debate and consideration. Even if introduced, those who retired earlier will not benefit from the law. Realistically, there are not many retirees who have sufficiently prepared for old-age funds, so efforts must be made to provide enough low-income jobs for the elderly. Staying longer in a job is the most reliable old-age measure. According to research by Boston College, delaying retirement by just two years reduces the risk of a decline in living standards by about half.

Family relationship readjustments are also involved. In Japan, expressions such as “wet leaf generation” and “retired husband syndrome” have emerged as the country entered a super-aged society. The division of labor within the household and the vertical relationships with children, which existed when the husband was working, began to collapse all at once. The husband's role must be redefined from a horizontal perspective, but this is difficult with mindset changes alone and requires much education and counseling. Currently, our society does not have such infrastructure at all.

The investment horizon must also be further expanded. Domestic investors are already expanding their investment horizons by investing in the United States and other countries. Moreover, financial innovation has introduced various forms of monthly payout exchange-traded funds (ETFs), which are receiving much love from investors. In the future, a cash flow portfolio, not an asset portfolio, should be constructed by combining various investment assets. Domestic financial companies should provide various services so that individual investors can build cash flow portfolios suited to themselves.

Lee Sang-geon, Head of Mirae Asset Investment and Pension Center