[Financial Planning for the 100-Year Life] Three Misconceptions That Hinder Retirement Planning

Consider the Probability of Living Beyond the Average Lifespan and the Risk of Critical Illness
Children Are No Longer a Retirement Plan... Prepare for the Risk of Adult Children

"They say we live in an era where people can live to 100 years old, but how many hundred million won should one have for retirement funds?" This is a question I often receive during lectures on retirement planning. In today's difficult economic situation, how many office workers can prepare several hundred million won in retirement funds excluding the house they live in when they retire? It is said that the period in life when people have the most assets is in their 50s, just before retirement. According to Statistics Korea's 'Status of Assets Held by Households in Their 50s as of March 2024,' the total assets per household amount to 614 million won, and after subtracting the average household debt of 103 million won, the net assets are 511 million won. If someone in their late 50s holds this much net assets, one might think they can manage to live reasonably well.

The problem is that among these net assets, the value of real estate including the residential house is 437 million won. Excluding this, the available net financial assets are 84 million won. How can one live for 30 to 40 years of retirement with this money? The remaining asset is real estate, but in an era of low growth and aging population, there is concern whether real estate prices will be properly maintained. Unlike advanced countries, pension preparations are not well established. Even if you save several hundred million won for retirement, if you fall into three misconceptions that hinder retirement planning, that money becomes meaningless. What are these three misconceptions?

Many people think they will live as long as the difference between their current age and the average life expectancy (82.7 years as of 2022), but this is the first misconception. You should think in terms of the age at which there is a 20% survival probability, meaning 1 in 5 people survive. According to a 2020 estimate by Professor Park Yoo-sung of Korea University, for those born in 1980 who turn 45 this year, the probability of surviving to 100 years old is 20.2% for men and 21.9% for women. You should prepare for retirement keeping in mind a 100-year lifespan.

Another problem is that while life expectancy has increased, the retirement age is getting earlier than before. According to a survey by job consulting firm JobKorea last year, the average perceived retirement age among Korean workers over 40 is 51.8 years. Retiring in the early 50s and living close to 50 years until 100 years old is not just about money but also about what to do with your life. For this reason, workers in advanced countries look for something they can do after retirement according to their circumstances. If they judge that their saved retirement funds are insufficient, they are willing to do menial jobs without pride to earn the lacking living expenses. On the other hand, those who have no worries about retirement funds engage in hobbies or social contribution activities while earning some pocket money. Such cases are increasing in Korea as well. When life expectancy was 70 to 80 years, the typical life pattern was 'study - employment - retirement,' but in the 100-year era, one must think of living a cyclical life of 'study - employment - study - re-employment.'

The second misconception is thinking that death will come suddenly and quietly one day. That is not the case. Many people live longer but suffer for a short period of 2 to 3 years or even up to 10 years with money problems, loneliness, and other difficulties before passing away. As life expectancy increases, such cases will increase even more. Looking at survey results in the US and Japan about whether living expenses decreased after retirement, 30 to 40% said they did not decrease. This is due to medical and nursing care costs. If a similar survey is conducted in Korea, the percentage saying 'did not decrease' would be even higher. According to a survey by Japan's Cabinet Office asking people aged 60 and over in major countries, 60 to 70% of elderly in advanced countries answered that they are 'healthy.' In contrast, only 40% of elderly in Korea answered 'healthy.' It is essential to prepare by subscribing to critical illness insurance and other measures.

The third misconception is still thinking that children are their retirement plan. This is the most serious misconception. In 2023, CNN in the US announced the ratio of child-rearing costs to income in major countries worldwide, and Korea ranked first. Even after children become adults, expenses related to children such as marriage costs, housing funds, and business capital support do not end. The number of 'kangaroo kids' who cannot become independent and depend on their parents for living expenses even after adulthood is increasing. As of the end of June last year, there were 680,000 unemployed 20-30-year-old kangaroo kids, and the total number of adults was reported to be 3.13 million. No wonder the term 'adult children risk' has emerged. What is urgent for parents now is to help their children develop economic independence and prepare their own retirement funds.

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