[Financial Planning for the 100-Year Life] How to Respond in the Era of Early Retirement

Consideration Needed for Minimum Living Expenses Through "Saving"
After Retirement, Marital Harmony and Other Factors Must Be Addressed Together
In Korea, Middle-Aged and Late-Life Divorces Account for 36% of All Divorces... Compared to 23% in Japan

As our society enters an era of early retirement, the lack of financial preparation has emerged as the most serious issue for post-retirement life. According to data released by the employment consulting firm JobKorea at the end of 2023, the average perceived retirement age among workers aged 40 and above is 53.4 years. Typically, retiring in the early 50s means preparing for at least 30 years of 'post-retirement life.'

According to a Statistics Korea survey conducted in March last year, the total assets of households in their 50s?when asset accumulation peaks?amounted to about 600 million KRW. The problem is that most of these assets are tied up in real estate or debts. Due to population decline and economic stagnation, real estate values are likely to decrease in the long term, and failure to repay household debt could lead to housing poverty. Except for special occupational pension recipients (public officials, teachers, military personnel), the majority of the population faces a significant shortage in pension preparation for old age.

The most important countermeasure is 'saving.' Over the past 30 to 40 years, we have lived through an unprecedented era of high economic growth in world history. Because of this, compared to advanced countries like the United States and Japan, where rational consumption is habitual, there are many unnecessary waste factors. Now, we must eliminate waste in daily life and develop the ability to live according to the given economic circumstances.

In particular, reducing child-related expenses such as education and wedding costs is crucial. South Korea ranks among the countries with the highest child-related expenditures relative to income worldwide. Only by reducing these expenses and providing proper education for children to become independent can both parents and children thrive.

Secondly, from the start of working life until death, one should prepare to receive at least the minimum living expenses through public and private pensions. This allows retirees to feel secure and seek new opportunities after retirement. To receive minimum living expenses from pensions, a certain minimum contribution period is required, so it is necessary to enroll in the three-tier pension system (National Pension, Retirement Pension, Private Pension) from one’s 20s or 30s. For those who have not prepared the three-tier pension, there is also the option of using housing pension, farmland pension, or mountain land pension, which allow one to receive living expenses (pension) by using owned housing, farmland, or mountain land as collateral and settle the balance upon death.

The third is to prepare for work that can be done even after retirement. The three major anxieties after retirement are money (retirement funds), health, and loneliness, and the best way to alleviate these anxieties is through work. Retirees without sufficient retirement funds should first find work that generates income. Ideally, they should prepare during their active working years to continue what they have been doing or find differentiated work. If they have not prepared, they need the mindset to do even menial jobs without concern for others’ opinions or reputation. Retirees without worries about retirement funds look for work that allows them to earn a little pocket money while engaging in hobbies or social contribution activities.

The fourth, related to the previous three countermeasures but even more important, is marital harmony. After a husband’s retirement, conflicts between spouses increase, leading to a rise in middle-aged and late-life divorces. Late-life divorce generally results in splitting assets in half and can lead to old-age bankruptcy. The reason marital conflicts after retirement have become a social issue is that couples have had no opportunity to prepare for marital harmony after retirement. Notably, middle-aged and late-life divorces are increasing faster than in Japan. The proportion of middle-aged and late-life divorces among all divorces rose from 5% in 1990 to 36% in 2023.

In retired Japanese households, it is considered normal for spouses to each have their own work and personal time. They believe work benefits both economic aspects and marital harmony. This is something we should take note of.

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