[Financial Planning for the 100-Year Life] Two-Track Lifelong Asset Management Strategy: Growing Wealth and Preparing for Retirement

The two-track strategy offers the advantage of diversifying risk and responding flexibly to changing circumstances. This approach aligns well with lifelong asset management. Let's explore the two-track lifelong asset management strategy for a prosperous life.

When managing lifelong assets, separating and managing two distinct goals can increase the probability of becoming wealthy. The first goal is to increase "discretionary assets" to enhance economic capacity, and the second is to prepare "retirement assets" for a stable post-retirement life.

To increase discretionary assets, it is crucial to accumulate seed money as quickly as possible. Discretionary assets refer to assets that allow you to maintain your current standard of living even in the worst-case scenario. Instead of simply continuing to save, once you reach your target amount of seed money, you should focus on investment strategies to increase returns. A seed fund of around 50 million to 100 million won is sufficient. Assuming an annual return of 15% on 100 million won, the amount doubles to 200 million won in five years. Considering the compounding effect of investing, if you manage your assets for more than 30 years, you could grow your wealth to several billion won. As you gain diverse investment experience, both your asset size and investment capability will naturally increase.

Once you have accumulated a certain amount of assets, reallocating your portfolio-including real estate-further reduces psychological stress. This enables more comfortable investing, makes it easier to stick to your investment principles, and creates a virtuous cycle of generating further returns. For managing lump-sum funds like seed money, an Individual Savings Account (ISA) is ideal. You can contribute up to 20 million won per year for five years, up to a total of 100 million won. Each person can have only one account, and interest and dividend income are tax-exempt up to 2 million won, with any excess taxed separately at 9.9%, providing tax-saving benefits.

For preparing retirement assets, a pension account is recommended. Office workers can maintain stable consumption thanks to the regular cash flow of their salary. After retirement, you need a replacement cash flow-namely, a pension. Financial assets accumulated through a pension provide stability in retirement. It is most efficient to start accumulating pension assets early and contribute for as long as possible at a manageable level. If you contribute 5 million won annually for 30 years at a 5% return, you will have about 330 million won at retirement; at a 7.5% return, you can prepare more than 500 million won in retirement assets.

Above all, make active use of an Individual Retirement Pension (IRP). You can receive a tax deduction for annual contributions up to 9 million won, and when receiving the pension, a low tax rate (5.5-3.3%) applies to up to 15 million won per year. Even if you exceed the limit, you can opt for separate taxation on pension income at 16.5%. The IRP can also be used as an account to receive retirement benefits. You can continue to invest in a variety of financial products, including savings, insurance, Target Date Funds (TDFs), and Exchange-Traded Funds (ETFs), while receiving your pension. If you receive your retirement benefit as a pension from your IRP after age 55 instead of as a lump sum, your retirement income tax is reduced by 30% compared to a lump-sum payment.

By managing both asset growth and retirement preparation simultaneously, you can achieve a synergy effect in lifelong asset management. As your retirement is secured through a pension, you can manage your discretionary assets with greater peace of mind. With a long-term investment approach, even after just ten years, you will feel the progress of your asset management and gain the confidence that you can retire wealthy.

Jinwoong Kim, Research Fellow, 100-Year Life Research Center, NH Investment & Securities