[Financial Planning for the 100-Year Life] If You Want to Make Money, Make Your Money Work Too

Consistent Retirement Preparation from Your 20s and 30s
Essential to Study Pensions and Asset Management

In today's era of living to 100 years, proper retirement preparation must begin simultaneously with starting a career in your 20s or 30s. Retirement preparation is not just about saving tens of millions or hundreds of millions of won for old age. It requires comprehensive planning to address longevity risk, health risk, child-related risk, asset structure risk, inflation risk, and more.

The most important preparation to start in your 20s and 30s is enrolling in the three-tier pension system (National Pension, Retirement Pension, and Personal Pension). When we think of welfare-advanced countries, we tend to imagine nations where most citizens prepare hundreds of millions of won for retirement, but that is not the case. Advanced countries prepare so that people can receive at least their minimum living expenses as a pension until they pass away.

When asked about the main source of income for elderly people in advanced countries like the United States, Japan, and Germany, about 60-90% respond that it is public or private pensions. In contrast, only 22% of elderly people in Korea say their main source of income is a pension. This is because only former public officials, military personnel, teachers, and some elderly who have personally prepared special pensions fall into this category.

So, what is the main source of income for elderly people in Korea? In a 1980 survey, 72% answered "help from children." In a 2021 survey, only 14% said their main source of income was help from children. If the same survey is conducted again in a few years, this percentage will likely drop to levels similar to the U.S. at 0.7%, Japan at 1.9%, and Germany at 0.4%. No advanced country expects children to bear their parents' living expenses.

Many people around us have accumulated considerable wealth in real estate or financial assets but cannot spend money because they lack a steady monthly income. Retirement funds need to outlast one's lifespan, and the anxiety about running out of money before passing away is understandable. Yet, surprisingly, many office workers do not pay attention to the pensions they are enrolled in. It is essential to start by studying the importance of retirement fund preparation and pensions, including the characteristics of different pension types, pension taxation, and pension asset management.

Especially important is studying pension asset management. For DB-type (company-responsible) pensions, the amount received is fixed, so once enrolled, there is no need to worry further. However, for DC-type (participant-responsible) pensions, the pension amount varies depending on investment results, and the participant is responsible for those results. Since the performance depends on which asset management company operates the fund products in the DC pension, it is necessary to study how to choose a competent management company.

Along with pension-related studies, another crucial retirement preparation to start in your 20s and 30s is efforts to increase your personal value, that is, investing in human capital. This is because the working environment for employees is rapidly changing with the advent of the Fourth Industrial Revolution. According to data surveyed and announced in 2022 by JobKorea, a domestic employment consulting firm, the average perceived retirement age for Korean workers aged 40 and above is 51.8 years. Many workers face an uncertain environment where they do not know when they must leave their company by their mid-40s. In recent years, during the investment boom called the "Donghak Ant Movement," the phrase "Make your money work too" became popular. This reflects the anxiety of workers about their jobs. However, young workers should critically assess whether "making money work too" means focusing only on money and neglecting their careers.

Kang Changhee, Head of Truston Asset Management Pension Forum

This content was produced with the assistance of AI translation services.