[PB Notebook] The Era of Great Retirement Approaches Reality, Even Taxes Must Be Considered

Hanjae Hyuk Kyobo Life Gwanghwamun Financial Planning Center Wealth Manager

The impact caused by the MZ (Millennial + Z) generation entering society is familiar to us through the book titled "The 90s Generation is Coming." However, on the opposite side, the phrase "The 60s Generation is Coming" is emerging. This is because 8.6 million people born in the 1960s are entering the retirement generation. The '58 Dog Year,' representing the first baby boomer generation, turned 65 years old in 2023, and the 60s generation will follow. This marks the beginning of the great retirement era.

Social interest and the need for retirement preparation are increasing, but it is not possible to rely entirely on national systems like the National Pension. The possibility of the National Pension fund being depleted by 2050 has been consistently raised for a long time. Therefore, individuals must prepare the income needed for life after retirement on their own, and interest in pension insurance, which is the most stable means to secure this, is growing.

There are two types of taxes to be aware of regarding pension insurance. First is the comprehensive financial income tax. Pension insurance becomes subject to interest income tax when the profit exceeds the principal paid. For example, if you pay 600 million KRW over 10 years and receive an annual pension of 30 million KRW starting at age 55, there will be no tax issues for 20 years, but from the 21st year, the entire amount received will be considered interest income for that year, and interest income tax must be paid. However, interest income and dividend income are classified as financial income, and if the annual amount exceeds 20 million KRW, the excess is subject to comprehensive taxation combined with other income. Depending on other income, the tax burden can increase up to 49.5%. With recent increases in market interest rates, it is especially important to consider comprehensive financial income tax.

The second tax to consider is health insurance premiums. A surge in the retired population means a surge in medical expenses for the elderly. However, the working-age population paying health insurance premiums is rapidly decreasing. Last year, South Korea's total fertility rate was 0.78, the lowest in the world. Accordingly, health insurance revenue is expected to decline sharply. This year, the health insurance fund is projected to turn to a deficit, and the deficit is expected to grow annually. The current health insurance premium rate of 8% relative to income will rise faster than in the past. If pension income is subject to health insurance premium taxation, the burden will increase.

Ultimately, to realize planned retirement preparation, it is necessary to secure retirement income through tax-exempt income. Insurance is advantageous for securing tax-exempt income. For savings-type insurance where the maturity refund exceeds the premiums paid, there are restrictions such as a 10-year maintenance period and a monthly premium of 1.5 million KRW (or a total premium payment of 100 million KRW if not monthly).

However, if you receive payments through a whole life pension insurance, where you pay and receive yourself while meeting certain conditions, you can receive the amount tax-exempt without limits on amount or period. Also, for protection-type insurance where the maturity refund is less than the premiums paid, the profit can be received tax-exempt without limits on the premium amount. Building a retirement portfolio with tax-exempt income through insurance to eliminate uncertainties in life after retirement will be a key criterion determining the richness of life after retirement.

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