[Financial Planning for the 100-Year Life] Wise 3-Stage Asset Management Strategy for Life

“I am about to receive my retirement severance pay. Can I invest this money in stocks to prepare for my retirement funds?” This is a question I often receive when giving lectures to those about to retire.

It is quite a difficult question to answer. You might think I could just recommend promising stocks, but that is not the case. While I can guess the age of the person asking, I cannot say “Buy OO stock” without considering their financial status, family situation, investment preferences, and investment period. More importantly, the mindset toward asset management of the person asking does not seem much different from that of young active workers.

If we compare life to mountain climbing, retirement is the turning point where one finishes ascending and begins descending. Descending is more dangerous than ascending. The same applies to asset management. After retirement, instead of thinking about making money through aggressive investments, more attention should be paid to managing the decreasing assets.

Asset management strategies can generally be divided into three stages according to life phases. The first stage is the period of working and accumulating assets. This is from starting a career until just before retirement. During this period, income usually exceeds expenses. It is advisable to actively invest the surplus money after living expenses in investment products while adhering to the principles of long-term and diversified investment. However, it is problematic if one spends too much time on asset management and neglects their main job. The greatest investment engine in a person’s life is the income earned from their primary occupation.

The second stage is from just after retirement until around age 80. Since there is no regular salary income after retirement, part or all of the living expenses must be withdrawn from the accumulated retirement funds, while the remaining funds should be managed through financial products. Although retired from the company, one is not yet retired from asset management. Efforts to reduce living expenses are necessary, but so are efforts to increase investment returns. Globally, it is recommended to withdraw living expenses within 4% annually of the total accumulated retirement funds. This allows the funds to last for 30 to 40 years. The remaining funds are advised to be managed with a target return of about the fixed deposit interest rate plus alpha. Given the current interest rate level in Korea, this means about 3-5% annually. This implies a conservative management approach.

More importantly in the second stage is the effort to minimize withdrawals from retirement funds whenever possible, to carry over as much as possible to the third stage. First, efforts should be made to reduce living expenses after retirement. This could include downsizing the home or relocating to a rural area. It is also necessary to reduce other living expenses such as congratulatory and condolence money, cultural expenses, and expenditures related to children. Another important factor is pensions. If one has prepared by subscribing to the three-tier pension system (National Pension, Retirement Pension, and Personal Pension) during their working years to receive a fixed monthly amount, the withdrawal amount can be reduced by that amount. Most importantly, work is crucial. Whatever the job, efforts should be made to earn earned income of 500,000 to 1,000,000 KRW.

The third stage begins in the late 70s or early 80s. The timing may vary slightly for each person, but at this stage, judgment gradually deteriorates, so one should graduate from active asset management. Most funds should be placed in short-term financial products without principal loss concerns, such as savings accounts or Comprehensive Asset Management Accounts (CMA), and be carefully withdrawn. In this stage, it is especially important to save on living expenses and make substantial withdrawals. The goal of post-retirement asset management is to manage the retirement funds so that they last longer than one’s lifespan.

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

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