[Financial Planning for the 100-Year Life] Household Assets Also Need Restructuring

One of the important tasks to be done before retirement in your 50s and 60s from the perspective of asset management for old age preparation is restructuring household assets. According to Statistics Korea, the age when people have the most wealth in their lives is in their 50s. As of March 2023, the average total assets per household for those in their 50s is 604.5 million KRW. Subtracting the average household debt of 107 million KRW, the average net assets amount to 497.5 million KRW. One might think that having net assets of 497.5 million KRW in the late 50s would be sufficient to live reasonably well. However, the problem is that 86% of that, or 427 million KRW, is in real estate, mostly a single home. The available net financial assets amount to only 70.5 million KRW. Not only the asset size but also the asset structure, which is excessively concentrated in real estate compared to advanced countries where the real estate proportion in household assets is around 30%, is a bigger issue.

Ultimately, most households have to rely on real estate for their old age, but is that really feasible? Comparing the collapse of the real estate bubble and subsequent price trends in Japan, which is 20 to 30 years ahead of us in a low-growth, low-birthrate, and aging society, with the situation in Korea raises concerns. One important indicator of real estate prices is the land price index of Japan's three major cities (Tokyo, Osaka, Nagoya), which started at 100 in 1982, rose to 290 at the peak of the real estate bubble in 1991, and then fell to 102 by 2012.

Currently, Japanese people do not have the same emotional attachment to owning a home as we do. The mindset is strong: "What if I don't have a house? I can just rent." For example, if someone has several hundred million KRW in financial assets but no home, they calmly consider whether to take out a loan from the bank to buy a home or to rent and use the money elsewhere. On the other hand, what has been the atmosphere in Korea over the past few years? The dominant sentiment has been that even if people have little money, as long as they can get a loan from the bank, they must buy a house unconditionally.

From the perspective of old age preparation 10 to 20 years from now, an asset structure concentrated in real estate is very likely to act as a risk factor for old age life. It is also necessary to consider the long-term demand outlook for housing. Mainly, young generations buy houses. According to predictions by the "Mirae Asset Investment and Pension Center," between 2000 and 2020, the number of households in their 20s and 30s decreased by 1 million, and between 2020 and 2040, it is expected to decrease by another 1.3 million households.

The generation increasing their housing stock is mainly those in their 40s and 50s with many children. However, while the number of households in their 40s and 50s increased by 2.6 million over the past 20 years, it is expected to decrease by 1.9 million over the next 20 years. Households aged 60 and above increased by 4 million in the past 20 years and are expected to increase by another 5.3 million in the next 20 years. However, most elderly households either already own a home or do not have the means to live even if they do not.

Of course, it is impossible to make definitive statements about buying or selling a home based solely on the above factors. However, from the perspective of old age preparation, the only advice is to adhere to the principles of asset management. Investment involves risks. Therefore, assets should not be concentrated in one place. If most of your assets are concentrated in real estate, you should reduce the proportion of real estate and increase financial assets. Around retirement, even if not to the level of advanced countries, the ratio of real estate to financial assets should be about half and half. Purchasing a home with excessive debt should be especially avoided. This is the principle of asset management for old age preparation. If you reduce your housing and increase financial assets, or if you cannot reduce your housing, using a reverse mortgage is recommended. By using a reverse mortgage, you can live in your home for life while receiving a certain amount of living expenses, settle the balance after death, and any remaining amount can be inherited.

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

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