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Posted : 2008-07-01 18:35
Updated : 2008-07-01 18:35

Korea Least Prepared for Retirement


Seoul National University Professor Choe Hyun-cha, second from left, announces Korea’s retirement readiness index with executives of Fidelity International at the Federation of Korean Industries building in Seoul, Tuesday. / Courtesy of Fidelity

By Park Hyong-ki
Staff Reporter

Koreans are the least prepared financially for retirement among countries worldwide.

It is time to take this seriously and prepare by investing in a variety of assets, instead of relying solely on property, said Fidelity International, a global asset manager.

Announcing the retirement readiness index Tuesday, Fidelity Korea noted that the country's retirement income replacement ratio stands at 41 percent of the average income before retirement, far below that of Taiwan, Japan, Britain and the United States.

The ratio is a measure of the actual income after retirement to the income just before retirement.

Assuming that the annual income of a Korean household is 10 million won, the actual expected income after retirement would be 4.1 million won. However, the desirable ratio for post-retirement life should be 62 percent, or 6.2 million won under the assumption, said Fidelity.

The asset management firm and Seoul National University's retirement planning support center calculated the ratio, utilizing data from the statistical office and Koreans' indirect investment patterns. The measure of the index includes assessing expected pension, severance payment and savings.

``The readiness index clearly shows that people are not well prepared for retirement,'' said Choe Hyun-cha, a Seoul National University professor in charge of computing the index. ``Everyone, in general, needs to actively allocate their assets through investment at an early stage.''

She said the sooner the better. ``It will be too late to begin managing investments for retirement after buying a house and paying for children's education.''

Investment in property, which still accounts for the majority of asset allocation in Korea, has limits as to expanding individual liquidity, Choe noted.

Satoshi Nojiri, director of Fidelity Retirement Institute based in Japan, said Korea still has time before it becomes an aging society like Japan. Given Japan's high life-expectancy of over 80, the reliance on bank deposits and pensions poses a major problem to the country.

In a recent survey of 1,000 Japanese senior citizens between 60 and 65, three in four said they depend on pensions for post-retirement. Over 60 percent said they have no plan to invest their savings in the near future.

``This is a grave concern for Japan. Korea, on the other hand, has time. So, whether the country posts a strong or weak economic growth going forward, prepare by investing,'' said the director.

phk@koreatimes.co.kr

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