Avoid risk, go for steady income

MetLife expert on retirement plans advises Korean baby boomers

By Kang Seung-woo

Korea’s baby boomers need to seek ways to secure guaranteed income in preparation for their post-retirement life, rather than engage in high-risk, high-return investments, a U.S. expert said.

A recent study by the MetLife Korea Foundation, the Seoul National University Institute on Aging and Gallup Korea showed that baby boomers are currently saving for retirement in installment savings, stocks and funds along with real estate.

“They want extremely high returns, but no risk. If you look at the risk return issue, the higher the return, the more the risk. What baby boomers really need to look at is decreasing the risks to see more income," John Migliaccio, director of research at the MetLife Mature Market Institute (MMMI), said in an interview with The Korea Times.

“If they have more ways of guaranteed income during their life whatever they might be, that will be helpful to them (in preparing for retirement) because they do not have to worry about whether the stock market goes up or down and housing prices are going up or down. It does not matter because you have guaranteed income that is coming in. That’s what gives people peace of mind and security.”

Korean baby boomers were born between 1955 and 1963, the period after the Korean War ended in 1953 that saw a sharp increase in birthrates and there are currently 7.2 million in that generation.

According to the joint research, the nation’s baby boomers are not fully ready for their retirement.

“People think ‘I can do it on my own’ and we cannot emphasize enough it is worth preparing for,” he said.

“In many cases, people will be spending more time and years in retirement than they did at work, so I think it is worth preparing them, providing them resources to be able to look at those issues ― money, health, finance, employment, children, legacy, insurance, and legal and housing issues ― because they are very complex.”

He also pointed out that people’s groundless optimism about post-retirement life can hurt them in gearing up for their future.

“We can identify different types of people and only a few of them are really planners. In that sense, there are many who have a sense that no matter what happens it will turn out OK, which is very unrealistic. You can only do that for so long and at some point, you have to wake up, or you are going to be late,” said Migliaccio.

He said that neither baby boomers in Korea or the United States do a good job in terms of coming up with retirement plans, but the Americans have more choices in terms of the economy.

“I think the area where the American baby boomers are is somewhat different in that they have a wider variety of, particularly, economic and financial sides in comparison with Korean baby boomers. So, they do not have as much concentration of their potential financial security in their home as in Korea,” he said.

The research showed that Korean baby boomer household assets consist mainly of real estate at 82 percent, which he called “very high” from what he has learned in the United States from the housing recession and housing bubble.

Migliaccio added that the Americans also have a wider variety of sources of income. For example, every worker enrolls in the social security system in the United States, which provides them an economic foundation and safety net, while about half of the baby boomers are also employed by companies which provide them with pension plans.