Koreans unprepared for retirement

By Yoon Ja-young

Koreans will have only half the money needed for life after retirement because of excessive spending on children and household debt, a survey shows.

According to a KB Financial Research Institute report, an average 2.3 million won is needed monthly for life after retirement.

But its survey of 2,906 Koreans showed they expect to have income of only 1.1 million won a month. This comes from their pension, public and private, as well as savings and other financial assets. It means they will have only 48 percent of the money they need.

It showed that couples with children are especially poorly prepared. While singles expect to have 890,000 won ready, which is 64 percent of the 1.4 million won they need each month, couples with children are likely to have 1.1 million won a month, which is less than half the 2.5 million won they would need after retirement.

Four out of 10 Koreans expect their life to be unstable after retirement, while only 17 percent expect stability. When asked why they are not prepared adequately, they cited low income, excessive spending on children and household debt as the main reasons.

According to a Korea Consumer Agency survey, Koreans with children in elementary school are spending, on average, 370,000 won a month per child for private education. Many regard it burdensome, with 35 percent of households spending more than 20 percent of their income to send their children to hagwon and tutors.

Bank of Korea data also shows that the ratio of debt to disposable income averaged 164.2 percent as of the end of last year, which means households that have 10 million won a year to spend are shouldered with 16.4 million won of debt.

“Koreans are generally well aware that they should make preparations for retirement, but actually they haven’t prepared that much,” said Noh Hyun-gon, a senior research fellow at the institute. “It is crucial for them to control spending on children and solve the household debt problem.”

In the KB survey, Koreans expect to retire at 60.9 years, on average, while they expect to live until 83.1 years.

As baby boomers retire without adequate financial preparation, it is weighing on the Korean economy.

“Households’ average propensity to consume has been falling steeply since the global financial crisis, and behind this is the retirement of baby boomers,” said Ko Ga-young, a researcher at the LG Economic Research Institute.

“They are cutting consumption to try to save money as they haven’t prepared enough for retirement.”

Falling economic growth potential and longer life expectancy are also forcing people to cut spending, according to the researcher.

She said Japan suffered falling consumption for over a decade after the mid-1980s. It resulted in a reduction in production, employment and income, further pressuring consumption. “It formed a vicious cycle, extending the low-growth era over a longer period of time,” she said.