By Kim Jae-won
Korea’s baby boomers, those born in the late 1950s and 1960s, will say they never had it easy. After spending most of their teens preparing for difficult school exams, they were thrown into a lead role in the student-led struggle for democratization under the oppressive military governments of the 1970s and the early 1980s.
Well, at least they had plenty of quality jobs to choose from as school leavers or graduates, thanks to the country’s rapid growth as an industrial powerhouse. However, now as they face retirement, the specter of a difficult life seems to be rising again.
According to a study by the state-run Korea Development Bank (KDB), more than 40 percent of Korean baby boomers are in danger of lapsing into bankruptcy after retirement, due to a looming pension crisis and falling real-estate value. It will be critical for them to work beyond their retirement age to avoid an acute fall in living standards, the bank said.
``If a baby-boomer retires at 55 and keeps spending living costs at pre-retirement levels, the possibility of default reaches 41.4 percent,’’ said the report.
The report recommended individuals to diversify income sources in advance as relying on the state pension alone will be insufficient. Monthly payments from national pension here covered only about 42.1 percent of retirees’ living costs in 2011, according to data from the Organization for Economic Cooperation and Development (OECD).
Korea’s ratio of national pension to living costs is quite low compared to other advanced countries. The OECD average was 57.3 percent, driven up by the 61.8 percent average of European countries. Korea also lagged behind emerging economies China (77.9 percent) and India (65.2 percent).
To narrow the gap between the national pension and living costs, the bank suggests retirees to invest in private pension products based on severance pay and properties.
The size of the private pension market in Korea has increased fast, reflecting the public’s increasing concern about life after retirement. According to the Financial Supervisory Service (FSS), deposits in severance pay pensions marked 36.6 trillion won in June 2011, up 92.7 percent from a year ago.
Financial companies compete to lure customers who want to set up their own safety net as the nation’s social safety net is not enough to support their future.
The KDB report also urged the government to allow retirees to transfer their property assets into financial form more easily by offering a wide range of incentives including loosening regulations for property pension registration.
“Korean baby-boomers are facing increasing pressure from deteriorating property prices, and the difficult economy has more people willing to sell their homes. In the U.S. and Japan, real estate prices have plunged as retired baby-boomers seek to sell their houses to secure cash,” said the report.
Excessive reliance on property assets is mentioned as a main factor for the possible liquidity crunch. An average Korean household’s property assets accounted for more than three quarters of total assets in 2010, according to government data. The ratio was even higher for older citizens. People in their 60s saw their property assets mark more than 80 percent of all household assets.
The underdeveloped financial industry also contributed to Koreans’ property-inclined asset portfolio. Koreans still prefer deposits and cash to bonds and equities, which can lead to devaluation of asset value due to inflation.
The report also pointed out that the government needs to restructure social infrastructure in the long-term perspective, such as extending the retirement age and creating more jobs for seniors.