By Kim Jae-won
Koreans need 50 million won ($47,000) a year to avoid an acute squeeze in living standards after retirement, according to a study by a British financial group.
The 50.08 million won in annual fixed income suggested by a Fidelity Asset Management Korea report was based on information it gathered last year and assumed consumer price inflation of 3.4 percent, which was the yearly average between 2007 and 2011.
However, the real income of Koreans over 60 is expected to be far below that level. The average retirement income replacement ratio (RIRR) of the average household was measured at 43 percent in 2012, 18 points lowered that the target income replacement ratio (TIRR) of 61 percent. RIRR compares a person’s income level before and after retirement, while TIRR reflects expectations for future living expenses.
Fidelity said that local workers should prepare as early as possible to narrow the gap between expectations and reality.
``One of the most important things when preparing for retirement is time. I strongly recommend young people to set money aside for their future right now,” said Choe Hyun-cha, a Seoul National University (SNU) professor, who supervised the retirement research.
Choe said one way to prepare for retirement is to put part of one’s income into pension accounts regularly. She claimed the government needs to keep consumer prices under control so as not to burden retirees. If inflation rates go up faster, retirees may need more money as their asset values will decrease.
She also urged the government to compensate retirees’ income through the national pension fund, which is still at an early stage, comparing to other advanced economies.
In terms of age group, those in their 50s are the most vulnerable to life after retirement. Their average RIRR was 39 percent, 20 percentage points lower than their average TIRR. It means that their expectations are higher than their likely real income after retirement.
People in their 30s are relatively better positioned to prepare for retirement. The gap between income expectation and reality was 11 percentage points for them, narrower than for other age groups.
By occupation, office workers are the best-prepared as their gap between RIRR and TIRR was just 8 percentage points, while salespeople were the most vulnerable with a 27 percentage point gap.