[Financial Planning for the 100-Year Life] Managing Assets After Retirement

Korean Retirees Hold Too Much of Their Wealth in Real Estate
They Should Restructure Their Portfolios to Increase Financial Assets

South Korea has entered a “super-aged society,” with people aged 65 and older accounting for more than 20% of the population. Population aging is also having a significant impact on the asset management environment. As people grow older, their physical abilities decline, and so does their capacity to earn income through work. As a result, they need to support themselves with savings accumulated during their working years. Without sufficient assets, many people inevitably become more concerned about the future than the present. Interest rates tend to rise when people spend more of their money on current consumption, and generally fall when more people save. This environment poses a major challenge for retirees who hope to live on interest income, as they need more retirement and financial assets. So how should people manage their assets after retirement?

First, they should restructure their assets to increase the proportion held in financial assets. South Korean households hold an average of KRW 136.9 million in financial assets, accounting for just about 24% of their total assets. For households whose heads are aged 60 or older, average financial assets amount to KRW 112.36 million, and their share of total assets falls to 18.7%. This is far lower than in advanced economies such as the United States and Japan, where financial assets account for 60-70% of total assets. Most household wealth is tied up in real estate, particularly homes. If people do not expect real estate prices to rise in the future and want greater flexibility in managing their assets, they need to increase their financial assets. Since it is difficult to build up sufficient financial assets in a short time after turning 60, they should secure them by restructuring their portfolios. For example, it would be advisable to reduce their real estate holdings by moving to a smaller home or a less expensive area, then manage the resulting proceeds as financial assets.

Second, they need to use financial investment products to improve returns on their assets. Rather than holding all their financial assets in safe investments, they should look for ways to grow the money they will need in the future through long-term investing. Safe financial products such as bank deposits and installment savings account for 75% of financial assets in South Korea, making it difficult to grow those assets. In a low-interest-rate environment, safe assets are unlikely to achieve the goal of growing wealth beyond providing liquidity. Financial investment products do, of course, involve the risk of volatility. However, long-term diversified investing can help mitigate volatility and pursue a certain level of returns. Provided they adhere to these investment principles, retirees should consider allocating around 30-50% of their financial assets to financial investment products. They should also consider diversifying into global assets. Expanding their investments overseas is a sensible way to diversify their opportunities.

Third, retirement assets should always be managed separately. As people live longer, the period during which they support their children is also lengthening. Many children have yet to complete their education, including university, and they are increasingly getting married later in life. Even after marriage, rising real estate prices are making it increasingly difficult for young people to buy a home. As a result, many parents remain concerned about supporting their children after retirement. However, preparing for retirement and supporting children must be approached in a balanced way. If supporting children at the expense of parents' retirement undermines their financial security, it can create a vicious cycle that ultimately burdens the children. Make retirement assets a priority before deciding whether to support your children and how much to provide.

Kim Jinwoong, Head of the Digital Asset Management Promotion Department at NH Investment & Securities

This content was produced with the assistance of AI translation services.