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The Age to Prepare for Retirement is Now More Important than Ever
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The Age to Prepare for Retirement is Now More Important than Ever
  • Sim Ye-eun
  • 승인 2022.03.28 11:56
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  A 31-year-old anonymous office worker, born in 1990, pays more than 100,000 won a month in the national pension. The National Pension System is a type of social insurance that promotes the stability and welfare of the elderly who lose their income or gain disability. It is a structure in which 9% of pension contributions are paid, divided in half between the office worker and his company. He is eligible to receive the national pension after his 65th birthday in 2055. However, people who were born after 1990 will not be able to receive a penny from the national pension fund. According to the Korean Economic Research Institute, the fiscal balance will turn into a deficit in 2039, and reserves will be exhausted by 2055 if the current national pension system is maintained.

 

▲ The number of people to receive the public pension (source=National Assembly Budget Office)
▲ The number of people to receive the public pension (source=National Assembly Budget Office)

 

▲  Prospects of the National Pension fund (source=National Assembly Budget Office)
▲  Prospects of the National Pension fund (source=National Assembly Budget Office)

 

  One of the reasons for the depleting of finances is that Korea is one of the fastest aging countries in the world. Korea was aging at the fastest pace among OECD (Organization for Economic Co-operation and Development) countries. Compared to the time it took to transition from an aging society to an aged society by country, it took 70 years for the United States, 24 years for Japan, and 17 years for Korea. In addition, according to the Ministry of Health and Welfare, the life expectancy as of 2020 was 83.5 years old, compared to 2010 when it was 80.2 years old. As life expectancy is increasing, more money after retirement will be needed. If life expectancy is extended and aging and low birth rate continue to progress, the number of recipients to be supported per 100 national pension subscribers is expected to surge about five times from 19.4 as of 2020 to 93.1 by 2050 according to a report titled “Political Tasks about progressing in aging” from the Korea Institute of Finance.

 

▲ The survey result regarding the preparation for retirement among older generations (source= Yonhap news)
▲ The survey result regarding the preparation for retirement among older generations (source= Yonhap news)

  According to the National Pension Service (NPS), an average of 2.69 million won per month is required for an appropriate retirement, approximately 640 million won is required, assuming that they live 20 years after retirement, and 960 million won is required for 30 years. In other words, it is essential to prepare funds from now on to safely start retirement with a considerable amount of money. However, if the current national pension system continues, new employees and college graduates looking for jobs will not be able to receive the national pension due to the depletion of the national pension finances. To ensure young people benefit the national pension, NPS should make institutional changes.  

  Institutional changes in the national pension system are indispensable for the payment of the national pension to continue for future generations. Yoo Hee-won, head of the pension system research department at the NPS said that the current 9% premium must be raised to 20% by 2050 to continue providing the national pension. Also, the way the government raises funds has to be changed to the “imposition method” where subscribers pay a pension premium each year from the current accumulation method. Now, people receive the national pension from the age of 65. However, the age will be postponed and the amount of the national pension finance will be reduced in the future. In other words, the national pension system will change in the direction of paying more and receiving less. 

  NPS also suggested another measure to increase the joining rate of temporary workers. According to the KDI (Korea Development Institute) report about pension reform, the subscription rate of regular workers is more than twice as high as that of temporary workers and 2.8 times higher for self-employed people. In other words, it is estimated that the probability of joining temporary daily workers with unstable employment status is significantly lower. In response, effective government policy support is needed so that all workers can join the national pension regardless of their employment status or the size of the company.    The importance of preparing personal pensions other than the national pension has increased because young people will receive the national pension at slower rates in the future. The types of personal pensions vary depending on the economic condition and occupation of individual. For example, there are pension insurance, pension savings insurance, and fund investment. A plan to raise funds should be made according to trends in personal investments.

  The way to prepare the retirement fund is to determine what kind of life one wants to live after retirement and set retirement goals. People should specifically set goals they want to achieve in their old age, such as traveling around the world, exercising, living in a house with a large yard, and donating. This is because continuous motivation is needed for people to raise funds for retirement over a long period.  

  Also, it is necessary to predict how long people will live their retirement life. Thereafter, the retirement funds suitable for one's goal and period can be determined. The goal of retirement funds is designed by calculating the appropriate amount and period required for living after retirements such as the expenses for essential living, transportation, dining out, medical treatment, and congratulations and condolences. Accordingly, it is possible to make specific plans on how much money to save and invest.   

 

▲    A chart for planning the funds for old age life, which helps people estimate how much they need to raise before their retirement by calculating the retirement fund. (source= CUF)  
▲    A chart for planning the funds for old age life, which helps people estimate how much they need to raise before their retirement by calculating the retirement fund. (source= CUF)  

  Increasing life expectancy rates threatens to the stability a level of financial support that guarantees a high quality of life after retirement. Young people today should have a more active attitude to prepare personal pensions for their future. Especially, various economic activities are essential so that they can choose a method that suits their investment propensity and achieve the target amount. Finally, the government has to continue to make efforts not only to ensure that the reform of the national pension system is successful but also to help individuals plan their life after retirement.


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