Korea’s Growing (and Aging) Pains: Retirement Savings

This is a Global Problem, and Korea is No Exception
Of course, many elderly Koreans are fortunate to have survived the war. Many have survived conditions unimaginable to Korea’s youth. However, ascension to the first world brings social ills. What wasn’t considered to be an problem, because the main problem was starvation, now does confront Korea. Perhaps it is a “high-quality problem.” Nevertheless, this snippet in the Yonhap website points out the results of a survey regarding whether or not Koreans have enough money to retire. The answer, increasingly popular around the world, is no.

Someone is Going to Have to Pay: Who?
This will be very interesting to watch. Koreans do not have a long history of social welfare programs. In the United States, there is the well-known Social Security system. Despite its flaws, it does provide a retirement income to Americans that have worked for over 10 years in the United States (and are citizens). The money came from taxes paid during workig years. The problem? The population is older, and those that are currently paying are earning less. The result is that the Social Security system is slowly going bankrupt.
This sounds a lot like Korea. However, in a way, it could be even worse. In the United States, Social Security is seen as a “right.” In Korea, it is unclear. Do the elderly think that they are entitled to the funds at the National Pension Service? Do the elderly have the political power to enforce this sentiment? They will need both that attitude and political power in order to force the younger generations of Koreans to help pay for inadequate retirement savings.

Savings and Investment in Korea Relies on Real Estate: Uh-oh
One of the main reasons that older Koreans have felt richer than the youth is because they own real estate in the form of apartments (condominiums, really). The problem with this are many. First, the real estate purchase system is not one of rentals that is known in the western hemisphere. There is no monthly or periodic income. Instead, a large downpayment is made to the owner who gets to keep it for a fixed period of time (3 years). The owner can do what he/she wants, but with interest rates this low, there is a very limited amount of money that can be earned. When interest rates in Korea were nearly 10% a year, this could be a source of income. However, at current rates, the interest income will be inadequate. The second, and perhaps larger problem, is that the price of real estate in Korea is continuously falling. That is due to both short-term and long-term effects. It doesn’t look like there is a short-term fix, and the long-term decline in population looks to be permanent. That means….lower prices, and increasingly worried owners. Well, if those persons all need to sell at the same time, you can fill in the rest.

This is the second of these short articles that are pointing out some of the social issues that will confront Korea as it has become an advanced economy. A monthly rental (wolse) system is becoming more popular in Korea, and rightfully so. Monthly rents for apartments in Korea are stupidly cheap compared to other countries. In addition, the owners will be able to earn a monthly income. For the remaining elderly Koreans, political officials will need to face the issue before Korea looks more like the US and Europe.