Five threats to Korean retirement, and how to avoid them

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Five threats to Korean retirement, and how to avoid them

Published: 08 May. 2025, 00:04

Audio report: written by reporters, read by AI

Kim Gyung-rok

The author is senior adviser at Mirae Asset Global Investments

In Korea today, 64 out of every 100 people aged 60 to 64 are still working. That figure is up from 58 just a decade ago. In the past year alone, the number of employed people in this age group has increased by 370,000, while employment among those younger than 60 has declined by 180,000. Despite 60 being the statutory retirement age, many Koreans in their 60s remain active in the labor force.

A senior citizen eats juk (Korean porridge) on the side of the road in Jongno District, central Seoul, on March 24. [NEWS1]

When I argue that postretirement employment is essential, the response is often frustration: “Must we work our entire lives?” Given the hard labor history of Korea’s baby boomers, such sentiment is understandable. But a comparative lens is necessary. When viewed alongside advanced economies, it becomes clear that Korea’s retirement system remains underdeveloped in key areas.

First, contributions to the public pension system are low and the payment period is short. Organisation for Economic Cooperation and Development countries typically impose pension premiums exceeding 18 percent of income. In contrast, Korea’s National Pension Service contribution rate was 9 percent until a recent reform raised it to 13 percent. But this is still low. More striking is the brevity of the contribution period. Those newly qualifying for Korea’s national pension have contributed for fewer than 20 years on average. In Europe, the average is 35 years. Even by 2050, this figure is expected to reach just 24 years in Korea.

An elderly care scene. [JOONGANG ILBO]

Second, retirement comes too early. While Korea’s statutory retirement age is 60, many retire from their main jobs in their early or even late 40s. In the West, retirement often occurs after age 65. The United States and Britain do not mandate a retirement age at all. People tend to save the most in their 50s, but early retirement severely limits the ability to build final reserves. Even for those who find new work, income typically falls by half.

Third, Korea is seeing a surge in “double care” households — those supporting both children and elderly parents. This has been a social issue in Japan, but Korea’s version is more extreme. Due to late marriages and increased longevity, children are slower to become independent. Private education costs and wedding expenses are among the highest globally. Unlike in the West, older parents in Korea are often not financially independent, and state welfare is lacking. Long-term care expenses can exceed 4 million won ($2,900) per month. When 50-somethings face reduced income after early retirement and must simultaneously care for both generations, savings turn negative.

Fourth, Korea’s private pensions are often poorly managed and leak over time. During the 1997 Asian financial crisis and the 2008 financial crisis, many people withdrew retirement funds early. Even after the launch of the retirement pension system in 2005, early withdrawals continued. Many defined contribution retirement accounts are managed through principal-guaranteed products, resulting in low returns and slow asset accumulation.

Fifth, Koreans live long but spend more years in poor health. Korea’s average life expectancy is 84, the third-highest in the world. That’s six years longer than that of the United States. On that basis alone, Koreans must prepare to spend significantly more on living expenses — around 240 million won more, assuming annual costs of 40 million won. Compounding this is Korea’s short “healthy life expectancy” of just 73 years, meaning that people spend nearly a decade of late life requiring substantial medical care.

In sum, compared to their peers in advanced economies, older Koreans spend fewer years working in primary careers, have less access to robust public or private pensions, carry greater intergenerational burdens, and face longer — and costlier — retirement periods. It is increasingly clear that working beyond 60 is not just optional, but necessary. The effective retirement age in Korea is now around 72, making this prolonged period of postretirement employment a uniquely Korean phenomenon. As one might put it, retirees in Korea don’t go straight to heaven — they pass through a purgatory of prolonged, low-income labor first.

An elderly man looks over a list of job postings at the Mapo District Senior Job Fair held at the Mapo District Office in Seoul last year. [YONHAP]

To secure a better old age, Korea must narrow five structural gaps. First, delay retirement and bring forward the start of employment to lengthen the span of one’s primary career. Second, build a structured reemployment market that addresses information asymmetries. Third, reform public pensions and improve the efficiency of private ones. Fourth, reduce private education spending. And fifth, shift some of the burden of retirement from the individual to society and the state.

Underlying all of this is the labor market. A strong labor market leads to strong pensions. Korea must build a more generationally sustainable system, one that aligns with the fourth industrial revolution and an era of extended longevity.

None of this will be easy. There are no shortcuts to a secure retirement. If Korea opts for the easier path of expanding welfare without laying structural foundations, it risks becoming an unsustainable society in the long run. Overcoming these five embedded structural challenges is the only way to transform retirement in Korea from an anxious purgatory to a dignified finale.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.