A Worker in His 30s Asks, "I Need to Buy My Own Home Too... How Far Should I Help My Parents in Retirement?" [Finance Q&A]

[Financial News] A worker in his 30s who works at a small and medium-sized company is currently living in his parents' home, but he is considering moving out because it is far from his office. He thinks rent would be too burdensome on his salary, so he plans to save more money and buy a home of his own for 350 million won in five years. At the same time, he has become increasingly worried that he also needs to plan for his parents' retirement. His parents are in their 70s, and their home, which was built more than 30 years ago, is now worth about 500 million won. Since there have been talks of redevelopment, he may also need to cover redevelopment contributions when he moves out. They currently live on public pension payments and allowance from their son, but they do not have much cash beyond the house. He decided to seek financial advice because he felt they need a serious savings plan for future medical expenses and other needs.

A 35-year-old worker earns 2.83 million won a month. Annual irregular income amounts to 8 million won. Fixed expenses, including insurance premiums of 145,000 won, telecom bills of 29,000 won and 300,000 won in allowance for his parents, total 474,000 won a month. Variable expenses, including transportation costs of 80,000 won and food and living expenses of 400,000 won, come to 480,000 won. He saves 1.3 million won a month, including 700,000 won in a Youth Leap Account, 500,000 won in Private Annuity Savings and 100,000 won in housing subscription savings. His assets total 215 million won, including 56 million won in deposits and savings, 141 million won in ISA and investment assets, and 18 million won in Private Annuity Savings. His annual expenses amount to 9 million won.
According to the Financial Supervisory Service on the 19th, the most desirable approach in financial planning is to prepare separately for parents' retirement and a child's independence. In A's case, key variables include the fact that he has never thought long term about marriage or a specific life plan, and that the redevelopment contribution for his parents' home has not yet been determined.
The Financial Supervisory Service presented two options for A. The most recommended option is to keep his parents' retirement planning separate from the management of A's own assets. A's parents currently receive 1.5 million won a month in public pension payments, while their monthly living expenses are a little over 2 million won. If they sell their current home, which would require redevelopment costs, and move to a house of similar market value, a couple aged 70 could receive about 1.53 million won a month through a Korean Home Pension. With the Korean Home Pension, A's parents would receive about 3 million won a month in total, allowing them to cover medical expenses with the remaining funds.
In that case, A's parents could prepare for retirement on their own, but they would have to give up part of their goal of growing assets through redevelopment. If A calculates the amount he can save each year, he would have 21.5 million won left after subtracting total expenses, including fixed and variable costs of 11.44 million won and annual expenses of 9 million won, from total income of 2.83 million won times 12 months plus 8 million won in irregular income. In five years, that would add up to another 100 million won, so buying a home worth 350 million won should not be too difficult.
The second option is to place more weight on home redevelopment. However, the Financial Supervisory Service advised that the first thing to consider is the significant cost burden that redevelopment entails. Due to recent increases in construction material prices and building costs, there are many cases in which the sale price for association members in 24-pyeong apartments in the Seoul metropolitan area, valued at 400 million to 500 million won, exceeds 700 million to 800 million won.
If A's parents do not have enough cash on hand, it would not be easy for them to raise the redevelopment contribution on their own. In that case, A may also have to put his current assets and the money he saves over the next 10 years or more into redevelopment costs. Even if he inherits the property, it is likely to happen when he is in his 50s or 60s, making it difficult to use the money for his own life plans such as independence or marriage. The Financial Supervisory Service explained that choosing redevelopment should be approached cautiously, as it is based on expectations of future real estate price gains.
If redevelopment is pursued, three things should be checked in advance. A Financial Supervisory Service official advised, "You should review your asset portfolio in advance, taking into account redevelopment contributions and living expenses during the construction period, and also look at insurance coverage and cash-like assets to prepare for your parents' medical expenses. It is also advisable to make legal preparations in advance, such as drafting a will, to prevent disputes among family members during the inheritance process in the future."
You can receive free, customized financial consumer counseling by typing the FINE financial consumer portal into an internet search box or by calling the Financial Supervisory Service Call Center 1332 (press 7 for financial advisory services).
nodelay@fnnews.com Park Ji-yeon Reporter