With just four years to retirement, his pension plunges by 38 million won... Why 56-year-old Manager Kim unfolded a calendar [Financial Odyssey]

[Financial News]#. Kim (56), a department head at a domestic manufacturer, recently checked his retirement pension account and felt his heart sink. For the past three years, he had invested 70% of his 300 million won in retirement savings—210 million won—in equity-based products. But last month, the stock index fell nearly 18%, causing the portfolio’s value to drop by nearly 38 million won. Having seen the stock market hit record highs day after day through this summer, Kim had not felt the need to adjust his investment allocation. Now, with just four years until mandatory retirement, he was worried that he might not have enough time to recoup the losses.According to financial industry sources on the 2nd, investors in their 50s nearing retirement should first check their own “retirement calendar,” rather than focus on the stock market outlook. They need to compare their retirement date with when they will begin receiving National Pension benefits, determine how long their income gap will last, and set aside the living expenses they will need during that period.

Park Tae-hyung, head of the PB branch at Woori Bank’s TCE Signature Center, advised Kim, who was worried about when stock prices would recover, to first look at the income gap after retirement. Kim will retire at the mandatory age of 60 but plans to start receiving National Pension benefits at 65. That leaves him with a five-year income gap.
Kim will need 2.5 million won a month in living expenses during this period, to be covered by his retirement pension and other sources. That amounts to 30 million won a year and 150 million won over five years. This is money he will need to set aside every month regardless of market conditions.
Park proposed a “living-expense bucket” strategy: set aside in safe assets, in advance, the living expenses needed for a certain period after retirement. The idea is to put funds for the first three to five years after retirement into principal-and-interest-guaranteed products or short-term bonds, while investing the rest for long-term returns. The size of the bucket can be calculated by considering current living expenses, life expectancy, inflation and medical costs.
This way, even if the stock market plunges, there is no need to sell equity-based products at a steep loss just to cover immediate living expenses. Kim first set a goal of securing 90 million won—three years’ worth of living expenses—in safe assets.
This kind of asset allocation becomes more important as retirement approaches. When people are young, they have time to wait for a market recovery even after a sharp downturn. Just before retirement, however, the situation is different: there may not be enough time to recoup losses, and they may have to sell assets at a loss to cover living expenses.
Mr. Park stressed, “The asset allocation of a retirement pension also needs to change in line with the timing of retirement.” In other words, people in their 30s and those in their 50s nearing retirement cannot follow the same investment strategy. When young, the focus may be on pursuing high returns; as retirement approaches, they need to consider how to protect the assets they have accumulated while drawing them down over a longer period.
Kim also redesigned the asset allocation in his retirement pension, taking into account how long he had until retirement. He cut the equity allocation from 70% to 40% and increased the bond allocation from 20% to 30%. He also raised the share of principal-protected and cash-like assets from 10% to 30%. He did not sell all of his equity-based products at once. Selling all assets when the market has plunged could leave investment results at the mercy of that day’s market prices. Instead, he opted for “phased rebalancing,” adjusting his investment allocation over several transactions.
Of course, this does not mean everyone in their 50s should set their equity allocation at 40%. The appropriate allocation varies depending on how much they have in other pensions or real estate, whether their spouse has an income, and whether they have finished supporting their children, among other factors.
One principle, however, is clear: equity assets should be invested only with money that will not be needed for the next five years.
The possibility of losses due to interest-rate fluctuations must also be considered with bond products. When market interest rates rise, existing bond prices fall, potentially causing mark-to-market losses in bond funds and similar products. When choosing a bond product, investors should check whether its maturity matches when they will need the money. Medium- or short-term bonds that mature around that time may be worth considering over long-term bonds whose maturity is significantly misaligned with when the funds will be needed.
It is not advisable to tie up all assets in safe investments simply because retirement is approaching. Living expenses needed right away should be secured, while assets intended for long-term investment should be managed to seek returns that can help offset inflation. Taxes based on how pension benefits are received should also be considered. Receiving retirement benefits as an annuity instead of a lump sum can reduce the burden of retirement income tax.
Park compared retirement preparation to a long voyage. People in their 50s nearing retirement must withstand immediate market fluctuations while also preparing for the decades of life that lie ahead. “What we can determine is not the height of the waves but the ship’s center of gravity,” Park said, stressing, “We cannot control stock market volatility, but we can adjust our asset allocation and pension withdrawal plans ourselves. It is important to tailor the equity allocation, the share of safe assets and the pension withdrawal plan to the timing of one’s retirement.”
Advice: Park Tae-hyung, head of the PB branch at Woori Bank’s TCE Signature Center
[email protected] Lee Hyun-jung Reporter