"Yield is Not Everything"... 3 Conditions of Pensions That Determine Stability in Old Age

When choosing a pension, which is the core of retirement assets, questions are being raised as to whether simply chasing high yields is the correct answer. Since a pension is an asset received during old age rather than youth, analysis suggests that the value of a pension should be redefined from the perspective of the elderly who are actually in the stage of receiving it.

The Paradox of Pursuing Yield... High Returns May Actually Have a Negative Impact

According to a video featuring pension expert Lee Young-ju, the younger generation preparing for pensions tends to focus primarily on 'How much' they will receive and prefers high yields. However, the criteria for those who have entered the stage of actually receiving pensions are different. This is because pursuing risky assets to increase yields can lead to increased volatility.

Based on decades of counseling experience, Lee pointed out that there are more cases of people suffering losses or canceling/withdrawing midway due to pursuing high returns rather than those who actually achieved high profits. The explanation is that the effort to increase yields to receive more pension can instead undermine the stability of pension assets, ultimately resulting in a negative impact. When receiving a pension, irregular fluctuations in the amount—such as 2 million won this month, 1 million won next month, and 500,000 won the month after—can cause anxiety in old-age life.

Changes in Preferred Criteria by Age Group... From 'How much' to 'How stable' and then to 'How long'

The criteria for judging the value of a pension evolve through three stages as age increases. In the video, these were summarized with English keywords as three conditions: 'How much', 'How stable', and 'How long'. Lee explains that a pension that satisfies all three of these can be considered a truly good pension.

In the first stage, during youth, 'How much'—the size of the payout—is the most important. However, once entering the pension receiving stage, the value of 'How stable'—keeping the monthly payout constant—rises sharply. Finally, as people move into their 70s and 80s, anxiety about assets decreasing grows, making the 'How long' (life annuity) condition, which pays until death, the most important selection criterion. Lee analyzed that even if their health is good, these individuals have high psychological anxiety regarding the decrease of assets, so they prefer a pension that is received for a lifetime until the day they pass away.

Pension Design Similar to Choosing a Job... Those in Their 50s Should Look into 'Life-long Payment'

Lee analyzed that these criteria for choosing a pension are very similar to the process of choosing a job. It is the same logic as how young professionals prioritize high salaries first, but as they experience working life, they come to prefer a stable organizational culture, and after their 50s, they value an environment where they can work as long as possible, similar to discussions on extending retirement ages. It also aligns with how the criteria for choosing a spouse change depending on life experiences.

Ultimately, a good pension must satisfy all three requirements: 'How much', 'How stable', and 'How long'. Lee advised, "Do not judge pensions from the perspective of when you are young and mentally clear, but rather look back at your currently subscribed pensions based on the standards of those in their 70s and 80s who actually receive the pension," and recommended checking whether one is giving up the other two core requirements by focusing on only one.