John C Kim’s Columns on Korea Daily Newspaper

Retirement Plans use the most of one’s assets

Consumer prices rise year after year and the actual purchasing power of money is significantly shrunk, what would you say if you are asked to mention two products that are significantly more inexpensive than 30 and 40 years ago? Didn't the TV set be noticeably thinner and lighter in weight, with incredibly smart features in unbeliable cheap price tag?

There is one more thing. It is a life insurance product. As human life expectancy lengthen year by year, expecting average life span expand to 80 or even 90, the life insurance premiums linked to life expectancy tables are naturally get low (e.g., 20-year term life insurance costs for 1 million face amount $ 53.80 per month for man.

Therefore, it is easier to use life insurance in preparation to cover inheritance tax of assets pass down.

Today I want to talk about index-linked annuity, which has a relatively short product history. This insurance product was launched 20 years ago as an alternative to the mutual fund, and has been evolved over time, transforming into a hybrid annuity products that can be linked to a wider range of indices and effectively cope with unexpected lengthened life and long confinement of long term care need.

Since the launch of the product, in some year the principal invested in stocks lost principal while invested in fixed index annuity out grow over fixed interest ones.. Attempts to make this fixed index products to categorize as stocks investment have been ongoing and are still pending in Congress.

The consumer popularity for this product is growing to total contracts have increased from 3 billions in 1997 to 26 billion in 2008.

One interesting case is the fact that a 300-year-old A- carrier was forced to reject hundreds of new contracts due to surge in newapplications in 2009, reflecting the investment trend has been shifted from risk stock invest to the tool which principal protection with moderate growth potential.

Investing in all index-linked pension products is tax deferred until the withdrawal is made with the growth rate exceeding CD or Treasury yield.

Many Korean immigrants came here forty and fifty years ago as family-sponsered immigrants, and those who have worked hard and have built some considerable assets, reaching retirement age, they have begun to plan to live off on their assets. I think this product they consider as an optional growth fund as a tool for planning retirement and legacy pass on strategy. Most of the clients I meet, have a lot of questions about the security of their principals invested for long years.

I advise them not to overlook the fact that insurance products are subject to legal protection measures for consumer assets invested through strict regulations by setting an upper limit of amount to be protected by the state guarantee fund.

Lastly, let me finish the explanation with one example. When a 70-year-old couple decides to quit their job and plan their retirement, they put together their regular deposits, their stocks investment and their home equity. Minus 70 from their age where the smaller percentage of assets are allocated to stocks and larger portion of assets are Invested in safe investment. An index-linked product with a higher fixed interest rate, select the required withdrawal option, select the receiving option, use the payment as living expenses, and prepare the contract in advance so that the surplus of the investment can be selected and paid to the designated heir without the hassle of living trust set up. Receiving a retirement income stream and pass on unused account value to the designated beneficiaries.

Although we cannot explain all the features and options of this product through this page, the “Retirement Design Guide” published by the 2016 JoongAng Ilbo (Happy 100 Years) Chapter 5 Pension Insurance Section 3.

“Exponentially Defined Pension” (p. 128) The features and product design of each type are detailed, so please refer to it.

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