Am I Preparing for Retirement, or for Inheritance?

Kim, 60, retired last year with an apartment worth 1.2 billion won (about $860,000) and 300 million won in financial assets — money set aside to live on after leaving work. Yet once retirement arrived, the National Pension Service payments were still five years away, and with no way to know how long life would last, spending down the 300 million won felt unsettling. Kim had imagined a free retirement but instead faces uneasy days, unsure where to begin.

What matters after retirement is not the size of assets but how much can actually be spent

Kim, a retiree in Seoul with a 1.2 billion won home and 300 million won in financial assets, holds 1.5 billion won in total. On paper, that hardly looks insufficient. But after retirement, the figure that matters is not the 1.5 billion won total. It is how much of that can be converted into living expenses each year. A home, whatever its price, generates nothing beyond the value of shelter. Its worth as real estate may rise over time, but that does not affect the structure of cash flow immediately after retirement.

Assume the 300 million won in financial assets earns 5% a year. That comes to 15 million won in pretax interest, or 1.25 million won a month. On a simple calculation, with the customary 15.4% withholding tax on interest income in an ordinary financial account, after-tax interest is 12.69 million won a year, or about 1.06 million won a month. On top of that, a retiree who shifts from employer-based to self-employed (regional) coverage under national health insurance may find interest and dividend income counted toward premium calculations. A 5% return, in other words, is not a 5% that can be spent.

That is why retirees need more than a comparison of returns on financial products. They must calculate how much is actually available each month after taxes and health insurance premiums, and then examine how long that cash flow can last. That means staggering withdrawal timing and splitting maturities to allocate funds by period so the tax burden does not swell.

With pensions, when the money is needed matters more than how much is received

Retirement calls for a look at how cash flow lines up with the periods when money is needed. It helps to lay out pensions to be received in 10-year blocks. Knowing how much is available is what makes planned spending possible. Most people work through the bulk of their bucket list in the first 10 years after retirement. That calls for judging how much is needed then, which assets to draw on, and whether to start National Pension payments early. Early old-age pension payments are cut 6% for each year taken in advance, while deferred payments are increased 7.2% for each year postponed. Those with ample financial assets can delay and raise their lifetime payout, but someone who needs cash now requires a different calculation.

The same goes for the home. It is worth moving past the binary of whether to sell. One can keep living there, downsize to build up financial assets, or turn housing wealth into cash flow through a reverse mortgage. The point is not how long to hold the home, but when and how to put its value to use in later life. The heart of retirement planning is knowing precisely not how much will be left behind, but how much can be spent while still alive.

The paradox of succeeding at preserving assets and failing at retirement

This is the paradox of later life. A lifetime of scrimping kept the house. Financial assets went untouched as much as possible. Plenty was left for the children. And yet the person who did all that closes the wallet before a single trip, a single hobby, even necessary medical care, saying, "Not yet — I still have to save."

In the field of wealth management, retirees turn up who are still "preparing for retirement" long after they have retired. They keep accumulating, keep growing the pot, and touch the assets as little as possible. Is what they are preparing for really retirement? Or are they calling preparation for inheritance by another name?

In Christopher Nolan's "The Odyssey," which has drawn wide attention recently, Odysseus finds the meaning of his life only at the moment he returns to Ithaca after his long journey. What he does on coming home is neither another conquest nor further accumulation. Odysseus sets down his crown and departs with his beloved wife, Penelope.

Retirement is no different. For anyone who has spent a life racing to buy a home and build up assets, the question now is what to add to the years remaining, on the foundation of what has been gathered. Is what I am doing preparing for retirement, or preparing for inheritance?

Answering that question, in the end, is where real retirement planning begins.