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Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

Baby Boomer Retirement:Impacts and Solutions

Baby Boomer Retirement:Impacts and Solutions

JUNG Ho-Sung

Dec. 28, 2010

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Originally released on October 14, 2010

Large-scale retirement of Korean baby boomers began in 2010 as the oldest in the post-war generation turned 55, the typical corporate retirement age in Korea. For the next 10 years or so, 5.49 million workers, or 75.8 percent of baby boomer workforce will leave the national workforce. The impending economic and social shift is fanning worries over a host of potential issues, including a shrinking workforce, sustained downward pressure on asset prices resulting from supply-demand imbalance in markets and government coffers weighed down by mounting welfare costs. Some even suggest a possibility of real estate price collapse caused by retiree creating a supply glut as they try to sell their homes to generate retirement money.

This study assessed whether there is validity in these worries and if so, how far the negative impact would reach in the labor market, asset market and national finance. It found only 1.4~1.5 million baby boomers are reaching retirement age over the next decade, implying shrinkage of the labor pool will be limited. This is because only one-third of workers in the generation are long-term regular workers, the group that directly affects labor supply. Therefore, only an average of 140,000 ~150,000 boomers a year is forecast to retire annually during the next 10 years. Second, it is unlikely that baby boomers will dispose their assets en masse. Only 12.9 percent of the boomer homeowners invest in stocks and their holdings actually tend to increase as they age. Considering the fact that the generation's financial status is not weaker than other generations and that home ownership increases as people age, a significant number of home sales by baby boomers is unlikely. Next, baby boomers' retirement will be a burden on welfare and healthcare budgets, but the impact will be limited with public spending on the senior generation only edging up 1.4 percentage points from 5.9 percent of GDP in 2009 to 7.3 percent of GDP in 2018.

All in all, the large-scale retirement of baby boomers will have only a modest impact on Korea's macro economy over the short term. Still, the population is aging rapidly, creating unavoidable issues. Korea already became an aging society in 2000, and will be an aged society by 2018, where more than 14 percent of total population is over the age of 65 and when the youngest of the baby boom generation turn 65. Therefore, mid-and long-term policies are needed for the next decade to prepare for the aged society.

In the labor market front, it is qualitative degradation of labor force, not quantitative reduction that could cause problems in the labor market in the short-term as skilled workers leave their jobs. To mitigate the impact, job certification programs need to be introduced for production line workers. At the same time, more jobs need to be created for senior workers through salary peak or job shift systems to offset the loss of employees. Although shocks to asset markets after boomers retire is expected to be short-lived, private and corporate pension plans outside of the National Pension Scheme need to be expanded over the mid-and long-term in order to temper financial risks to the generation. Other measures need to be put in place as well. If retirees seeking income create a demand spike in reverse mortgages, a lenient application qualification standard is necessary, while devising protective measures for mortgage providers, namely financial institutions. In the short-term, more support should go to lo w-income seniors, who are not adequately prepared for retirement and the government's welfare spending needs to be reduced over the long term.

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