Lump-Sum Annuity for Excess Pension Savings

Respondents, who have reached the maximum contribution limits for state-regulated pension accounts—18 million won for pension savings and 20 million won for ISA—expressed concerns about additional ways to manage their lump-sum funds.

Lee Young-joo, CEO of Pension Doctor, suggested utilizing 'lump-sum annuities,' which involve making a one-time payment. In the U.S. annuity market, the lump-sum method sold by life insurance companies is more common than installment plans.

He believes that discussions to abolish the ISA carry-over system have highlighted the limitations of the current installment-based system.

A lump-sum annuity is a method where accumulated funds are deposited all at once and received as an annuity. It can be converted into an immediate annuity or received after a certain deferment period, allowing the annuity amount to grow. This product is exclusively handled by life insurance companies, not securities firms or banks.

During Korea's growth period, installment savings were predominant, but currently, there is a lack of systematic ways to manage lump sums. In the U.S., lump-sum annuities, also known as 'single premium,' have become a popular retirement planning tool.

It is particularly suitable for those who have reached the 18 million won pension account limit and the 20 million won ISA limit, allowing for stable management of retirement assets, unlike installment plans which carry significant risks upon early termination.

While installment annuities are more suitable for younger generations, it is more efficient for those in their 50s and 60s, who have contributed to asset formation for a long time, to convert their accumulated lump sums into single-premium annuities.

CEO Lee Young-joo suggested adopting the American concept of annuities to convert a portion of assets into a lifelong income, emphasizing the importance of a strategy to stably allocate accumulated assets over 30-40 years of retirement, especially in an era of low growth.

In the past, a 100 million won contribution would yield around 400,000 won per month, but now, with a 10-year deferment, product features have improved to allow for over 600,000 won per month, increasing their utility.

Recently improved annuity products offer monthly payments of 600,000 to 700,000 won or more, making them competitive even compared to dividends. Dividend investments have high volatility and uncertain payment status depending on company performance, whereas lifelong annuities guarantee payments for life. Lifelong annuities also include state-defined tax benefits, providing both stability and tax-saving effects.

CEO Lee Young-joo explained that recently improved annuity products can provide monthly payments of 600,000 to 700,000 won or more, making them sufficiently competitive compared to dividend investments.

Dividends can change, but annuities can be received for life; although some people say dividends will be received for life, actual dividends have high volatility.

A lump-sum annuity is a financial product that ensures stable income and tax-saving effects simultaneously. Up to 100 million won per person is exempt from interest income tax, and the obligation to pay health insurance premiums is also waived. This provides both interest income tax exemption and health insurance premium savings. Consequently, interest income tax is exempted, and there is no obligation to pay health insurance premiums upon receipt.

Converting a lump sum of approximately 100 million won into an annuity allows for tax savings and stable cash flow.

This includes not only an exemption from interest income tax but also from health insurance premium obligations.

Utilizing the tax exemption allows for lifelong monthly annuity payments of over 600,000 won without the burden of taxes.

As people age, their investment tendencies become more conservative, and many feel that lump-sum investments are risky. Concurrently, there is increasing demand for health insurance premium and interest income tax exemptions. Experts emphasize that these tax benefits are crucial for retirement asset management. Although there is a tendency to avoid lump-sum annuity products due to negative past experiences, current products are continuously improving and evolving.

It is necessary to move beyond past practices and seek expert consultation to find the product best suited for one's situation.