If you want to retire at a specific age, how long and how much investment should you make? I conducted a planning simulation to receive an average pension based on age and average annual wage in Korea. The simulation was conducted using the Portfolio Visualizer, as described in the previous post. First, the investment conditions were as follows:

https://www.portfoliovisualizer.com/monte-carlo-simulation

• Starting Age: 25 years old
• Portfolio Type : Portfolio Assets SPY(S&P 500), ONEQ (NASDAQ Composite) 50:50
• Initial Amount : 1 (since it must be greater than 0)
• Contribution Frequency : Monthly
• Tax Treatment : Pre-tax
• Simulation Model : Historical returns
• Use Full History : Yes
• Inflation Model : Historical inflation
• Rebalancing: None

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The monthly investment amounts needed to secure an average pension for each retirement age and the corresponding retirement point are presented in the table (50th percentile average values).

Retirement Age	Average Annual Earned Income (Million KRW)	Investing Period (Year)	Monthly Investment (10k KRW)	Total Principle (Million KRW)	CAGR (Norminal)	Appraised Value (Billion KRW)		Perpetual Withdrawal Rate	Annual Withdraw (Million KRW, PV)
						Norminal	PV
40	56.4	15	260	468	9.73%	1.25	0.85	6.66%	57.1
45	58.1	20	165	297	9.87%	1.48	0.90	6.63%	59.4
50	57.7	25	105	189	9.74%	1.66	0.89	6.53%	58.0
55	52.6	30	65	117	9.69%	1.73	0.81	6.46%	52.5
60	37.9	35	32	57.6	9.70%	1.42	0.59	6.49%	38.2

* Average Annual Earned Income Source: Ministry of Employment and Labor 2022

Observations from the simulation are as follows:

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• Looking at CAGR nominal returns, volatility can be largely ignored after 10 years, and most returns exhibit a robust upward trend.
• The adage that time is a crucial factor for pension investment still holds true. While there isn’t a significant difference in average wages between ages 40-55, the cumulative principal decreases significantly with a longer investment period. Pension investments emphasize the importance of starting as young as possible.
• Considering the tax deduction limit of 9 million KRW per year (monthly 750,000 KRW), a consistent investment for nearly 30 years seems to be the most effective approach to achieving both tax savings and pension investment success.

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In my case, as I started investing in my mid-30s and have a relatively short investment horizon, I’m trying to increase the monthly investment amount to compensate. For university students interested in investing, especially those in their early careers, I hope they establish a pension investment system as soon as possible, so that by the time they reach 50, they can retire with assets exceeding 1 billion KRW

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It was mentioned that pension investments should start as young as possible. If this were the case from birth, what would the outcome look like? The investment conditions are as follows:

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• Starting Age: 0 years old
• Portfolio Type: Portfolio Assets SPY (S&P 500), ONEQ (NASDAQ Composite) 50:50
• Initial Amount: 1 (since it must be greater than 0)
• Contribution Frequency: Monthly
• Tax Treatment: Pre-tax
• Simulation Model: Historical returns
• Use Full History: Yes
• Inflation Model: Historical inflation
• Rebalancing: None

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First, we assume that at age 0, the investment is made through a gift from parents to their child, as minors cannot invest directly. The current minor child gift limit in Korea is as follows:

Age	Gift Limit (Million KRW)
0-9	20
10-19	20
20-29	50
30~	50

Assuming a total gift of 40 million KRW by age 19, when the child reaches 30, the results are as follows:

–	Investing Period (Year)	Monthly Investment (10k KRW)	Total Principle (Million KRW)	CAGR (Nominal)	Appraised Value (Million KRW)
					Nominal	PV
Investment Period (0-19)	20	16.7	40.1	9.74%	150	90
Gliding (20-29)	10	–	–		377	180

The total investment amount is 40 million KRW and the evaluation amount is 4.50 times the initial amount in present value terms.

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Assuming a total gift of 90 million KRW by age 29, when the child reaches 30, the results are as follows:

–	Investing Period (Year)	Monthly Investment (10k KRW)	Total Principle (Million KRW)	CAGR (Norminal)	Appraised Value (Million KRW)
					Nominal	PV
Investment Period (0-19)	20	16.7	40.1	9.74%	150	90
Investment Period (20-29)	10	41.7	50.0		484	256

Investment Period (0-19)

The total investment amount is 90 million KRW and the evaluation amount is 2.84 times the initial amount in present value terms.

At age 30, a sum of approximately 180-250 million KRW would be accumulated. This amount could be used by the child for marriage, business, or other endeavors. Of course, if the pension investment amount is not withdrawn and continues to be invested, how would it look? Even without checking, it’s safe to say that it would grow exponentially. However, let’s verify the data once more.

구분	Investing Period (Year)	Monthly Investment (10k KRW)	Total Principle (Million KRW)	CAGR (Norminal)	Appraised Value (Million KRW)
					Nominal	PV
Investment Period (0-19)	20	16.7	40.1	9.74%	150	90
Gliding (20-49)	30	–	–		2,421	685

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The growth rate is exceptional. The conclusion is that there is no investment instrument that can beat the power of compounded returns over time. If parents establish such a system and then their children continue to build a pension system for their offspring, wouldn’t it lead to the perpetuation of wealth?