Annual Investment Limits: 32.08 Million Won for Employees and 27.23 Million Won for Self-Employed—But Where to Invest?

Both employees and self-employed individuals have about 70% of their assets in real estate, but they show a low preference for financial investments like pension insurance,

Self-Employed Have More Assets After Age 50

Both employees and self-employed individuals have about 70% of their assets in real estate, but they show a low preference for financial investments like pension insurance, which stands at only around 2%. Despite similar saving capacities, it's crucial for those over 50 to focus on accumulating financial assets.

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The economic activity population refers to individuals aged 15 and older who are either employed or actively seeking employment. With the increasing length of educational periods, many start their economic activities in their mid-20s. As of the end of 2023, approximately 28.4 million people in South Korea are engaged in economic activities. Workers are categorized into permanent employees with contracts longer than a year, temporary employees with contracts of one month to less than a year, and daily workers. Among these, we'll compare permanent employees and self-employed individuals. South Korea has a high self-employment rate of 23.9% (as of 2021), ranking 6th among OECD countries. Let’s compare key household economic indicators to determine which is better—being an employee or a self-employed individual.

Assets and Income: Self-Employed Have More Assets, Employees Have Higher Income

Employees are divided into permanent and temporary workers, and we'll focus on comparing permanent employees and self-employed individuals. In 2023, the average total assets of a permanent employee household are 560.63 million won, with a net worth of 464.89 million won after deducting liabilities of 101.14 million won. This is about 80 million won less than the net worth of 543.86 million won for self-employed households, which have total assets of 650.90 million won and liabilities of 107.04 million won. However, the average annual income for permanent employee households is 86.61 million won, 17.60 million won more than the 69.01 million won earned by self-employed individuals. On average, self-employed households have more assets but lower income, suggesting better asset management. Yet, a different trend appears when considering age. Up to the 40s, self-employed households have more net worth, but from the 50s onwards, permanent employee households have higher net worth. This trend indicates that younger employees with lower positions may be at a disadvantage compared to self-employed individuals, but as they age and their positions improve, they accumulate more assets and income.

Asset Composition: Employees Favor Financial Assets, Self-Employed Favor Real Estate

Analyzing asset composition, permanent employees have a financial asset ratio of 27.3% (15.46 million won) of their total assets, compared to 17.8% (11.62 million won) for self-employed individuals. Conversely, self-employed individuals have a higher real estate ratio, 73.2% (47.63 million won), compared to 69.1% (39.10 million won) for employees. The high real estate ratio among self-employed individuals is likely due to owning business premises. Both employees and self-employed individuals have over 70% of their assets in real estate, though employees have a slightly lower proportion. For those in their 30s and 40s, a high real estate ratio is unavoidable, but for those nearing retirement in their 50s, a high real estate proportion is not ideal from a life asset management perspective. Particularly, employees with a high proportion of residential property should focus on increasing their financial assets for future management.

Conservative Asset Management: Both Employees and Self-Employed Prefer Real Estate

When examining how extra funds are invested, both permanent employees and self-employed individuals show similar trends. However, employees invest more in real estate (27.4%) compared to self-employed individuals (22.9%). The intention to invest in real estate is higher among employees (60.0%) than self-employed individuals (47.8%). Employees tend to invest more in home ownership and value appreciation, while self-employed individuals prioritize starting businesses or securing retirement funds. Financial asset investment preferences reveal that employees (12.0%) prefer financial investments more than self-employed individuals (5.5%). However, both groups have very low preferences for pension insurance, around 2%. Both groups show conservative investment behavior, prioritizing stability over returns, though employees prefer returns slightly more, while self-employed individuals consider liquidity and accessibility.

Income Trends: Self-Employed Earn Less When Young, Employees Earn More with Age

While the overall average annual income for permanent employee households is higher than for self-employed households, the trend changes by age. Under 30s earn less than self-employed individuals, but from the 40s onwards, employees’ annual income surpasses that of the self-employed. Employees in their 40s earn 8.05 million won, in their 50s earn 16.76 million won, and those over 60 earn 25.84 million won. This increase with age is attributed to salary structures based on seniority. From age 50 onwards, employees’ net worth exceeds that of self-employed individuals. Employees’ income consists of 85% earned income, indicating a need for asset management efforts to increase wealth before retirement.

Permanent employees have an annual disposable income of 68.37 million won after deducting non-consumption expenses of 18.24 million won from their total income of 86.61 million won. They save 32.08 million won, representing 46.9% of their disposable income. Self-employed households have a disposable income of 54.81 million won from a total income of 69.01 million won, with savings of 27.23 million won.

Retirement Age: Employees at 66, Self-Employed at 73

In terms of retirement preparation, permanent employees expect to retire at 66, 6.7 years earlier than the self-employed, who expect to retire at 72.7. Permanent employees utilize the three-pillar pension system more effectively, leading to higher expectations for retirement living expenses. Both groups desire higher minimum and adequate living expenses, but the subjective perception of retirement preparation is similar, with 10.5% of employees and 10.4% of self-employed individuals feeling adequately prepared. However, both groups have a high negative assessment of their retirement readiness. Employees wish to retire earlier with more living expenses, while self-employed individuals prefer lower expenses but need thorough retirement planning to retire sooner.

In summary, comparing the economic aspects of employees and self-employed individuals shows that employees generally have a better foundation for asset management. Although self-employed individuals have slightly lower savings capacity, it’s not insufficient for managing assets. Both groups have ample opportunities to accumulate wealth before retirement if they stay close to the average. Consistent and long-term asset management is essential.