Many people think that 'how you receive your severance pay' is not that important. They assume that as long as the money comes out, that is enough. However, in reality, even if you receive the same amount, the method of receipt makes completely different decisions regarding taxes, future income, and asset management.
Choosing whether to receive a pension or a lump sum is not merely a matter of the 'timing of receipt' Tax Burden and Long-term Asset PlanningThis is an important decision directly related to [your situation]. In this article, I will clearly compare the differences between the two methods and summarize the selection criteria that suit your situation.
The biggest difference between receiving a pension and a lump sum is taxes.
The most intuitive difference between the two methods is when and in what form the money is received. A lump sum is, quite literally, received in full all at once, whereas a pension is received in installments over a fixed period.
However, the really important thing is the tax burden that follows. If you receive a lump sum You will be charged 100% in retirement income tax.. On the other hand, if you receive it as a pension, depending on the situation Tax reduction of approximately 301 TP3T to 401 TP3TIt works, but if this accumulates over a long period, it makes a significant difference.
Another advantage is that you can continue to manage your unclaimed funds. If you receive it as a pension, the unclaimed balance can be continuously invested to generate returns, but with a lump sum, that opportunity ends the moment you receive it.
To receive a pension, please check your age and enrollment conditions first.
There are strict conditions for receiving a pension. The most basic one is 55 years of age or olderThe point is that it must continue, and money directly contributed to individual plans like pension savings or IRPs is You must maintain your subscription status for at least 5 years. You can receive it.
However, there is an important exception. If you transfer severance pay received from a company-operated retirement pension (DB or DC) to an IRP account, there is no requirement regarding the subscription period. This means you can receive it immediately upon reaching the age of 55.
Conversely, lump-sum payments have almost no such conditions. There are no age restrictions or requirements regarding the subscription period. The biggest advantage is that you can receive the full amount immediately after retirement.
Tax credit benefits vary depending on income level.
One benefit that many people miss is the tax credit. You can receive a tax credit for contributions made to pension accounts (pension savings, IRP) up to a certain limit.
The deduction rate varies depending on your income level. If your total salary is 55 million won or less 16.51 TP3T tax creditYou can receive [the benefit] and up to 1.485 million won in refunds. If this is exceeded, the deduction rate drops to 13.21 TP3T, and the maximum refund amount is reduced to 1.188 million won.
Since the tax deduction limit for pension savings and IRP combined is limited to 9 million won per year, any amount contributed in excess cannot be eligible for benefits.
If you receive the payment as a lump sum, you cannot receive this tax credit benefit. If you have previously received a deduction, you may have to return it, and since retirement income tax is additionally imposed on top of that, the tax burden becomes much greater.
Taxes vary depending on when you start receiving your pension.
If you have decided to receive a pension, deciding when to start receiving it is also a big decision. This is because the first year you receive it becomes your first year, and the tax reduction increases as you go further.
From the first year to the tenth year, the retirement income tax 30% is exemptYes, it is possible. From the 11th year onwards, the reduction rate increases to 40%, and if you receive it for more than 20 years... Up to 50% reductionYou can receive it. This means that the difference in the actual amount of tax to be paid each year is significant, not just a simple number.
For example, if you receive 20 million won annually, the taxes in the first year and the eleventh year differ significantly. Therefore, there is a strategy of starting to receive early to secure the years in advance, and if you have sufficient assets, there is also a strategy of starting late to receive a large amount all at once.
Please accurately understand the 15 million won separate taxation limit.
There is one more thing to be careful about when receiving a pension or lump sum. Separate taxation criteriaThat is it. The figure of 15 million won is particularly important, but many people make the mistake of calculating this per account.
The criteria for separate taxation is Individual sumIn other words, this means that even if you have multiple accounts, the 15 million won threshold applies to the combined total. If you receive 16 million won annually, you lose the benefit of separate taxation on the amount exceeding 1 million won, and you must choose between comprehensive taxation or additional taxation.
However, there is also good news. The fact that this standard is based on an individual basis means that if a married couple each operates an account, the wife and husband can each receive a benefit of 15 million won. There is room to maximize tax savings through marital diversification.
| division | Pension receipt | Received a lump sum |
|---|---|---|
| Receipt method | Divided over a fixed period | The full amount at once |
| tax reduction | 30~40% reduction (subject to conditions) | 100% Taxation |
| Management of unclaimed balances | Continued investment possible | impossibility |
| Receiving age requirements | 55 years of age or older | No age limit |
Ultimately, the choice that fits your situation is the right answer.
There is no single right answer to whether a pension or a lump sum is better. You need to consider your current situation, future plans, and tax burden comprehensively.
If you plan to continue working after retirement or want to keep managing your assets, it is advisable to receive a pension to save on taxes while securing profits from the unclaimed balance. Conversely, if you are older or need funds immediately, receiving a lump sum may be more practical, even if it means paying more taxes.
The wisest approach is to make a choice from a long-term perspective, taking into account tax credits, years of receipt, separate taxation limits, and future income.
I recommend that you discuss your specific situation with an advisor at a bank or securities firm offering retirement pension products and make a decision after receiving an actual tax simulation. This is not a minor choice, but a decision that will determine your asset management in the latter half of your life.