South Korea is one of the biggest winners of the AI boom. It’s home to Samsung Electronics and SK Hynix, the two largest manufacturers of memory chips. Chip workers are flashing bonuses of around $400,000. The KOSPI, Korea’s benchmark index, is up almost 60% for the year so far.
Yet a report from Goldman Sachs suggests that all that wealth might not make it to ordinary households.
Even as demand for chips has sent Korean exports and factory investment surging, retail sales are still close to whether they were in 2019. Goldman calls it a “K-shaped cycle” where corporate balance sheets thrive while private consumption remains soft.
Goldman’s economists have an explanation: South Korea is getting too old, too quickly.
The East Asian country has one of the world’s lowest fertility rates, reporting 0.8 births per woman last year, far below the 2.1 rate to keep population levels relatively stable. (The U.S., by comparison, reported 1.6 births per woman). Twenty percent of Korea’s population is now over the age of 65.
The country’s postwar baby boomers are retiring just as its fertility rate remains below replacement level, leading to a shrinking pool of working-age Koreans supporting the elderly.
The United Nations projects Korea’s “dependency ratio”—the number of children and elderly people relative to the working-age population—will increase by 1.5 percentage points a year over the next decade. That’s the fastest pace among the 70 large and midsized economies Goldman analyzed, surpassing even Japan during its most intense period of aging from 2000 to 2015.
Korea’s retirement problem
To make matters worse, older Koreans behave unusually when they retire: They don’t spend.
In Japan, Taiwan and the U.S., people tend to draw down their savings once they retire, but Koreans don’t. Goldman found Koreans in their sixties save more than any other age group, retaining 37% of their income. Even those in their seventies save at rates similar to those in their forties.
The wealth elderly Koreans do have is difficult to spend.
More than 60% of Korean household net worth is tied up in non-financial assets like real estate, the highest share among the advanced economies Goldman studied. Financial assets held by Korean households are only worth 100% of the country’s 2024 GDP, the lowest level in Goldman’s sample.
That leaves Korean retirees asset-rich, but cash poor. “Even among elderly households that have accumulated retirement savings, fewer than one-fourth could cover consumption needs with financial assets,” Goldman researchers wrote. When incomes decline, Koreans are more likely to cut their spending or work more than to liquidate their assets.
Koreans are wary of methods to turn housing wealth into cash. Reverse mortgages cover just 1.8% of homeowners older than 75, which Goldman observed partly reflects a strong desire among retirees to leave assets to their heirs.
In contrast, Goldman found that Taiwan, another AI boom winner, has stronger consumption from older consumers, despite just as severe aging pressures. (The island’s government projects the population could halve in size by 2075). Taiwanese households have a much larger financial cushion than their Korean counterparts, with net financial assets totaling five times GDP, compared to just one times GDP in Korea.
Why too much saving could be bad for Korea’s economy
As more Koreans age, that propensity to save could become a drag on spending.
Among the major economies Goldman studied, a one percentage point increase in the dependency ratio reduces real private consumption growth by around 3 basis points a year. Yet in Korea, the hit to growth is between 10 and 17 basis points.
One of Goldman’s models suggests that Korea’s fast aging population could shave as much as 25 basis points from annual consumption growth over the next decade.
Even if Korea can maintain 2% economic growth over the next two decades, consumption growth gradually weakens and eventually turns negative, according to Goldman’s long-term modeling.
Korean officials have tried a variety of national- and local-level approaches to reverse falling birth rates. The national government announced a “marriage support grant” of up to 1 million won ($725) to couples who get married and an extra 20 million won ($14,500) per newborn. Local governments are also hosting matchmaking events for Korean singles, even dangling monetary rewards for couples who marry after meeting at the event.
Birth rates are increasing very slightly, but even a radical increase in fertility won’t solve Korea’s problem in the near-term, as any babies born now won’t be of working age for at least two decades. Instead, Goldman economists suggest that Seoul try some more immediate solutions, like helping elderly Koreans unlock their housing wealth, and better distributing the windfall from the country’s super-profitable tech firms.
