Complete Guide to Retirement Payment Calculation

📅 2025-01-16

Are you approaching retirement? Learn everything from retirement payment calculation methods to receiving strategies.

1. What is Retirement Payment?

Retirement payment is a legal allowance that workers receive when retiring after working for more than 1 year. According to the Labor Standards Act, all businesses must pay retirement allowance. At least 30 days of average wage must be paid as retirement allowance for 1 year of continuous service. Part-time workers with less than 15 hours average weekly work are excluded. Must be paid within 14 days after resignation, with late interest charged if delayed.

2. Calculation Method

Retirement payment = (Daily average wage × 30 days) × (Days worked ÷ 365). Average wage is total wages paid for 3 months before retirement divided by total days in that period. Regular payments like bonuses and annual leave allowance are included in average wage. Example: Monthly salary 3M KRW, 3 years service → (3M ÷ 30 days) × 30 days × 3 years = 9M KRW. If average wage is lower than ordinary wage, ordinary wage is used.

3. Retirement Pension vs Lump Sum

DB (Defined Benefit): Company manages, guaranteed amount, stable but company burden high. DC (Defined Contribution): Employee manages, varies by return rate, requires investment knowledge. IRP (Individual Retirement Pension): Can transfer to IRP account instead of lump sum, tax benefits when receiving pension after age 55. Retirement pension protected even if company bankrupt, interim settlement generally not allowed.

4. Interim Settlement

Interim settlement before retirement is prohibited in principle. Exceptions: ① Housing purchase/jeonse for non-homeowner, ② Medical treatment over 6 months for self/family, ③ Bankruptcy/personal rehabilitation, ④ Natural disaster, ⑤ Wage peak system. Interim settlement resets service period, only subsequent period counts for retirement payment. Must carefully consider tax issues and retirement preparedness.

5. Taxes and Tax Saving

Retirement income tax progressively deducted by years of service. Longer service = lower tax rate. Transfer to IRP account: not immediately taxed, 3.3-5.5% lower rate when receiving pension. Lump sum: retirement income tax (6-45% progressive rate) immediately imposed. Pension after age 55 (10+ years) maximizes tax benefits. IRP transfer and management also provides tax deferral on earnings.

6. Disputes and Non-payment Response

If not paid within 14 days after resignation, file complaint with Ministry of Employment and Labor or report wage arrears. Unpaid retirement payment incurs 20% annual late interest. Statute of limitations is 3 years, must claim within 3 years of resignation. Ministry report → Labor inspector investigation → Correction order → Criminal punishment if non-compliance. Defaulting employers may be publicly named. Protected by substitute payment even if employer bankrupt under Wage Claim Guarantee Act.

Conclusion

Retirement payment is an important retirement asset for workers. Save taxes and prepare for retirement with accurate calculation and wise receiving strategy. Actively utilize IRP transfer and pension receipt.

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