By Christine Kim
SEOUL (Reuters) - In South Korea, where the average retirement age is a relatively young 58, the golden years are often filled with hard work in coffee shops and small stores that barely provide a living.
More than half of the country's 7.1 million baby boomers -- born from 1955 through 1963 -- had made no financial preparations for retirement, a survey conducted by the country's welfare ministry found. Many of them try to support themselves by opening small businesses on borrowed money.
The result is a surge of heavily indebted, self-employed seniors who are at risk of defaulting on debts that average 68.95 million won ($60,400) per household for those in their 50s.
It's an ominous sign for a country whose population is ageing faster than any other developed nation.
"So many people, once they retire or quit from their regular paying jobs have nowhere to go but to start up their own businesses," said Kim Sun-bin, a researcher at Samsung Economic Research Institute, a Seoul based think tank.
People 50 and older represented 54 percent of South Korea's self-employed last year, up from 47 percent in 2008. Older people also carry the heaviest debt burden, approaching two times annual income for those over the age of 60.
This country of 50 million people has been dubbed "The Miracle on the Han" for catapulting itself from the ruins of the Korean War into the world's 13th largest economy in one generation. It boasts huge conglomerates such as Samsung and Hyundai, making smart phones and cars that sell globally.
But small businesses employ close to 30 percent of the labor force, the fourth-largest proportion among countries in the Organization for Economic Co-operation and Development. Of those, 27 percent were either in debt or unable to turn profits in 2010, according to the Small and Medium Business Administration.
"We make just enough to eat and survive," said 61-year-old Lee Jin-taek who runs a general store with his wife.
With an estimated 3.1 million baby boomers set to retire over the next 10 years, the government is mindful that the generation that helped build South Korea into Asia's fourth-largest economy risks being cast onto the scrapheap. So far, they have failed to come up with any concrete policies.
The average monthly payout for pension recipients is less than 300,000 won ($260) and 72 percent of citizens over 65 years of age are not eligible for pensions because they did not pay into the relatively new system, set up in 1988, according to the National Pension Service.
"The baby boomer generation is one that has tirelessly run forward without time to look after themselves," President Lee Myung-bak said earlier in July as the government said it would seek to address the problem.
For all the good intentions, the government may struggle to pass legislation with a hung parliament and politicians preoccupied with presidential elections in December.
The government wants to help baby boomers keep their jobs longer, provide information and seed money for start-ups, and open a school to teach entrepreneurs.
"We are still in the process of getting budgets approved for these policies," said Lee Ji-eun, a government officer who is part of a taskforce set up by the Labor Ministry to handle the issue of manpower in an ageing society.
"With the labor extension, at the soonest it should be in place next June, but we don't know if the law will be passed or whether drawing up of the law will be completed within six months," she said.
Political paralysis means the legislation, even if implemented, will come too late for many current retirees. It may eventually help those born between 1967 through 1973 who are expected to start to retire in a decade. An estimated 8.1 million are in this second wave of retirees.
OLD AND IN DEBT
In a country that prides itself on Confucian values of thrift and hard work, it is a paradox that debt levels are so high among the older population.
Central bank data shows the ratio of loans to income for those in their forties was 148 percent as of the end of November in 2011, while the same ratio for those aged 50 to 60 was at 169 percent. For those over 60, it was 193 percent.
People aged 50 and over accounted for nearly one-quarter of the applications for personal financial workouts in 2011, up from 15 percent in 2006.
Oh Bok-hwan, 55, who runs a small health-products shop selling onion and red ginseng extract in a quiet residential area in central Seoul, said he repaid 400 million won ($350,100) of debt in the 1990s stemming from when he owned a different shop that later closed.
"The economy is never going to get better," said Oh.
South Korea's domestic growth is sluggish at best, while the global economic downturn is hurting exports to the crippled euro zone and the slow-growing United States.
The heavy debt burden carried by seniors poses a threat to the housing market because for most older citizens, property accounts for the majority of their assets. That means they could be forced to sell to meet debt obligations, which could drive down real estate values.
"The increase in household debt held by the aged population poses a risk of destabilizing the real estate market," the Bank of Korea said in a report to the National Assembly in April.
The business failures can also tear families apart.
Lim Hyun-jun, 30, barely speaks to his mother after she opened a noodle shop in Gangnam, one of Seoul's most prestigious neighborhoods. The store closed a year ago, with losses of 100 million won ($87,500).
"She blindly believed she could do it; I told her it was a stupid idea and told her to quit. You could see it was going straight down the gutter just three months into it," said Lim.
The noodle shop was selling 800 to 900 dishes per day in a store with fewer than 10 tables but the prices were too low - 5,000 to 6,000 won per dish - and the rent and management fees were too high.
"Everything was gone in just a few months," said Lim, whose mother is in her 50s and declined to be interviewed.
(Editing by Emily Kaiser)