Today’s college grads, carrying unprecedented student debt burdens, won’t be able to retire until age 73, according to
a new study by personal finance site NerdWallet. That’s
12 years later than the current average retirement age of 61.
In the last three decades, college enrollment has increased 11%, while tuition has shot up 200%, the report finds. That means members of the millennial generation are more likely to be saddled with loan payments that eat up their earnings and detract from their ability to save for retirement, pushing back their timelines for leaving the workforce. As NerdWallet’s Joseph Egoian explains:
“Although the median college graduate leaves with a seemingly manageable $US23,300 debt load, 7% of a student’s earnings go toward yearly loan payments of $US2,858 for the first 10 years of his or her career. This prevents any meaningful contributions toward retirement. In fact, by the age of 33, when the typical college grad has finally paid off their standard 10-year loans, he or she can only be expected to have saved $US2,466 for retirement — over $US30,000 less than if the student had graduated with no debt.
“Even worse, the foregone savings carry a serious opportunity cost, as this money would have been earning a compounded rate of return every year until retirement. At the projected retirement age of 73, the lost savings directly attributable to student debt is $US115,096, nearly 28% of total retirement savings.”
In order to come out ahead, Egoian advises millennials to contribute more than the national average of 6% to their retirement accounts, choose an employer with a decent 401k match ($3,420 is the annual median), and invest in index tracking mutual funds to get high returns on their money.