Student debt will play the largest role out of all the factors leading to an average retirement age of 73 for Millennials with college degrees.
Although Americans of all generations of Americans are preparing to work longer due to inadequate savings coupled with an expanding life expectancy, it is student debt that is the biggest catalyst for Millennials’ elongated working lives and abbreviated retirement.
According to a recent study from NerdWallet Investing (NerdWallet) — an online information provider on the financial markets, investing and the overall economy — with a median debt load of $23,000 upon graduation, Millennials have a steep hill to climb up before they can begin comprehensively planning for retirement.
Recently, there has been much grousing over the exploding cost of higher education coupled with high a level of concern about the debt young graduates are saddled with. The issue has gained national attention from those on both sides of the political spectrum with no concrete action taken to explain, let alone reign in, the extreme escalation when it comes to college tuition.
Data in the study finds that over the last 30 years, college tuition has soared over 200 percent. In a society that is increasingly demanding some type of higher education, Millennials are turning to student loans to finance their education.
Through the study, NerdWallet sought to nail down realistic retirement projections for three Millennial subgroups: the Struggling Graduate; the Normal Graduate and the Well-off Graduate. (see chart).
The Normal Graduate, who best represents the average position of Millennials in the workforce, is spending 7 percent of their annual earnings on debt repayment. With an average repayment plan of 10 years, they are prevented from making the adequate contributions toward retirement.
At 33, when many have finally paid off their student loans, they have can expected to have saved just $2,466 for retirement, over $30,000 less than a student graduating with no loans. Once the missed opportunity of compound interest is taken into account for every year until retirement, lost savings exclusively correlated to student debt is $115,096; 28 percent of total retirement savings.
NerdWallet went to so far as to factor in our quivering Social Security system, anticipating Millennials will receive 75 percent of the current average beginning at age 67.
The fact that Well-off Graduates are able to retire a full seven years earlier than Struggling Graduates plainly illustrates the impact a lack of student debt can have when those funds are translated into early contributions to a retirement plan.
NerdWallet found that although the expanding retirement age is an "inevitable economic reality," Millennials can mitigate against the risk of working late into their 70s by making above average contributions to their retirement accounts and seeking to work for organizations that offer a strong 401(k) match. Making sure to invest their money in index-tracking mutual funds are other ways to add years to their retirement as opposed to their working lives.