The NerdWallet organization recently issued a report which found a few differences between today’s college graduates and those of 20 to 40 years ago. For one thing, they carry a lot more student loan debt: $35,051 on average. That means, again on average, that the new graduates will be paying $4,239 a year for ten years before they can properly start saving. NerdWallet estimates that these higher loan payments could potentially reduce future retirement savings by 32%—an average of $700,000.
In addition, today’s younger generation faces higher rental payments—up 11% since 2012—and having to delay home ownership to a median age 33. This, too, reduces their ability to squirrel away money for the future.
Finally, millennial investors have apparently been powerfully impacted, psychologically, by the Great Recession. NerdWallet found studies showing that younger savers keep an average of 40% of their saved money in checking and savings accounts or CDs. This means they’re missing out on investment returns, which would cost them more than $300,000 in future retirement funds, on average.
Add it all up, and the NerdWallet researchers estimate that today’s college graduate won’t be able to retire at the traditional age 65. On average, they’ll have to wait until age 75 before work (and an income) is optional. The site notes that the graduate would have to save 15% of his/her income a year starting at age 23 to bring retirement back down to age 65—which may not be possible due to higher student loan debt and rent, and won’t be anywhere close to possible with a 40% allocation to cash.
About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years. Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.
Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association.