Saving for retirement is probably the last thing debt-burdened college grads want to think about, but unfortunately they may have to start sooner than they think. According to a new study, many Millennials may not be able to retire comfortably until age 73 due to their college debt. Essentially, the problem is that while students are paying off their debt in their 20s and 30s, they will have little, if anything, left to contribute to a retirement fund. When young people wait to save money, their investments have less time to appreciate, which adds up to a significant sum over the years. The WSJ’s Market Watch reports:
Here’s the problem, according to NerdWallet: The median debt for a student when she graduates is $23,300, and the median starting salary for a recent grad (who has a job) is $45,327. Assuming a student makes the average annual loan payment of $2,858 for the first 10 years of her career, that drastically cuts into the amount of retirement saving she can manage. And figuring that missed-out contributions could have been earning a compounded rate of return until retirement, the lost savings due to student debt payments is $115,096 by age 73, according to the report. The report assumes every loan payment would have gone to retirement savings, and that the graduate would save at the historical 30-year national post-tax savings rate of 6.1% after the debt is paid off, Egoian said.
This doesn’t mean that it’s impossible for college grads to start saving early. The study notes that graduates with below-average debt and above-average salaries will likely be able to retire at the standard age, 65. And many struggling but resourceful grads find ways to live frugally and save more. Nonetheless, this does suggest that college debt continues to be a burden on the younger generation that may haunt them for the better part of their lives.[Ball and chain image courtesy of Shutterstock]