Posts tagged ‘Generation Y’

November 4, 2013

The expected retirement age for today’s college graduates is 73

by Grace

College debt pushes retirement age for today’s college graduates to 73.

Having to spend “the first ten years (or more) of their careers paying off their hefty loans” will mean a postponed retirement for “debt-straddled” college graduates.

With the total amount of outstanding student debt approaching $1 trillion, the plight of debt-straddled college students is more important than ever. In the past 30 years, not only has the number of high school graduates enrolled in four-year universities increased by 11%, but college tuition has also soared over 200%. As more students attend college at a cost higher than ever before, Millennials have increasingly turned to loans to help finance their education. While much of the college debt dialogue is over immediate issues like employment and repayment, there is another glaring challenge that graduates will have to deal with for years to come: retirement.

When will students be able to retire given that many are spending the first ten years (or more) of their careers paying off their hefty loans? NerdWallet conducted a study that examined the financial profile of a typical college graduate and found that while retirement is certainly not impossible, for most it will have to wait until their early to mid 70s— over 10 years later than the current average retirement age of 61.

Starting late to save for retirement

Clearly, student debt has an impact on retirement outcomes. Currently, the average retirement age is 61. But for most of today’s college grads, the realistic retirement age will be closer to their mid-70s. Given an average life expectancy of 84, this will leave only 10-12 years for people to spend in retirement. The main reason for this is that although the median college graduate leaves with a seemingly manageable $23,300 debt load, 7% of a student’s earnings go toward yearly loan payments of $2,858 for the first ten 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 $2,466 for retirement—over $30,000 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 $115,096, nearly 28% of total retirement savings.

GRADUATE RETIREMENT OUTCOMES

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Average retirement age is on the upswing.

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College debt just exacerbates the trend for some people.


The college wage premium may not offset lost retirement savings.

On average, the college wage premium may offset the lost retirement savings caused by paying down student debt.  But on an individual basis, results may vary.  Any boost in income related to a college degree is highly dependent on the field of study and the student’s ability.  For example, how much of a wage premium will the C-average, ethnic studies college graduate actually receive?

Related:  The challenge of paying for college and saving for retirement at the same time (Cost of College)

August 19, 2013

It’s mainly younger millennials who still live at home with their parents

by Grace

Recent headlines broadcast the record number of young adults are living with their parents“.  But it should be noted that the highest percentages of young adults still dependent upon their parents tend to be those who are under age 25.

The numbers that caught our attention

A new study from Pew Research finds that 36 percent of Millennials – young adults ages 18 to 31 – are living at their parents’ homes, the highest number in four decades. A record 21.6 million young adults were still living at home last year.

Let’s look more closely at the data.

College-age adults account for the higher percentages.  Only 16% of 25-31-year-olds live at home, while 56% of younger adults live at home.

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Some reasons for the increase are:

  • More young adults are attending college
  • Poor job market
  • Declining marriage rates

Being male, living in the Northeast, and lacking a college degree are all factors that correlate more closely with the likelihood of living at home.

  • Millennial males (40%) were significantly more likely than Millennial females (32%) to live at home.
  • Millennials in the Northeast (44%) were significantly more likely to live in their parents’ home than Millennials in other regions of the country. This partly reflects the fact that Northeastern Millennials were more likely to be enrolled in college than their counterparts elsewhere, as well as higher housing costs in the Northeast (Furstenberg, 2010)….
  • Millennials who graduated from college (18%) were much less likely than less-educated Millennials to live at home. Millennials who have finished college tend to be older, but even within narrow age groups it remains the case that college-educated Millennials are the least likely to reside in their parents’ home.

Related:  No shame in living at home after college (usually) (Cost of College)

July 11, 2013

Student loans were the only kind of debt that grew during the latest recession

by Grace

All other types of debt declined.

… only student debt grew during the Great Recession. Federal policy has encouraged this habit. In the two years following the financial crisis, spending on student loans grew 19 percent and 18 percent, respectively.

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‘Good Debt vs. Bad Debt’

Good debt is an investment that will grow in value or generate long-term income. Taking out student loans to pay for a college education is the perfect example of good debt. First of all, student loans typically have a very low interest rate compared to other types of debt. Secondly, a college education increases your value as an employee and raises your potential future income.

‘Student Loan Problems: One Third Of Millennials Regret Going To College’ – Forbes

… About one-third of millennials say they would have been better off working, instead of going to college and paying tuition.

That’s a according to a new Wells Fargo WFC +2.06% study which surveyed 1,414 millennials between the ages of 22 and 32. More than half of them financed their education through student loans, and many say the if they had $10,000 the “first thing” they’d do is pay down their student loan or credit card debt.

After the experience of the last few years, I would say it’s not a good idea to generalize that college debt is always “good debt”.

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