“The average retirement age for recent college graduates will be 73.”
Many of today’s new college grads won’t be able to retire until age 73 due to the high debt loads they’re carrying, says personal finance website NerdWallet.
That’s 12 years later than the average age of today’s retirees, and leaves millennials with only 11 short years in retirement to kick back and enjoy themselves.
Why the dismal results?
One of the big culprits is reportedly high levels of student debt.
The median debt load of today’s graduates is $23,300. By the time they retire, that will grow to over $115,000 once interest costs are factored in, according to NerdWallet’s calculations.
Throw in the high cost of a first home purchase, the expense of starting a family, some injudicious use of credit cards and car loans, and a job loss or two, and you can see why many millennials aren’t getting around to saving for retirement as soon as they should.
If you’re a recent grad or young millennial, what can you do about it?
Stay out of the hole. Avoid taking on that debt in the first place by picking a more moderately priced college, graduating on time, polishing your resume with valid internship experiences, and focusing on developing marketable skills that will land you a job once you graduate. Don’t overspend on your first home and stay away from credit card debt like the plague.
Give at the office. Once you start working, participate wholeheartedly in your 401(k) or workplace retirement plan, and seek out employers who offer a generous match. A chintzy 401(k) plan and skimpy match can cripple your ability to save for the future. Your company’s 401(k) match is crucial, says NerdWallet, and will account for 50% of your overall retirement savings.
Invest for growth. Avoid a common investment error that trips up today’s millennials. Young grads and millennials came of age during the 2008 recession, one of the worst financial crises in history, and it’s hard for them to shake the memories of those dark years. That’s turned many of them into “awful investors,” says NerdWallet. Out of fear, millennials gravitate toward low-risk, low-return bank accounts and CDs. Those investments won’t get them where they need to go. Millennials need to embrace stocks and other growth investments to play retirement catch-up.
If you are the parent of a recent college grad, how can you help?
Don’t overdo it. For parents with the means and willingness to help out, it’s important to do it in the right way. You don’t want to foster a sense of entitlement or subsidize an unrealistic living standard that your kids can’t keep up with using their own resources.
Help them move forward. If paying off old student debt is keeping them down, consider chipping in an amount each month, paid directly to the lender, so they can pay off students loans sooner. (Credit card problems? That’s another story. They should resolve overspending issues on their own.)
Supercharge their savings. If you can comfortably afford it, and you think they’re on the straight and narrow, offer to pitch in to help them fund their annual Roth IRA contribution (assuming their income qualifies them for the account). If they’re short of funds, you might offer to pony up an amount that matches their own savings. For young people, the maximum Roth contribution is $5,500 per year. Roths pack a serious punch due to their tax-free growth advantages.