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Today's College Grads May Not Be Able to Retire at 65

Written by: Kristy Welsh

Last Updated: September 11, 2017

Remember when you were growing up, your grandparents or maybe even your parents retired at the age of 65 and they had a nice monthly retirement income to live off of during their golden years. Well, that stress free retirement living has pretty much come to an end as our country is seeing more and more pensions and retirement accounts depleted by bad investment choices and a poor economy. Add to that the overwhelming debt being accrued by the average person, and you have a recipe for pushing the retirement age well into the 70's. The college graduates of today will most likely not be able to retire until they are well over 70 years of age due to the fact they will not be able to afford to retire at 65. Let's explore why this is happening and what you can do about it now so you can retire at 65 and not 75.

Student Loan Debt

A recent study by Student Loan Hero revealed a very dismal financial outlook for today's average college graduate. The class of 2016 graduated with $37,172 in student debt on average, which is not really ideal conditions for starting to sock away money into a retirement fund. It all translates to about $125,000 less in your retirement fund by the time they reach the typical retirement age of 65. But how does $37,000 of college debt turn into $125,000 later? In party due to interest on the loan and opportunity cost of future savings.

"[A]lthough the median college graduate leaves with a seemingly manageable $37,000 debt load, 7 percent of a student's earnings go toward yearly loan payments of $3,200 for the first ten years of his or her career," writes NerdWallet analyst Joseph Egoian. "This prevents any meaningful contributions toward retirement."

Now, if that $37,000 was put into a plain-vanilla retirement account averaging a 5 percent annual return for 30 years, it would become almost $160,000. But it won't, and as a result, the typical debt-laden graduate won't be well situated to retire until he or she is 75, 10 years later than the current average age of retirement.

Out Living Your Money

Later retirements seem somewhat inevitable as we are living longer, which means you need more money saved for retirement. In the 80's, a lot of companies moved from traditional pension plans to 401(k) savings plans. The thinking was these accounts would grow so big that making money to last well into retirement would be fairly simple. But, it did not work out that way. The economic crash of 2008 depleted most 401(k) accounts, which meant the money that would have been there to live on, was now gone. The guaranteed lifetime income, once a staple of old age for many American, has now become an elusive grail.

One way to combat the poor performance of 401(k)'s, is to convert your savings into a fixed annuity. While 84 percent of Americans say lifetime income is important, only 14 percent have bought an annuity. Annuities come in many varieties so make sure to check the fees before you buy into one.

The best thing for recent college grads to do is to not get too far into debt with college tuition. Try going to a cheaper community college first, then transfer to a 4-year school. Also, working while going to school can help lessen the need to borrow more and more money to get through school. With less debt after graduation, you can put money into a retirement account so you won't be working after your turn 65 years old. Doesn't that sound better than working well into your 70's? We think so!