Retire at 75? That'll Be the Norm for Today's College Grads
By Landon Dowdy
As if student-loan debt wasn't enough of a burden for new college graduates. A report predicts that young workers will need to work until they're 75 on average to save enough for retirement.
Researchers at Nerdwallet, the financial site that published the report Wednesday, blamed rising rents and student debt levels. "Millennials are facing a unique challenge in ever-rising student debt that is really impacting their ability to save early in their careers," said NerdWallet investing manager Kyle Ramsay.
Meanwhile, the cost of renting a home in the U.S. has risen to its least affordable levels ever, taking up a record proportion of income in most major cities, according to a study from property website Zillow (Z). Renters in the U.S. can now expect to pay around 30.2 percent of their monthly income for rent on average, even more in some high-cost areas like Los Angeles, New York and Miami.
The NerdWallet calculations were made based on a 23-year-old saving 6 percent of his or her salary (the median savings rate for that age group) who graduated owing $35,051, the average student loan debt carried by 2015 graduates.
But there are ways to tilt the balance in the other direction.
You might be laughing now at your friends who moved back in with mom and dad after graduating from college, but they may get the last laugh.
According to NerdWallet's calculations, if that same new graduate lives at home until age 25, he or she could retire five years earlier at 70. (That's still eight years later than the current average retirement age.)
"It may not be the best course of action" to move out just because you can, said Deena Katz, a certified financial planner and associate professor at Texas Tech University. "Even if you contribute (while living at home), it will be less expensive than going out on your own."
Ramsay agrees. "There are expenses you can't control and there are those that you can and the ability to save on something like rent by living at home is a great option," he said. If that's not an option, consider getting a roommate or two.
Lowering your housing costs means you can also put more money toward paying off your student loan debt. There also are other steps you can take to speed up the pay-off process and lower your overall balance.
First, consider all of your repayment options for federal student loans. The Department of Education's federal student aid website offers seven repayment plans, including some that allow you to tie loan payments to your income and even have some of your balance forgiven.
For two plans -- income-based repayment and "pay as you earn" -- you'll generally make payments no higher than 10 to 15 percent of your discretionary income. Remaining balances on your federal loans will be forgiven after 20 to 25 years as long as you've made your payments on time. There's also a public service loan forgiveness program through which the remaining balance on your loans will be forgiven after you've made 120 qualifying monthly payments while working full-time for a qualifying employer in sectors like public safety, education or the military.
Katz said such plans are "an excellent idea, particularly if you are prepared to go into certain [public service] programs."
Another option for lowering your monthly payments is to refinance your loan through a private lender like SoFi, CommonBond or Earnest. If you have had time to build up your credit and still have a lot of debt to pay off, this might be a good option. Most private lenders require proof of steady employment and a minimum credit score of 640.
Some employers are also willing to make a lump-sum payment toward the loan as part of the compensation package if you guarantee them you'll stay there a minimum number of years.
If you are able to cut back on other expenses, that will also free up money to pay down your debt and start investing for your retirement. Even contributing $10 or $20 a week toward your retirement can make a difference. "You've got the wonderful, magical world of compounding, so whatever you save today is worth much more [in the future]," said Katz.