The current generation of college graduates is likely to retire more than a decade later than today’s retirees because of increasing student loan debt, according to a recent study by NerdWallet, a personal finance comparison website.
The study predicts student debt will force millennials – individuals born from the 1980s to the early 2000s – to retire at an age of 73. Millennials will have to work 12 years more than current workers, who have an average retirement age of 61, according to the study.
The study points to two factors in the past 30 years that have led to this conclusion: an 11 percent increase in the number of students enrolling in four-year universities and a more than 200 percent increase in college tuition.
College tuition has increased since 1982, at a rate steeper than that of inflation, and college students are turning to loans to ease this financial burden, according to the study. Many graduates end up spending the first decade of their careers paying off loans, leading to a delay in retirement.
Because of this later retirement age, the study also predicts that the millennial generation will be spending only 10 to 12 years in retirement.
“I think students should be conscious of this problem, not worried,” said Joseph Egoian, an analyst from NerdWallet. “There are a lot of reasons why people are retiring later. Students should be more aggressive to manage their finances more.”
The average college student in 2008 graduated with $23,200 in student loan debt – more than 20 percent more than four years earlier, according to the Project on Student Debt, a project from an independent research and policy organization called the Institute for College Access and Success.
Current students can improve their retirement prospects by finding a career path that will earn them a high salary and being more financially conservative, Egoian said.
However, Maria Casanova, a UCLA economics professor, said the study should be taken with a grain of salt.
Casanova said she thinks the study could be making unrealistic assumptions. It assumes that graduates would immediately start contributing to their retirement fund after paying off their student loans, she said.
The study also does not include the impact of a possible increase in wages in the future, which could alleviate debt, Casanova said. A person’s retirement age also depends on a their personal decisions, such as his or her chosen field of study and expectations for job prospects or wages.
However, both Egoian and Casanova said students should heed the study’s advice.
“I thought it was very nice that (the study) underlines how important it is to save for retirement,” Casanova said. “The important thing is to save for retirement once you start working.”
Compiled by Kelly Gu, Bruin contributor. Contributing reports from Dylan Nguyen, Bruin contributor.