Every week, a new study or news article comes out that predicts a later and later average retirement age. The “Golden Years” may not be feasible unless steps are taken at the early stages of a Millennial’s career path.
According to a study by Nerd Wallet, most Millennials (born between 1981 and 1997) will not be able to retire until the age of 73 – 12 years later than the current average retirement age of 61! This doesn’t even take into account that half of Millennials don’t believe they will receive any Social Security at retirement, despite paying into it their whole life according to a Pew Research survey in 2014.
The total amount of outstanding student debt is approaching $1 trillion, with a median debt of $23,000 for recent college grads. Most grads sign up for a 10 or more year payoff plan, which means they most likely won’t save much during this period. The problem is that the more money you save earlier, the more exponential growth you take advantage of due to compound interest. Most Millennials will have to wait until their mid-30’s to start seriously thinking about retirement and at that point you’re playing catch-up if your goal is to be wealthy in your old age so that you can live and give according to your dreams.
What’s the big deal?
The graph below helps to visualize the opportunity cost associated with not saving during the first 10 years of your career. We assume that one Grad has $23K in student loans and the second Grad has NO student loans. The first Grad pays his student loans in ten years and after that he/she invests that same repayment amount ($265/month) in no-load index funds until the age of 63. The other Grad invests the same amount ($265/month) as soon as he lands the first job and continues to invest that amount until age 63 in the same no-load index fund. We assume the fund earns 10% interest yearly.
As you can see above, the Grad who had no student loans ended up with $1 million more that then Grad who had student loans. The beauty of compound interest is that the Grad who started investing $260/month at age 23 only saved $35K more than the Grad who had student loans but had a much greater net worth thanks to the secret ingredient of investing… TIME!
Avoid or eliminate debt as soon as possible, then save. Simple as that.
Find out more about the “why” and the “how” here….