Why Retiring at 75 May Become the New Norm

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A study finds that a 23-year-old new graduate earning about $45,500 will not be able to retire until age 75. Learn about the main factors behind this reality.

Two-thirds of retired Americans report they stopped working before age 65, according to an annual Gallup poll conducted earlier this year.

But younger Americans face a worse financial fate, according to a new study by NerdWallet.

The website found that, for a 23-year-old new graduate earning about $45,500, retirement will be pushed back to age 75 due to several factors. They include:

Rising student loan debt

NerdWallet reports that the average student loan debt is now about $35,000. That’s an increase of more than $5,500 since 2012, which means larger monthly loan payments.

Kyle Ramsay, investing manager at NerdWallet, explains:

“The student loan crisis is not only affecting new graduates’ immediate financial situation, it’s making their retirement prospects dwindle. Based on our findings, higher loan payments have the potential to reduce nest eggs by 32 percent. That’s nearly $700,000 in this scenario.”

Rising rent

Citing research from Zillow, NerdWallet reports that rent rates have increased by 11 percent nationally since 2012, which has two negative effects on young graduates’ retirement prospects.

Having to put more money toward rent means:

  • Having less money left to save or invest and, in turn, less money to gain from interest on savings and investments.
  • Having to delay homeownership and, in turn, delay the ability to build assets via real estate.

Less investing

Young adults tend to distrust the stock market, NerdWallet reports, keeping an average of 40 percent of their savings in cash, according to figures from State Street.

That could reduce their nest eggs by more than $300,000, even with a more conservative annual return of 6 percent, according to NerdWallet’s analysis.

Ramsay’s advice to young Americans echoes that given by many financial experts:

“Save more and save early. Compound interest is a powerful force that can build a comfortable nest egg. For example, if a 23-year-old invests $10,000 at a 6 percent return today, it could be worth twice that amount by the time he is 35 years old and 20 times that by the time he is 75.”

For help boosting your own retirement prospects — whether you need to pay down debt, build a budget or find an investment brokerage — check out the Money Talks News Solutions Center.

At what age did you retire, or at what age do you expect to retire? Let us know below or on Facebook.

Stacy Johnson

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