The 2018 Money Outlook: Class

The challenges for new college graduates include finding a job, paying household bills, and saving for the long-term financial goals of the future. The future is not necessarily grim for the Class 2018.

According to NerdWallet, graduates of the Class 2018 could retire at 72 if they have a good budget and a small retirement fund. If they are able to save less than 20% on their down payments, new graduates could be homeowners before 36. It won’t be easy. If they are to realize their ambitious goals, they must immediately pay off student debt and start saving.

Brianna McGurran is a NerdWallet student loan expert. She says that young people should not feel discouraged. It is possible to retire, buy a house and achieve all the trappings of adulthood. The best thing for new grads is to be able to save from the start .”

NerdWallet analysed the most recent data, projected numbers, and ordered a survey by The Harris Poll, March 2018, of U.S. adults 18 years and older. About 20% of 1,542 poll respondents had completed their undergraduate degree within the last five years. This group is called “recent undergraduates span>

72 for a young adult is far away and six years earlier than the average retirement age according to the Organisation for Economic Co-operation and Development.

Adults have been working longer since the 1990s. This is partly due to changes in Social Security benefits, economic necessity, and also because the older population has more education. According to The Brookings Institution, workers with higher education tend to work for longer periods of time. According to the Bureau of Labor Statistics, this trend is expected to continue. They project that the number of civil workers aged 75 and over will increase 6.7% annually from 2016 through 2026, faster than any other age group.

Based upon the average annual salary of the graduating class last year, new graduates would need to have steady but modest salary increases each year, put 6% of their income in retirement accounts, and maintain reasonable spending levels to meet our benchmarks.

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  With careful budgeting, graduates of the Class 2018 could retire at 72. According to the survey, recent undergraduates predicted a median retirement age of 63. This may be a surprise. However, some people may find the news encouraging. 11% of respondents said that they doubt they will ever retire.
  

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  Nearly half (45%) of undergraduates have student loan debt. 39% don’t believe it’s likely that they will be able pay it off in 10 years, even though a 10-year repayment schedule is most common for federal student loans.
  

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  The Class of 2018 could be able to save 20% and put 20% down for their first home by the age of 36. This could surprise some as many recent college graduates who have not yet bought a home expect to be able to by age 31.
  

• People who want to purchase a home earlier than 30 could save 10% on their down payment. A mortgage that requires less than 20% down could result in higher monthly payments and mortgage insurance.

NerdWallet assumed that graduates would find work at an average wage, have access to a retirement account that is employer-subsidized, and make lifestyle decisions and budgetary choices that are in line with their long-term financial goals. Many assumptions have to be made when determining the goal attainment ages for a graduating class. Although the results may not be exact for every member, they can give a high-level overview of what the cohort could expect.

We used the 50/30/20 budget to simplify the process and give new grads a spending and saving plan. 20% of income is spent on debt repayment and savings. We assumed that student loans were their only major debt. As their only savings plan, we also assumed that they would save all of their retirement and homeownership funds.

McGurran states that even with credit card debt and car payments, new grads could reach their goals by a reasonable age. They can increase their retirement savings by buying a used car instead of a new one, and compare-shop insurance. Regularly reviewing their spending can help them make sure it reflects the things that matter to them. These habits can lead to more savings .”

In retirement, you should be able to live on around 80% of your income. Graduates will find jobs with moderately generous employers. One that matches 50% of employee’s 401(k) contributions, up to 6% of their salaries, is a common offer among employers offering retirement benefits. To retire at 72, you must take full advantage of the match by investing 6% each paycheck until you stop working.

Graduates must budget enough income to pay down federal student loan debt under a 10-year repayment plan. This is the default repayment plan for federal student loan loans. Based on data from The Institute for College Access & Success, we estimate that the average student loan load for 2018 bachelor’s degrees recipients is $28,446, After this debt is paid off, a larger portion of the income can be used to fund a downpayment fund.

After establishing good credit and having a steady income, graduates may be eligible to refinance student loans. Refinancing may allow them to get a lower interest rate on student loans, which could give them more money for retirement and a home.

NerdWallet’s 2018 Home Buyers Report revealed that 82% of millennials aged 18-34 believe buying a house is a priority, despite the popular belief that many would prefer to rent, travel, or squat indefinitely. Our analysis assumes that 20% of annual income is used to save and repay debt. This excludes student loan payments and retirement contributions. Graduates can save 20% for a down payment and be in a median-priced house by the age of 36. With a down payment, you can get a lower loan amount with lower monthly payments.

A majority of recent undergraduates believe that they will be able buy their first home at age 30, and almost 3 out 10 (28%) think they’ll retire before 65. These lofty goals can be achieved, although they are not impossible.

Invest more. The Class of 2018 can retire at 70 by contributing 9% of their income instead of 6% to their 401(k). Retirement at 69 is possible by contributing 12%. If you contribute just 3%, and don’t take advantage of the full employer match, your retirement age rises to 77.

The Department of Education recommends that you choose the best student loan repayment plan. Most college graduates will be able to repay their loans in a 10-year period, which is the default option. According to the survey, 39% of undergraduates with student loans believe it is unlikely that they will be able pay off their debt within a decade. McGurran states that student loan payments can make it difficult to save for retirement. The money they save for retirement will grow, which will make a big difference to their financial security in the future. It’s okay, and even better, for new graduates to choose student loan repayment programs that allow them to have some breathing room, so they can begin saving for retirement .”

You can expect to earn more. Graduates can expect a 3.5% rise in their pay each year, 2% due inflation and 1.5% real wage growth. There will be promotions in some years, while others might see smaller increases. This is a relatively small growth rate. Graduates could increase their earning power by learning new skills and staying competitive in their fields.

A smaller down payment can be a good option for those who are looking to buy a home before they turn 36. According to our analysis, new graduates may be able to save 10% by the age of 30, which is the average age that recent undergraduates expect to be able to purchase a home. However, down payments below 20% can lead to higher interest rates and mortgage insurance.

We pool resources. This is because Americans are more likely to delay marriage according to U.S. Census data. If they decide to share their assets, grads might be able to use more of their income towards their student debt or long-term savings.

According to the survey, more than three-quarters of Americans (36%) believe that homeownership is not in their future. 21% of recent undergrads have not yet bought a home. 11% of recent undergraduates don’t believe retirement is in their future. These sentiments are understandable. However, real life is not as easy as putting together a spreadsheet with projected earnings and savings. Both our choices and external circumstances can cause financial goals to be canceled.

Credit card debt. Credit card debt.

If the average credit card interest rate is 14.87%, $6,081 would result in $904 annually in interest. Instead, they could save $904 per year on their retirement savings and accumulate approximately $542,000 by the time they reach 72.

Employees are paying a greater share of health care costs, even if they have employer-provided benefits. According to the Kaiser Family Foundation, they are paying more for premiums and will likely be in plans with a higher deductible.

High housing costs. Graduates may need to spend more depending on where they live. According to census data, the median rent in many major cities is well above 30% of household income. If the median home price in their chosen city is higher than the national median, they might need to save more to meet their down payment goals.

Being a parent is an important decision. Money is just one of many. NerdWallet’s 2017 analysis revealed that the first year of a child’s life can cost more than $21,000. Americans are notoriously underestimating these costs.

Unexpected events. Job loss, a leaky roof or long-term illness could all affect your financial goals. These unexpected events may not always be avoided by new grads. However, they can and should build an emergency fund in their budgets to reduce the impact. Long-term consequences can be caused by drawing emergency cash from the wrong sources, such as student loan deferrals or credit card debt.

Data from the Department of Education shows that 6.5 million student borrowers were either in forbearance or deferment in the fourth quarter of 2017. 4.6 million were in default. For those who are in financial hardship, both forbearance and deferment are viable options. However, there are other options available that may make it easier to manage payments.

Students who wish to reduce student loan costs can apply for income-driven repayment plans. They can also extend the repayment term by federal consolidation or refinancing with private companies. This calculator will help borrowers decide which option is best for them.

The Harris Poll conducted this survey online in the United States for NerdWallet, March 8-12, 2018. It included 2,017 U.S. adults aged 18 and over, of which 321 had completed an undergraduate degree within the last five years. Therefore, no estimate of theoretical sampling error could be made. Please contact [email protected] for complete survey methodology including weighting variables, subgroup sample sizes and more.

NerdWallet’s 2015 New Grad Retirement Report was the last analysis of this type. It estimated that the Class 2015 could retire at age 78. This 2018 analysis does not take into account rising rental costs. Instead, it focuses more on the ability of subjects to budget for various costs related to their housing options, lifestyle, and long-term financial goals. This analysis also shows that student loan debt was based on less conservative estimates.

The income at graduation ($51 022) was based on early estimates from the National Association of Colleges and Employers for the Class of 2017.

The Lifetime income assumes a 3.5% annual rate of growth, which includes 2% inflation and 1.5% performance-based salary increases.

Retirement savings are calculated on modest returns of 6%, compounded each year, and a 50% employer match of up to 6%.

Social Security income assumes 77% current average Social Security payments adjusted for inflation.

The Retirement income targets were based on the current estimated life expectancies of people born in 1995 by the Social Security Administration.

The amount of student loan debt at graduation is based upon 2016 state-level estimates by The Institute for College Access & Success. It may underestimate true national averages because of voluntary reporting from for-profit institutions.