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Published: Feb 02, 2024 9 min read
Photo-illustration of two ladders, one with missing rungs, and two people.
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When it comes time for young people to make decisions about higher education, growing a sufficient retirement fund probably isn’t first on their list of priorities — but the findings of a recent working paper suggest they’d be wise to at least consider it.

Clinical professors Frank Smith and Ajay K. Aggarwal used data from the U.S. government and a mathematical model they developed to track how education debt and area of study in college might influence the retirement outcomes of millennial couples. What they found isn’t exactly encouraging for the average student loan borrower — or most of the college majors analyzed, for that matter.

The researchers released their study online and submitted it to the Journal of Academy of Business and Economics in December. It’s part of a series of studies the pair collaborated on while teaching at Henderson State University to investigate the success of U.S. couples in achieving a comfortable retirement, Smith says.

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How student loan debt affects millennials in retirement

Millennials are famous for the financial short straws they’ve drawn over the last two decades.

Roughly born between 1981 and 1996, those who pursued higher education did so at a time when tuition and fees were surging in price. In the 2018-2019 school year — when the youngest millennials would have graduated from four-year colleges if they enrolled at 18 — the average in-state tuition and fees for four-year public institutions were about three times as high as they were in the 1988-1989 school year, according to College Board data.

Many older millennials were dealt the double-whammy of graduating with exorbitant student loan debt during the Great Recession, then inheriting the crippled job market that trailed after it in the following years. Tack on lagging wage growth and the skyrocketing cost of living and you’ve got a generation with quite a few obstacles to saving money.

A four-year degree, at least in theory, is one way to unlock greater career opportunities and incomes over time — hopefully enough to save for the future and retire comfortably. But millennials' student loans may make that prospect unrealistic for many of them, according to Smith and Aggarwal.

“Debt is the most important factor overall in determining whether a household will have enough retirement savings,” Smith says of their findings.

The researchers calculated that millennial couples need a nest egg of at least $290,000 by age 65 to retire comfortably, assuming that they live to about 80. At a student debt level of $20,000, the odds that a coupled millennial household will reach that target was about 50/50.

For comparison, U.S. students who graduated with a bachelor’s in the 2021-2022 academic year had an average of $29,400 in education debt, per the College Board. (FYI: That’s lower than the $33,200 average for both 2011-2012 graduates and the $34,000 average for 2016-2017 graduates.)

At a debt level of about $40,000, only 2 in 5 millennial college graduates will achieve the minimum savings they need to be comfortable in retirement. At $80,000, that drops to 1 in 4, according to the Smith and Aggarwal analysis.

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College majors and retirement saving success

To evaluate which college majors had the best chance at reaching the $290,000 mark by age 65, Smith and Aggarwal looked at annualized salary data from Payscale and the National Association of Colleges and Employers, dividing it into five categories of majors: medical and life science; visual and performing arts; engineering and technology; liberal arts; and business.

All said, the analysis included 45 unique majors, and the researchers determined 60% of them won’t achieve the minimum nest egg goal, even if they don’t have any student loan debt. Across all majors, millennial graduates would need a starting salary of at least $48,500 to get there in time.

“The majors that give you a higher starting salary have a tremendous impact,” Smith says.

It may come as little surprise that all engineering and technology majors were determined to have high enough starting salaries to retire comfortably at both the $0 and $20,000 debt levels. About half of majors in the business category could reach the minimum retirement goal without debt, but none could achieve it at the $40,000 debt threshold.

Within the medical and life science field, the analysis found that only nursing and pharmacy majors’ starting pay meets that minimum. Nurses could have about $20,000 in debt — but no more than $39,999 — and still retire comfortably at 65. Pharmacy graduates were the standout in terms of retirement success, with Smith and Aggarwal finding that those graduates could have debt up to $80,000 and still have a 50/50 shot of not outliving their retirement savings.

Then there were the majors within the visual and performing arts and liberal arts categories, who had a particularly bleak outlook: None were projected to reach sufficient retirement savings, even without debt at graduation.

Will millennials ever be able to retire?

Smith and Aggarwal’s conclusions may give the idea that a big swath of millennial college graduates will be working until they die — but remember that their research doesn’t account for every individual set of circumstances. In fact, both researchers say that with strategic planning, building a substantial enough retirement nest egg is very achievable for a lot of folks.

“This isn’t to say [non-STEM and business] degrees aren’t worth it at all. Degrees open doors,” Smith says. “It’s more like the Ghost of Christmas Future showing you what it could be, but doesn’t have to be.”

There's research to support that generally speaking, having a college degree is better than not having one, the authors note in the study. A report from Pew Research Center shows that college graduates earn $1 million more than their counterparts with only a high school diploma over their working years, and their median yearly incomes were $17,500 higher. Data from the Bureau of Labor Statistics supports that the median difference is at least that much, according to Smith and Aggarwal.

What’s perhaps most important, though, especially for those working in lower-earning fields, is living within your means. Avoiding high-interest debt, like credit cards, is especially important for graduates in lower-paying fields, he adds.

A potential game-changer for student loan borrowers also kicked in this year thanks to SECURE 2.0, a sweeping set of retirement laws that aims to bolster Americans' ability to grow their personal savings. Employers now have the option to match borrowers' student loan payments as contributions to a tax-deferred retirement plan, allowing workers with education debt to save simply by paying their student loan bills on time.

With 84% of borrowers saying that student loans impact their ability to save, according to a recent Fidelity survey, this benefit in U.S. workplaces could completely change the trajectory of their retirement outcomes — that is if it's widely adopted.

In the meantime, an employer-sponsored defined contribution plan such as a 401(k), Aggarwal says, is still one of the most critical tools workers can use to grow a retirement fund, even if they’re putting in small amounts. Industry-specific benefits, like teacher pensions, can also make a massive difference when it comes to retirement.

“I think if people sat down and did really basic math, they’d realize that employers contributing toward retirement is something they should take seriously,” he says. “It will have an enormous impact on their bottom line.”

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