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Tom: Today we are going to start a short series for Money Mondays focusing on the retirement landscape for different age groups.

Mellody: That is correct, Tom. This month has seen a number of stories emerge about how retirement is changing for many Americans. Whether it is Social Security’s cost of living adjustment, or recent reports about the changing retirement challenges for young people, the old retirement planning approach as we knew it from 1975, or even 2005, is not necessarily applicable for this day and age. So this morning, I want to launch a little miniseries for listeners across a number of age groups to give people an idea of what has changed, and how they can adjust their plans and be prepared for retirement when they reach that point!

Tom: Great! Today we are starting with young people, just leaving college and entering the working world. How have retirement expectations changed for them?

 Mellody: The biggest change staring young Americans in the face at this point is retirement age. A new report from, a financial information website, found that on average, young workers will end up working 13 years longer than today’s typical retirees. Currently, the average retirement age is 62, but for the class of 2015 just beginning their career, the expected retirement age will be 75. The last study that Nerdwallet conducted – just two years ago in 2013 – projected a retirement age of 73 for that year’s grads, so in just a short period we are seeing retirement getting farther away! Given a normal life expectancy of 84 for today’s 23 years olds, that means that today’s college graduates will have less than a decade of retirement without having to go into the workplace.

Tom: What is driving these changes?

Mellody: There are two main culprits that are pushing retirement farther down the road for new workers: student loan debt and rising housing costs. Those costs have risen 19 percent and 11 percent, respectively, since the 2013 study was released. According to this year’s report, college graduates pay $4,239 per year in student loan debt on average. On top of that, young people are putting off home buying due to this debt and more rigorous mortgage requirements, meaning they are spending more renting. This prevents them from accruing home equity and excludes them from taking advantage of generous tax deductions.

All of this money that is being allocated to debt and rent is money that is not invested, and therefore unable to grow through interest and reinvestment. For example, the burden of repaying student loan debt, which now averages more than $35,000 at graduation, could cost graduates close to $700,000 in lost retirement savings because of the missed compounding interest on that money had they invested it.

Tom: Are there any other factors?

Mellody: Yes, one other significant piece of the puzzle is risk aversion among young workers. Many new graduates and younger Americans saw the damage that the 2008 downturn did to the retirement portfolios of their parents and grandparents, and as a result they have kept more of their assets in cash. Now, that may seem like a smart thing to do, but it really is not. The market, and most people’s portfolios, returned to pre-downturn levels in under 3 years, and the market has seen a long bull market since. Again, because young workers have kept more of their money in cash and out of stocks, they have missed out on this growth in the long term.

Tom: How do young workers prepare for retirement now?

Mellody: My first piece of advice is one you have heard me give people before: put as much money as you can in your 401k, especially if your employer will match it. If you don’t have access to an employer sponsored plan, look into an individual retirement account (IRA). It is especially important for young people to invest early, because what you invest now will be able to compound for a very long time. As I said, the study found that many young people are keeping money in cash, and that is a bad idea. Not only is it not growing, it is also much easier to spend, which is not what you want.

Secondly, work to cut down on your expenses. While you may not want to move in with your parents after college, or have roommates, just doing this for 3 years can allow you to pay down your student loans and cut back on housing costs, allowing you to get a jump on your retirement. The same is true for being frugal when it comes to eating out, or going on expensive vacations. Every dollar you put away now will mean many, many more in 40 years, and can put you on track to retiring in 40 years, rather than 55 years.

Tom: Thanks for joining us this morning, Mellody. We are looking forward to hearing more next week!

Mellody: I will be here, Tom!

Mellody is President of Ariel investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.

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