By Steve Leonard
Before reading on, it should be noted that I write this article from a neutral point of view. As I sit, I feel particularly jaded when it comes to college, as most seniors probably do. From these feelings come thoughts of the alternatives I could have picked four long years ago instead of going to college such as selecting a blue collar job like becoming an electrician. Out of curiosity I decided to make a few simple assumptions to determine if getting a degree is really more advantageous than working a blue collar job when it comes to retirement. We’ll pretend life begins at retirement then, and he who has the most saved at age 65 is the winner. We’ll need to make a few more assumptions to simplify this scenario enough to come to a conclusion.
The first assumption will be that retirement contributions towards a 401k are 10% of salary. Salaries used will be $31,969 for a blue collar job, which is the average salary for an entry level electrician , and $45,327 for those with a bachelor’s degree, which is the average salary for a new college graduate. Savings work out to be $3,196 for a blue collar job and $4,532 for those with a bachelor’s degree. The second assumption will be that savings for retirement begin at age 18 for a blue collar job and at age 28 for those with a bachelor’s degree. While most people graduate at age 22, we’ll assume that savings won’t begin until age 28 to account for student loan debt. If graduates contribute $4,532 per year to a 401k and average student loan debt was $29,000 in 2012, we’ll assume those 6 years of would-be retirement savings are used to pay off debts instead. Third, we’ll assume the average retirement age is 65. The last assumption we’ll make is that the average rate of growth for a 401k is 5%.
Under these assumptions, a blue collar worker who contributes $3,196 per year for 47 years earning 5% would have $569,269. Those with a bachelor’s degree contributing $4,532 per year for 37 years earning 5% would have $460,578. That’s a difference of $108,691. An electrician earns $108,691 more in retirement savings over their career than those who have earned a bachelor’s degree. In fact, someone with a bachelor’s degree would have to retire at age 68 if they wanted to have the same amount saved as an electrician who retired at age 65.
I recognize that the assumptions made here simplify this complicated scenario to a great extent. I also recognize that those who attend college have higher lifetime earnings potential than those with blue collar jobs. However, there are many jobs that require degrees such as elementary education jobs where lifetime earnings are nearly on par with that of blue collar jobs.
In the end, there is no right or wrong answer to whether college is worth it. Aside from a retirement standpoint, there are many other ways in which individuals gain value from going to college and there are many other ways in which individuals place value on not going to college. When it comes to retirement though, some blue collar jobs do in fact come out on top. And even for those blue collar jobs that may not come out on top, the retirement savings difference between college graduates and their counterparts may not be as large as some people imagine. For me, going to college was definitely a decision I’m glad I made, but I was certainly surprised to see how retirement savings can stack up against those who chose not to make the same decision I did.