5% is a pretty standard rate used in these type of calculations. It might be on the high side currently, but it is also low for other periods of time, hence being a decent average to work with.

> and assumes that the money is saved an invested as opposed to spent on luxury goods.

Naturally, but the potential remains.

> It also assumed that earnings potential throughout career will always be as good as that of an average college grad.

It makes no such assumptions. Earnings beyond the first four years after high school are completely irrelevant to my calculations. You will still have $1.6M in hand if you never made another cent, assuming you do not touch the investment until retirement.