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Why should graduates be thinking about retirement?

Eclipse

Australians are an educated bunch. Almost one million Australians went through University in 2014, according to government statistics, which shows how many of us are choosing to invest in our education – and often before we have any funds to do so.

For many, a university degree is necessary to fulfil a life they have dreamed of and embark on their chosen career, but many don't fully understand the scale of financial investments. Taking out a student loan has implications not just for your immediate cash flow, but for savings further down the track.

While you'll likely earn more with a degree than without, you'll also have that student loan.While there is money to be made for graduates, there also needs to be money saved.

How fast does a student loan pay itself off?

According to Graduate Careers, 68.8 per cent of bachelor's graduates had landed full-time jobs at a median salary of $54,000 within four months of completing their degree requirements. The promises of high immediate cash flow are high – which is an exciting prospect for many young bucks who are yet to take the first steps of their careers. However, a student loan can be a serious hindrance to your retirement savings capabilties.

For example, take into account the $30,000 student loan that many have received from a government program. Once someone is earning more than $40K a year the loan needs to repaid at 4 per cent per annum – or a bit over $2,000. While we hope that graduates would quickly augment their entry level salary, if they stayed on this rate and only repaid the bare minimum, this would take around 13 years to balance. Moreover, this calculation hasn't included any interest, which many student loan schemes do, nor the opportunity cost of missed earnings while you study.

"I don't think people realise how much they need to save to get a decent income later on."

Why should you get smart about your cash flow?

With this weighing on top of rent payments, other bills as well as income tax and general living expenses, any other cash flow is more than likely being spent or saved for the short-term – if there is any left over. Writing for the Financial Times, Amy Williams suggests that a typical twenty-something would prefer to spend on experiences now rather than saving for the future. Critiquing the experience generation, she argued that many young people are blindsided when there is cash in their hands.

"I don't think people realise how much they need to save to get a decent income later on," Ms Taylor says.

While it sounds concerning, thinking about the future now can prevent troubles further down the track. Instead of driving towards a financially distressing final chapter in life, getting a road map as early down the track as possible can ensure that you will still be full of gas once you reach your destination.

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