It’s simpler than you think
Can you find the acres of diamonds in your own backyard?
About 150 years ago, a famous American author and orator began touring the country with a speech called Acres of Diamonds, which enthralled huge audiences. Russell Conwell gave the speech over 6000 times, telling the tale of a Persian farmer named Ali Hafed who hears about the immense wealth that can come from finding diamonds. He sells his farm and travels far and wide in search of diamonds, only to find nothing. He eventually dies in despair and poverty. Meanwhile, the man who bought his farm finds an enormous diamond mine right on the land Ali Hafed had left behind.
The moral of the story is that opportunities for success and wealth are often closer than we realise—sometimes in our own backyard—if we were only able to see them.
For many retirees there are ‘diamonds’ to be found close by – but sometimes they’re overlooked or found too late.
The Age Pension is the first example that comes to mind. People are often surprised to find out how much the Age Pension can be worth over their lifetime. In fact, the Age Pension can be worth well over $1 million across a lifespan, calculated in today’s dollars. That’s a lot of diamonds.
Here we show the estimated lifetime value of the Age Pension for six different households, assuming the individuals live to 92. For full Age Pensioners, the Age Pension can be over 80% of their retirement income. For Part Age Pensioners, it can be well over 50%, even though it may start at a smaller percentage and grow to be more important as super dwindles. And even people who are not eligible now because their assessable assets are too high, are likely to find that the Age Pension plays a meaningful part of their retirement income over their lifetime.
| Full Age Pensioner($150,000 in assets) | Part Age Pensioner($500,000 in assets) | Future Age Pensioner($1.5 million in assets) | |
| Single – Lifetime value of Age Pension | $756,000 | $685,000 | $272,000 |
| Percentage of Retirement Income | 80.1% | 52.8% | 12.9% |
| Couple – Lifetime value of Age Pension | $1,142,000 | $1,136,000 | $647,000 |
| Percentage of Retirement Income | 86% | 64.5% | 26.3% |
Key assumptions about these retirees: homeowners (without mortgages), they start retirement at age 67, and live until 92. Age Pension increases at the rate of inflation.
Ali Hafed’s story comes home to us when we think about the number of people who apply late for their pension pile of diamonds. In Retirement Essentials surveys, over 50% of respondents say they apply late, 32% more than a year late. As there’s no backpay on the Age Pension – if you don’t apply, you don’t get it –that’s like giving up a bunch of diamonds that were in your backyard. It never hurts to check your entitlements which you can do for free here.
Forgone super
Another source of lost diamonds is often seen in superannuation. Many older Australians don’t move their super from accumulation to an Account-Based Pension (ABP). The problem with that is that investment earnings on super in accumulation is taxed at up to 15%, while earnings from an Account-Based Pension are tax-free. There are some good reasons why someone might delay moving to an Account Based Pension, but many people are just giving up ‘diamonds’ along the way. They can’t see that they’re right in front of them. Retirement Essentials advisers can help you better understand the superannuation diamond and ways to maximise these savings.
Not just Ali’s backyard
And then there’s housing. Talk about your own backyard. If you’re a homeowner, there’s a number of ways you can get value out of your home:
- Paying off your mortgage might help you get a higher Age Pension.
- Downsizing might give you more money to fuel your super.
- Considering a reverse mortgage might allow you to get a higher level of income in your retirement or to fund some expenses.
Lots of diamonds relate to your house.
So, there are lots of diamonds out there. Sometimes they’re easy to miss. After all, most of us are not across all the rules, nor trained to see things that might be known to experts in the field.
That’s where advice comes in. An experienced adviser knows what to look for, where the gems are and how to find them. And our experienced Age Pension Customer Support Team can assist you to get the Age Pension you deserve.
Don’t make the mistake Ali Hafed made. Ask for help, consult an expert.
Of course, the Acres of Diamond story is also a metaphor about more than money. Conwell’s broader point was that people can achieve success and happiness by making the most of what they already have, instead of constantly chasing external opportunities or faraway dreams.
And that’s obviously true for retirement as well. There are important things in our lives – way beyond money – that are essential to a great retirement. For instance, family and friends, often close by and certainly close to our hearts. For me, the grandkids are my metaphorical acres of diamonds. What are yours?
*many thanks to the late great Jack Bogle, founder of The Vanguard Group, for introducing me to this story.
