Prior to the Global Financial Crisis (GFC) in 2007, the Reserve Bank of New Zealand (RBNZ) had set the official cash rate (OCR) in New Zealand at 8.25%.

Back then retiring with $1 million might be enough to live very comfortably and securely. Investing in what are considered risk-free investments, e.g. term deposits, which move in lock-step with the OCR, could have produced an annual income of $82,500 (gross). Plus assuming the retiree is 65 or over, superannuation of $23,405, giving a total gross income of $105,905.

Unfortunately, this is not so anymore. Fast forward a decade and there has been a huge bull market in risk assets (shares and property). However, to achieve a very comfortable and secure retirement nowadays by simply investing in term deposits requires many more millions. But how many? How many dollars does it take to achieve the same amount of earnings illustrated above?

The OCR currently sits at 1.75% and is forecast to remain at these levels for the next year or so.

NZ Official Cash Rate 2018

Source: Bloomberg

Doing the maths means to generate $82,500 of income at a return of 1.75% you would now need over $4.7 million!

Clearly times have changed. And the alternative to address this problem, as can be seen in the chart below, is to take more risk.

Increasing Investment Complexity and Increasing Investment Risk

The issue with this approach is that taking risk is complex and therefore it is generally recommended that investors seek good quality advice to assist with this process and help them manage potentially uncharted territory.