I am from a conservative middle-class family background and it has been drilled into my head that one should be mainly in fixed deposits, upon retirement. Why? – because my money will be safe and one should not take risk after retirement. The question is, should I have all my savings in a fixed deposit and still hope that the interest I get will pay for my post-retirement expenses?

Take this example

For the purposes of simplicity, say I have a fixed deposit of Rs 50 lakhs. Based on current interest rates, I can get 7% interest income each year, which will lead to Rs 3.5 lakhs of annual income. Let us assume you are not in the taxable bracket. From this deposit, you will continue to get an annual interest of Rs 3.5 lakhs for several years, but this number will remain constant year after year (assume interest rate holds up). 

In addition, assume your annual expenses are also Rs 3.5 lakhs. Unfortunately, this expense is going to keep increasing every year along with inflation. One can assume long term inflation rates of 5% pa, which means that in 10 years, your annual expense will be Rs 5.7 lakhs and in 20 years it will increase further to Rs 9.3 lakhs. 

50 lacs invested in fd

What is the risk here?

If this were so, is it logical to expect fixed deposits to be your sole avenue to save upon retirement? There is a risk. This risk is that your income will always trail the inflation adjusted expenses and you will have to compromise your life style

This path is not a risk, it is more a certainty. This is more so with increasing life spans.

The real risk is in having all your savings in fixed income. You are left with little choice, but to invest in inflation beating investment products.