For many people, fixed deposits (FDs) are synonymous with financial safety. But when retirement could last four decades, depending entirely on FD interest may not provide enough protection against inflation, rising healthcare expenses and changing financial needs.
A financial expert has highlighted the risks of an FD-only retirement strategy and suggested a more diversified approach for a 34-year-old man who is financially responsible for his 39-year-old physically challenged sister.
₹1 Crore Savings vs ₹7 Lakh Annual Expenses
The individual currently lives in a rented home in a Tier-1 city with his sister. Due to family responsibilities, he is unable to work full-time and spends much of his time caring for her.
The siblings have approximately ₹1 crore in financial savings, largely invested in FDs and other relatively safe instruments.
Their current household expenditure is around ₹7 lakh a year, including rent.
They also own several properties in their native village near a Tier-3 city. Their house, plot and farmland are estimated to be worth approximately ₹3 crore in total. These properties generate around ₹1.5 lakh annually through rental and agricultural income.
Current Financial Position
| Financial Area | Current Situation |
|---|---|
| Age | 34-year-old man; 39-year-old sister |
| Marital status | Both single |
| Financial savings | Around ₹1 crore |
| Main investments | Fixed deposits and other safe instruments |
| Annual expenses | Approximately ₹7 lakh |
| Rental and farm income | Around ₹1.5 lakh annually |
| Property assets | Approximately ₹3 crore |
| Current plan | Depend primarily on FD income and sell property if required |
Why FD Income May Not Be Enough
According to Anooj Mehta, Partner at 1 Finance, the current numbers may appear comfortable, but the situation changes considerably once inflation is factored in.
If ₹1 crore earns around 6.5% annually, it would generate approximately ₹6.5 lakh a year before taxes. Adding ₹1.5 lakh from rental and farm income takes total annual income to roughly ₹8 lakh against expenses of ₹7 lakh.
That leaves only a small surplus.
The bigger problem is that FD interest may remain relatively stable while household expenses continue rising.
For instance, if expenses increase at an assumed 6% annual inflation rate, ₹7 lakh of yearly spending would rise to around ₹9.4 lakh within five years. Over 20 years, the annual requirement could cross ₹22 lakh.
As the gap between income and expenses grows, the family may eventually have to withdraw money from the ₹1 crore principal. Once the principal starts falling, the interest earned on the remaining amount also declines, potentially creating a cycle of increasing withdrawals and shrinking income.
Under the assumptions outlined by the expert, an FD-only approach could potentially exhaust much of the financial savings in less than 20 years, despite the plan needing to support the siblings for roughly 40 years.
Can ₹3 Crore in Property Solve the Problem?
The family owns real estate and farmland worth an estimated ₹3 crore, which provides an important financial safety net.
However, the properties currently generate only about ₹1.5 lakh per year. That works out to a relatively low income yield compared with the asset value.
There is another concern: real estate is not as liquid as financial investments.
A plot or piece of farmland, particularly in or around a smaller city, may take considerable time to sell. The owner may also have to accept a lower price if funds are urgently required.
Therefore, while property appreciation could help protect wealth against inflation over the long term, it should not necessarily be treated as a readily available source of retirement income.
The Biggest Risk May Not Be Inflation
The expert points out another critical issue in this situation: the sister’s financial security currently depends heavily on her brother.
Because he is her primary caregiver, the financial plan needs to account for what would happen if he becomes unable to manage the household or provide care.
This makes health insurance and estate planning particularly important parts of the overall financial strategy.
A retirement plan should not only answer the question of how much money is available today. It should also address who will manage the assets and provide financial support if circumstances change.
Expert Suggests Splitting the ₹1 Crore
Instead of keeping the entire ₹1 crore in low-risk instruments, the expert recommends dividing the corpus between safety and long-term growth.
Under the suggested strategy:
- ₹30 lakh could remain in FDs and liquid funds.
- The remaining ₹70 lakh could be invested in equity mutual funds.
- The low-risk bucket could be used to meet expenses during the initial years.
- Equity investments could be left untouched for approximately five years.
- Systematic withdrawals from the equity portfolio could then begin.
The illustration assumes a long-term equity return of around 11% annually. At that rate, ₹70 lakh could potentially grow to approximately ₹1.18 crore over five years.
These returns are illustrative rather than guaranteed, and equity investments can fluctuate significantly over shorter periods.
Why the Five-Year Buffer Matters
Keeping ₹30 lakh in relatively safe and liquid investments creates an initial financial cushion.
The idea is to use this reserve to meet expenses while allowing the equity portion time to grow. This can reduce the need to sell equity investments during a market downturn.
After five years, systematic withdrawals could begin from the growth portfolio to fund rising living expenses.
Based on the assumptions used in the expert’s illustration, the equity corpus could cross ₹2 crore around the 20-year mark, even after withdrawals, and potentially support the family for considerably longer than an FD-only strategy.
The ₹3 crore property portfolio could then remain largely untouched and serve as a last-resort financial reserve.
Recommended Financial Strategy
| Area | Suggested Approach |
|---|---|
| Safety corpus | ₹30 lakh in FDs and liquid funds |
| Growth investments | ₹70 lakh in equity mutual funds |
| Illustrative equity return | Around 11% annually over the long term |
| Withdrawal plan | Begin systematic withdrawals after five years |
| Health protection | Adequate health insurance for both siblings |
| Estate planning | Prepare a will and consider a trustee arrangement |
| Additional earnings | Explore online rehabilitation consultations |
| Property | Retain as a long-term/last-resort reserve |
| Main concern | FD returns may fail to keep pace with inflation |
Online Consulting Could Strengthen the Plan
The individual also has experience in rehabilitation and is considering starting online consultation sessions.
The expert suggests pursuing this opportunity because even an additional ₹2–3 lakh of annual income in the early years could make a meaningful difference.
Supplementary income could reduce the amount withdrawn from investments and allow the equity portfolio more time to compound.
Insurance and Estate Planning Should Come First
Before shifting a substantial portion of the savings toward equity, the expert recommends addressing the family’s protection needs.
Adequate health insurance for both siblings should be a priority because medical expenses can become a significant financial burden over a long retirement period.
A properly drafted will and trustee arrangement for the sister can also help ensure that her financial interests remain protected if her brother is no longer able to manage her affairs.
Bottom Line: Safety Does Not Mean Keeping Everything in FDs
An FD-only retirement strategy may look extremely safe because the principal is not exposed to stock-market volatility. But over a 40-year period, inflation itself becomes a major risk.
The challenge is to ensure that money grows fast enough to maintain purchasing power while still keeping enough funds readily available for everyday expenses and emergencies.
For this family, a combination of low-risk savings, long-term growth investments, insurance, additional income and property assets may provide a more balanced approach than relying entirely on FD interest.
The key lesson is simple: protecting money from market volatility is not the same as protecting it from inflation. A sustainable retirement plan needs to address both.