Beyond FDs: Why retirees are adding SCSS and mutual funds to their retirement portfolio

For many generations, senior citizens in India have been relying on fixed deposits (FDs) for financial stability. They provided ease of use, assurance, and the reassurance that savings were safe. However, as retirement years become longer and costs continue to rise, a growing number of senior citizens are starting to wonder if saving money is sufficient or does retirement planning also need to focus on making money last?

According to Certified Financial Planner (CFP) Shweta Shastri, the way retirees look at safety is changing.

“Retirement planning is not just about preserving the nominal value of your savings. It is about ensuring that your money continues to support your lifestyle over a potentially long retirement while managing inflation, taxation, healthcare costs and other risks,” she says.

It's not that fixed deposits are no longer important. FDs continue to offer safety and liquidity, particularly for short-term and emergency needs. The actual increase in purchasing power, however, might be less than many retirees anticipate if taxes and inflation are taken into consideration.

Shastri explains, “A portfolio that never shows paper losses can still leave a retiree financially vulnerable. The objective should be income sustainability and capital preservation in real terms, not only nominal stability.”

Why retirees are looking beyond FDs

Today, a retiree may require income for 25 to 30 years after quitting their job. Healthcare, everyday living expenses, and lifestyle necessities are all expected to rise throughout this time.

For instance, a retiree with a ₹1 crore FD generating about 7.2% per year would make about ₹7.2 lakh in interest before taxes each year. The useful income is drastically reduced after tax deductions. In the meantime, inflation still affects the original corpus's future worth.

“The definition of safety in retirement needs to go beyond avoiding market fluctuations. It should include protection against inflation risk, longevity risk, healthcare expenses and taxation,” says CFP Shweta Shastri.

SCSS remains an attractive option

For retirees looking for predictable income, the Senior Citizens’ Savings Scheme (SCSS) continues to remain an attractive option.

“SCSS can play an important role as a foundation for retirement income because it provides stability and predictability. It gives retirees confidence that a portion of their expenses can be met through a reliable income stream,” Shastri says.

However, she adds that fixed-income products alone may not always address the challenge of a long retirement.

“While guaranteed income provides comfort, retirees also need to consider whether their savings can maintain their purchasing power over several decades,” she says.

Why some retirees are adding mutual funds

The growing interest in mutual funds among retirees is not necessarily about chasing higher returns or taking aggressive risks. In order to provide flexibility and long-term development potential, many are instead looking into debt-oriented solutions, conservative hybrid funds, and systematic withdrawal plans (SWPs).

According to Shastri, the answer is often not choosing one product over another.

“The objective is not to replace FDs or SCSS. It is about giving every rupee a purpose, some money for guaranteed income, some for emergencies, and some for long-term growth,” she explains.

The three-bucket approach

A strategy that's gaining traction among retirement planners is the three-bucket approach. Instead of putting all your money in one place, it divides your savings based on when you'll need them and what role they need to play.

The second bucket is your financial safety net. It holds money you can access quickly in case of emergencies, typically through fixed deposits or other highly liquid investments.

“Retirement planning is not about asking, ‘How much return can I earn?’ The more important question is, ‘Will my money continue to take care of me for the rest of my life?’” says Shastri.

A new way of thinking about retirement

As Shastri says, "A retirement portfolio should not only protect money; it should protect the lifestyle that money is meant to support."