Is ₹1.5 crore or ₹2 crore in FDs enough to retire? The evening walk question every senior citizen asks

Will a ₹1.5 crore or ₹2 crore retirement corpus kept in a bank fixed deposit produce adequate income to cover living expenditures for the next 20 to 25 years? This was a query asked by a group of senior citizens during my evening walk.

The question has become even more relevant because of a higher life expectancy.

How much monthly income can a ₹1.5 crore or ₹2 crore FD generate?

A ₹2 crore fixed deposit, assuming 7% annual interest, generates around ₹14 lakh a year, or roughly ₹1.16 lakh every month before tax.

Similarly, a ₹1.5 crore fixed deposit at the same interest rate can earn about ₹10.5 lakh annually, translating to nearly ₹87,500 a month before tax.

This is just a hypothetical example for explanation. For an actual calculation, you have to see the FD rates of your bank in which you have parked your deposits.

At first glance, this may seem like a comfortable retirement income. But does that mean the interest is tax-free? And more importantly, can this income continue to support a retiree for the next three decades?

"The answer depends on several factors, including the person's total income, tax regime, inflation, healthcare expenses and lifestyle," said CA Abhishek Soni, CEO & Co-founder, Tax2win.

Is the interest earned on FDs tax-free?

If a retiree's only taxable income is around ₹10.5 lakh from FD interest ( ₹1.5 crore corpus), they may not have to pay tax after claiming the rebate available under Section 87A, provided they meet the applicable conditions.

Chartered Accountant Abhishek Soni says investors should look at their overall income instead of assuming there will be no tax liability simply because their FD interest is below ₹12 lakh.

"A ₹1.5 crore FD at 7% interest can generate around ₹87,500 per month, or approximately ₹10.5 lakh annually. If this is the only taxable income of a resident individual, the income may fall within the rebate limit under Section 87A under the new tax regime, and there may be no tax payable. However, if the person has other sources of income such as pension, rental income, or taxable gains from shares, the total income needs to be considered."

However, the situation changes if the retiree also earns income from a pension, rent, interest from other deposits, capital gains or any other taxable source. In that case, the total taxable income has to be considered before determining whether any tax is payable.

Mumbai-based tax and investment expert Balwant Jain also points out that the ₹12 lakh rebate limit should not be mistaken for a blanket exemption on all income.

"If a resident individual has no other income and the taxable income is within the eligible limit, the Section 87A rebate can provide relief. But income from other sources, including rent or capital gains from selling shares, may impact the overall tax calculation," said Balwant Jain.

Can the corpus last for 20-25 years?

If a retiree lives only on the interest earned from the fixed deposit and leaves the principal untouched, the corpus can theoretically last indefinitely. But real life rarely works that way.

Inflation plays a very important role in determining the future value of your present-day money. To explain it in simple ways the same monthly income may not cover the same expenses 15 or 20 years from now.

Healthcare costs also tend to rise with age, and can put additional pressure on retirement savings.

"Interest rates are not guaranteed, and inflation gradually reduces purchasing power. Healthcare expenses also tend to increase with age. So, while the corpus may last indefinitely if the principal isn't touched, whether that monthly income is sufficient for 30 years depends on the retiree's lifestyle, inflation, medical costs and any other sources of income," Soni said.

Should retirees rely only on fixed deposits?

Financial planners say relying entirely on one investment avenue may not always be the best strategy.

According to CFP Shweta Shastri, "retirees should consider building a diversified retirement portfolio based on their financial goals and risk appetite. This could include fixed deposits for stability, the Senior Citizen Savings Scheme (SCSS), other government-backed income schemes and investments that can help the corpus grow over the long term."

For most retirees, the real challenge is not just generating a monthly income. It is also ensuring that, despite rising costs and life expectancy, their income will sustain their way of life during retirement.