As soon as someone retires, first choice of investment is Fixed Deposits. Argument in favor of this investment vehicle is a) safety of principal & b) generation of regular cash flows. However, what the retired person fails to take into account is the impact of inflation on their principal amount & reinvestment risk (every time FD matures & gets repriced at interest rates prevailing at that time). Like currently, post rate cut (& prospective rate cuts in future) Bank FDs will be generating lower & lower returns to the investors & hence has reinvestment risk attached to it.
