# You are heading for a disaster if you are saving for your retirement!

Are you using fixed deposits to save for your retirement?

If you are doing so, you are in for a rude shock.

**Your savings are losing value every day.**

Assume you save ₹ 100/- in a fixed deposit for a year at a 6% annual return. You will receive ₹ 6 in interest at the end of the year. If you are in the 20% tax bracket, your post-tax return will be ₹ 4.80 or 4.80%.

Also, assume that inflation over the next year will be the same as the projected CPI inflation for this year, 5.3%. In that case, an average item costing ₹ 100 today will cost ₹ 105.30 next year.

So, while the item’s price would have risen from 100 to 105.30, your savings will have increased to ₹ 104.80 only. As a result, you would have lower purchasing power despite your savings.

**The rate of return, after taking taxes and inflation into consideration, is called the “real rate of return”.**

In the above example, the real rate of return is -0.50%.

**A financial instrument with a negative real rate of return is not an investment at all.**

You can use a financial instrument like this as a savings vehicle for your emergency funds or short-term expenses.

**However, using them to achieve long-term goals exposes you to the risk of not achieving the goal at all.**

**Over the long term, a negative real rate of return will compound to widen the gap between the future value of your savings and the future value of your goals.**

*This anonymous quote nicely summarises it: “Those looking for risk-free returns are more likely to find returns-free risk.”*