The Meaning of Fixed Income

by Investing School on January 31, 2013

The term fixed income can have several definitions. It can describe a state where an individual must live on a specific, unchanging income. It can also define a type of investing or budgeting through which a predictable income arrives at regular intervals.

In the case of an investment the tool usually offers a low interest rate along with a guaranteed and unchanging rate of return. Any investment that offers a guaranteed rate of return may be called a fixed income investment. Federal bonds, bonds issued by local municipalities or those sold by major corporations are typical fixed income securities.

When used to refer to the financial state of a person the term describes a situation in which an individual receives only their pension payments and/or social security income. If the retiree doesn’t make additional investments that will increase their income, or return to work, their income remains static.

As many retirees are finding out, if one’s fixed income is small, getting by can be a struggle. Fixed income doesn’t adjust to inflationary changes. Prices rise continuously and those who don’t have a substantial fixed income can end up unable to pay their bills. This may mean having to make choices between things like food or medicine.

It is the anticipation of such circumstances that leads financial advisors to constantly encourage individuals to save way beyond what they expect they will need upon retirement. It is foolish to believe that it is possible to live on social security payments alone in the future. With constant questions about the viability of the Social Security system wise workers are stashing away as much as possible during their working years.

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