Legal Definitions - fixed income

Fixed income refers to a type of earnings or revenue that remains relatively constant and predictable over a period, rather than fluctuating significantly based on factors like sales, hourly work, or market performance. Individuals or entities relying on fixed income can anticipate a steady stream of funds, making financial planning more straightforward.

Here are some examples to illustrate this concept:

• Example 1: Retirement Pension

  After working for a company for 30 years, Maria retires and begins receiving a pension of $2,500 every month. This amount is guaranteed by her former employer and does not change based on the company's current profits or her past performance. Maria's pension is a form of fixed income because she can reliably expect the same amount of money to arrive on a consistent schedule, allowing her to budget and plan her expenses with certainty.

• Example 2: Government Bonds

  An investor purchases a government bond that promises to pay 3% interest annually for ten years. Every year, the investor receives a payment of $300, which is 3% of the bond's $10,000 face value. These annual interest payments represent fixed income because the amount is predetermined and does not fluctuate with stock market performance or economic changes. The investor knows exactly how much income they will receive from this investment each year.

• Example 3: Disability Benefits

  John suffered an injury that prevents him from working, and he qualifies for long-term disability benefits from an insurance company. The policy stipulates that he will receive a payment of $1,800 on the first day of each month. This consistent monthly payment is considered fixed income because the amount is set and does not vary based on his health status from month to month or the insurance company's financial performance. It provides him with a stable and predictable financial resource.