With the recurring inflationary pressures in today's economy and cuts in public funding for health care, disability and other services, many individuals and families — especially seniors, families with special needs loved ones and others on a fixed income — are paying with funds coming from their savings, or emergency funds depending on the generosity of the family.
These budgetary realities require people to save more and shift their investment portfolios to include more income producing securities. With fixed income yields at historic lows, many folks find the income from their investments are not adequate to meet their needs. To complicate matters, families who sought less risk in their investments by investing in conservative securities found themselves caught in an increasingly risky situation - the fixed income trap.
Let me explain: Let’s say a family has government benefits and other fixed income investments that initally paid enough to satisfy monthly obligations. In today's inflationary environment, a family could soon find themselves struggling to pay the bills. Why? Because their interest income remained static while their expenses gradually increased over time. At some point in the future, the rising cost of daily living will meet and surpass the investor's fixed income.
To compound this stress, consider the consequences if that same family had their benefits reduced and/or needed additional income for extraordinary expenses, increased co-payments or an emergency. The family would be forced to drain their original principal investment to make ends meet. Having spent some of that principal, the remaining funds would now pay even less income, putting the family into a downward spiral of diminishing income and decreasing principal - the fixed income trap.
With state and federal agencies cutting services and benefits even deeper, this scenario is bound to be played and replayed an untold number of times. The income producing strategy I suggest to my clients helps address this problem by providing families the opportunity to grow their investment income year over year. To be continued....