Final answer:
A fixed-income security pays a fixed stream of income or an income stream determined by a formula for the life of the security. This includes bonds and pension plans known as 'defined benefits'. When aiming for retirement savings, one needs to balance the safety of fixed-income with the potential higher returns of riskier investments.
Step-by-step explanation:
A fixed-income security typically refers to an investment that pays a set stream of income over a specified period. The correct answer to what a fixed-income security pays is B. a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security. Fixed-income securities encompass various types of investments, including bonds, where the investor receives predetermined interest payments (usually semi-annually) until the bond's maturity, at which point the face value is repaid. Another example is a private company pension, known as a defined benefits plan, which provides retirees with a fixed sum that does not typically increase with inflation, hence can lose purchasing power over time.
To assure income for old age and retirement, individuals might consider different saving options. These include putting money into savings accounts, buying property, investing in stocks for potential dividends, and purchasing bonds for their interest payments. Annuities are also a popular choice as they offer a fixed sum paid annually, providing more security but potentially less income than variable investments. It's essential to understand the trade-off between the relative safety of fixed-income streams and the potential for higher returns through riskier investments.