Income Robustness Score Log

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IlliniDave
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Joined: Wed Apr 02, 2014 7:46 pm

Re: Income Robustness Score Log

Post by IlliniDave »

7Wannabe5 wrote:
Tue Apr 06, 2021 9:25 am
... due to net negative contribution to war toys budget etc.
As far as I can tell there is nothing net negative to any part of the federal budget right now :lol: and I think the opposite will be the trend until at least early 2023.

7Wannabe5
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Re: Income Robustness Score Log

Post by 7Wannabe5 »

@IlliniDave:

Point.

Nomad
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Location: UK

Re: Income Robustness Score Log

Post by Nomad »

Currently = 1.31
at 60 = 1.54
at 67 = 2.3

Lucky C
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Re: Income Robustness Score Log

Post by Lucky C »

^ Agreed. Yes it could fail (but I would already be FI) and yes I would like to buy alternate sources of income in the future.

One of my motivations to continue collecting more income than needed is to further diversify in the future. E.g. I don't trust stocks and bonds to deliver good returns in the next decade or so, and would like some real estate (not REITs and not counting my home), but wouldn't want to take out a mortgage or use the majority of my assets to buy a rental unit with cash.

In a few years I hope I will be comfortably robust vs. my current situation where theoretically income is not needed but we also have this extreme-valuation-everything-bubble situation that makes me uneasy.

Aspirant
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Location: 65 deg north

Re: Income Robustness Score Log

Post by Aspirant »

Interesting topic.

I had this same idea years ago, when I was looking at the swr calculations, and thinking that it is not nowhere near safe. Also my mental complaints were magnified by the thought that getting to 4% swr stash was unattainable to me :roll:

So I modified it so that my original goal was to get 1 Jacob of cash flow from 3 different sources.

This is on top of my head numbers, but gives an idea of my situation.
Salary 1,5
Real estate 0,35
Side hustle 0,1
Dividents 0,02 (long way to go, eh?). This is not counting increase in value of portfolio.
Pension 0,4 (this will grow as long as I work, but accessible at official retirement age. Should be above 1 if I work until then).

So theoretical number is 1.87. But that is if I used time machine to my retirement age.
The extra 0,5 from salary will go to growing the other components. I try to grow RE and side hustles to above 1 before even thinking about leaving work.

The obvious solution is to work on my expenses so all numbers magically go up :lol:

OffBy2Error
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Joined: Mon May 17, 2021 2:11 pm

Re: Income Robustness Score Log

Post by OffBy2Error »

Using historic expenses instead of past 12 months due to massive increase of expenses from relocating for job. Past 12 months is about 33% more expensive almost entirely due to location...

Salary: 1.0
Investments (assuming 3.5% withdrawal): 0.82
Total: 1.82

As much as the other ERE/systems points should be important, this concept of Income Robustness was the only one which resonated with me. I was already aiming for FI (also read the book and much of the blog about ERE) years ago. But, while I conceptually 100% agree with most of the concepts in ERE book, none of them actually pushed me to change anything. Granted, I have not actually changed anything (yet), but that nagging sense of "I need to do something about this" actually exists.

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seanconn256
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Location: Laniakea Supercluster

Re: Income Robustness Score Log

Post by seanconn256 »

columns are:
work, investments

05/22:
1+.05=1.05

Laura Ingalls
Posts: 668
Joined: Mon Jun 25, 2012 3:13 am

Re: Income Robustness Score Log

Post by Laura Ingalls »

DH earned income .20
Laura’s earned. .15
Portfolio 1.00
Mystery passive non-taxable income .72
Refundable tax credits .10

We will have three little pensions. When we will start collecting I think that will be ~.30. My best guess on SS is about .60.

Rerun
Posts: 6
Joined: Sat Aug 27, 2022 8:25 am

Re: Income Robustness Score Log

Post by Rerun »

So I figured I'd give this a try

Main Income: 1
Side income 1: 1
Side income 2: .78

Total of 2.78. Goal is to get expenses down to where Side income 2 could also be a one. Should be there this time next year.

loutfard
Posts: 326
Joined: Fri Jan 13, 2023 6:14 pm

Re: Income Robustness Score Log

Post by loutfard »

Our income robustness score as described above:
- our regular jobs plus a tiny bit of investment income: 2.07
- passive investment income increase without any changes: +.002/month
- change: cycle to work entirely: +0.0 (+.075/m expenses ratio!)
- change: holiday rental income: +0.1/m
- change: 50% employed side job: +0.5 (+0.0016/m permanent passive returns if invested)
- change: optional house hack: +0.6

This thread has helped make me think about robustness and resilience:
- I have a very robust job income, but it's not very resilient.
- My wife's job is relatively robust too.
- Being close as a couple is pure resilience.
- Our income could do with some extra resilience. Housing is the obvious change to make. Partner is not on board (yet?) though.
- We can significantly increase our resilience with a relatively small 0.2 IR side gig. That would technically afford us to retire in a very insecure way. Let's call that kamikaze ERE.
- Should we make the housing change, even very small side income streams can have strategic value. Something resilient and with as little correlation to our day jobs and local real estate risk would greatly increase our resilience.
- Should we opt not to make the housing change, it might be better to focus on just earning a pile of money.

WFJ
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Re: Income Robustness Score Log

Post by WFJ »

Maybe 1.5 from 2000-2010, 2.0 from for most of the 2010's, briefly 3 after rates spiked and now back to 2.

But the estimate is not Robust nor resilient. Robustness is usually designed to estimate dependence on a measure, if an alternative measure is used, is the estimate still significant? For example, some robustness test could be what happened if one had to move tomorrow, how much of the estimate is location dependent, or change countries, etc. Other robustness tests would be if a career had to end, or loss of some kind of bodily function due to age, accident or other (arm, dexterity, intelligence). One could use disability premiums as a way to estimate this, higher premiums = riskier fields.

Resilience would estimate one's ability to recover to their past state after some shock, maybe the end of the USD (or any home currency, Argentina, Turkey, Syria, Ukraine (even before the war)) are examples to estimate resilience (few return to original state after such shocks). How quickly could one make it back to SWR 10%, 4%, 1% after some kind of shock would be a measure of resilience. Some skills allow one to be highly resilient (native English speaker) while other skills are useless outside of one's home country (native Dutch speaker).

I assume this measure was introduced by an engineer or medical doctor as it ignores the most important factor in any FIRE, SWR, MMM, estimate... inflation. If we accept that the current CPI is accurately measuring inflation (IMHO understating my 4%) current inflation is 6.4% which means roughly every 11 years, one's assets value is cut in half (SWR would therefore double). $1,00,000 (SWR 4%) today is worth $500k in 11 years (SWR 8%), $250k in 22 years (SWR 16%), $125k in 33 years (SWR 32%), $65k in 44 years (SWR 64%), the planning horizon for more in FIRE. Inflation will gobble up any Income Robustness log estimate over 20+ years.

A stats person would try to estimate the correlation between inflation and income sources, then weight each category accordingly. For example, a teacher/Nurse salary is not highly correlated, usually lagged by years if not decades, to inflation and would need to be reduced by this amount, while a commission insurance agents pay is almost 100% correlated with inflation, not lagged a day and be fully weighted. Bond income is usually highly correlated with inflation (maybe 0.9) while correlation with dividends is much lower (maybe 0.4-0.5).

The Income Robustness measure gives one a false sense of security as it ignores the most important factor in long term retirement.

dizzy
Posts: 33
Joined: Fri Aug 19, 2022 6:41 am

Re: Income Robustness Score Log

Post by dizzy »

I *think* I did this correctly. We are looking at hypothetical income streams if not already in FIRE, correct?

If so, for me that's:
Pokin' .11
Playin' .22
Bank robberies .67
Portfolio (4%) .3

Based on annual spend of $18k which very well might be too high (it would mean that we are keeping our house and also not renting it while we travel)

Grand total of 1.3 which honestly is better than I thought it'd be and a pretty minimal amount of work there

PhoneticNachos
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Location: Jacksonville, FL

Re: Income Robustness Score Log

Post by PhoneticNachos »

This idea is similar to one that I am working on that will be in one of my own books. It is in abstraction, a way to formulate your sources of income, and their consistency/reliability and how those funds will be used to cover your wants/needs.

Think of it like a financial version of Maslow's Hierarchy of Needs, but more like "___'s(my name name redacted for privacy) Hierarchy of Income"

Veronica
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Re: Income Robustness Score Log

Post by Veronica »

Hmm, if I use this metric I'm very far behind. Mine looks like this:
[I think I'm understanding this right; any excess above 1.0 is waste, and should be moved into a less correlated income generation source to increase your robustness, or reduce risk of ruin]

Salary: 2.6 ---> 1.0
Side Gig 1: 0.03 (soon to disappear)
Side Gig 2: 0.0 (early stages of setting it up; not cash flowing yet)
Investment 1 (Retirement): 0.03
Investment 2 (Taxable): 0.02
Investment 3 (Alternatives): 0.04

I'm really unsure about the best method to use for scoring "investments" however. I think there might be some good methods for common investments with long track records (backtest a safe withdrawal rate on a 60:40 portfolio for example), but I'm less sure how to do so with investments that are newer (such as crypto), or those where value accretes to the underlying asset rather than producing cash flow in form of dividends (google stock). My method here has been to use a backtested safe withdrawal rate if I stop contributing today, and for those investments without a clear track record, to simply use 4% rule.

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fiby41
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Re: Income Robustness Score Log

Post by fiby41 »

In line with what Aspirant wrote above, I think of these as moats or protective walls around the ERE castle. One can think of them as adding spokes to a wheel or as adding additional legs to a table.

Job#1: 1
Job#2: 1
Interest on the amount in the public provident fund: 1*
Interest on bonds: 0.06
Farm LLP profit share: 0.75
Interest on fixed deposits: 0.38

*Catch is although the interest is credited I won't be able to withraw it until the end of this financial year. And even at that time, I will be able to withdraw only half of the interest+principal amount so I am not counting it although its tax-exempt.

2.19

I'm not counting Job#2 as it is seasonal. We as ERE folks place a lot of empasis on personal agency, but the market forces are too volatile to count this no matter how good I get at it.

PhoneticNachos
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Location: Jacksonville, FL

Re: Income Robustness Score Log

Post by PhoneticNachos »

One of the ideas I am working on for my own books is a breakdown of how to split of funding sources to go towards riskier ad less riskier sources.

I have read hundreds of investing books and from all the people I have talked to while working at Fidelity, I know there has been very little written on this subject.

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