Income Robustness Score Log

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Alphaville
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Re: Income Robustness Score Log

Post by Alphaville »

let's face it though, while the world may not care if your business partner falls ill or if the neighborhood of your rally franchise turns into junkie central or if your particular piece of woodland goes up in flames or is destroyed by beetles, the whole human population of the planet has an interest in keeping "the world economy" in general marching on by any means necessary.

hence a high career income + diversified financial portfolio + insurance, while not guaranteed in case of giant meteorite striking earth, still happens to be a safer bet than most.

this is not to say that all can or should do that, however. but it's not a bad position to be in at all.

7Wannabe5
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Re: Income Robustness Score Log

Post by 7Wannabe5 »

@Alphaville:

I don’t entirely disagree, but I thought you read Taleb? :lol:

Actually, an easy example of career/brokerage account fail point would be suffering from temporary bad bit of mental illness yourself. I was briefly semi-engaged to a man who pretty much wiped himself out due to bipolar incident, but retained his rental properties because they were locked down illiquid.

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Alphaville
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Re: Income Robustness Score Log

Post by Alphaville »

7Wannabe5 wrote:
Fri Apr 02, 2021 8:39 am
@Alphaville:

I don’t entirely disagree, but I thought you read Taleb? :lol:

taleb holds mostly treasuries. or so he says publicly anyway. ;)

7Wannabe5 wrote:
Fri Apr 02, 2021 8:39 am
Actually, an easy example of career/brokerage account fail point would be suffering from temporary bad bit of mental illness yourself. I was briefly semi-engaged to a man who pretty much wiped himself out due to bipolar incident, but retained his rental properties because they were locked down illiquid.
yeah, hence "insurance". not just medical/disability insurance policies; but trusts and other well developed safety mechanisms.

mental illness could have set rental properties on fire or invite a lawsuit or something else. ¯\_(ツ)_/¯

7Wannabe5
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Re: Income Robustness Score Log

Post by 7Wannabe5 »

@Alphaville:

I believe Taleb’s barbell strategy recommends something like 80% treasuries and 20% high risk. His analogy was that you should marry the accountant but also have an affair with the rock star.

Also, I think the whole point of this metric is that Robust does not equal Resilient does not equal Anti-Fragile. A career in a high paying growing field backed with insurance might seem pretty solid, but so did real estate backed with insurance until suddenly it didn’t. Honestly, I still find the concept of Anti-Fragility a bit tough to wrap my brain around, but one concept I do grok is how Efficiency can work in opposition to Resilience.

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Alphaville
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Re: Income Robustness Score Log

Post by Alphaville »

more like 90-95, but yeah

insurance was bailed out for "world economy" reasons mentioned above

https://www.thebalance.com/aig-bailout- ... ts-3305693

nobody does that for the little guy unfortunately.

well actually for the little guy there's medicaid and ss disability and snap but that's at the extremes of poverty.

i could eat very well on a snap budget btw--i just choose not to. if i ever need to, powers will activate. unless of course i become incapacitated. in which case please dnr.

7Wannabe5
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Re: Income Robustness Score Log

Post by 7Wannabe5 »

The little guy did get bailed out with unemployment insurance and small business loans/grants during the Covid crisis. However, it wasn’t enough for those who were either most hit or rolling too high and tight prior to crisis. For simple instance, $1400 covers way larger portion of my expenses than somebody unemployed or unable to run business in HCOL area even though or more like because they might have been focusing on the higher efficiency of earning higher income. Living in a HCOL area in order to earn a higher income is just like maximizing business profits at the margin by buying inventory or new tools on credit.

Obviously, this doesn’t apply to Lucky C since he is earning 10x his expenses. Actually, his income is quite Robust but it might not be Resilient which is probably what this metric should be called. Robust is like big tree in climax forest with deep root system. Hard to knock it over. Also hard to get in place again after extreme disaster. Resilient is like weeds. Easy to mow down, but difficult to eradicate.

Qazwer
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Re: Income Robustness Score Log

Post by Qazwer »

Boglehead type here
A portfolio of Bitcoin gives you the same score as 10,000 stocks in an index fund - a REIT does not matter above your portfolio but a single house you rent out in the flood plain does
There is also something about how correlated the assets are
You work at Enron and all your stock is Enron stock and you own 3 houses rented out to Enron employees and you have a side hustle writing a book on how the Enron model will revolutionize energy provided etc

7Wannabe5
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Re: Income Robustness Score Log

Post by 7Wannabe5 »

I think it’s up to each of us to tweak out our own dependencies. It’s a measure not a contest. Obviously, those who are very Resilient have less need to be Robust, and vice versa, but neither quality can absolutely substitute for the other. My friend who wiped out his financial accounts ended up living in his own crappy rental property. His accounts being 10x larger would not have changed the outcome. It’s difficult to tweak out dependencies, but it can be even more difficult to tweak out “flood plains.”

IlliniDave
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Re: Income Robustness Score Log

Post by IlliniDave »

Qazwer wrote:
Thu Apr 01, 2021 8:50 am
iDave - would you be willing to post here or in another thread what factors you would look at from a system engineering framework? The redundancy aspect of this model jumps out but I do not have the words/knowledge to know what it should look like though.
Okay, this isn't very good, and it's long/rambling. I forgot Easter is this weekend and I won't have a chance to do a good job as I'd intended. It's likely I'll come back and make edits over the next couple days without warning.

TL;DR - Have a good understanding of what the core requirements of your system are, and within time/resource constraints try to balance resilience, redundancy, adaptability, reliability, maintainability, availability, transportability, maybe others according to your value hierarchy and goals.

With an engineering hat on we have a system we want to design and implement.

The first step is to understand what we want the system to do. Maybe it's a vehicle to drop on Mars and have autonomously move around, feed back information, and analyze material as directed. Maybe it's a plan for an individual to manage resource needs over a period of time. Either way some sort of definition, or requirements, or mission statement, etc., is needed.

So in thinking about resource management system for a retired guy ...

I never made a detailed list of requirements/specifications but I always had a list of desires in mind. Things like, resources should be:

-conveniently available
-regularly and smoothly delivered
-malleable/fungible
-obtainable with minimal demands on my time
-of sufficient capacity to hold up through adverse conditions
-growing in capacity during benign times
-capable of absorbing increases in ongoing need
-etc.

Were not talking about tactics and strategies yet. Just what the ideal system would deliver. Like goals, the more specific, obtainable, and measurable they are the better. Inherent to the process are ongoing reality checks. Objective systems that require Unobtanium by the ton are non-starters. It can't take 10,000 years to build or trillions of $ and the labor of a million people (some people in Washington would disagree with me).

So we have to assess what we can afford. Cost comes in the form of $, time, difficulty, sacrifice, any other regret inherent to it. Then comes the art of how to come closest to meeting all the desires within the cost constraints. The specification/requirement definition. In the real engineering world on large complex systems, all the up front stuff can make up a third of the total effort. It's basically the foundation of the system. In the engineering world you emerge with a set of requirements.

Either in the envisioning or the process of examining "how to best meet ..." robustness becomes a desireable characteristic. A working definition might be:

A system is robust if it fulfills its core mission under a variety of conditions.

Obviously we would want the "variety of conditions" to bound a meaningful space of future events and conditions. The greater the expanse of the condition/event space is, the more certain dimensions of the cost will increase.

For my own personal use I like to break robustness in three main categories:

-Resilience is the ability to maintain core mission through stress and damage, which might include self-repair capability
-Redundancy is the ability to replace a failed system component with another/backup component to maintain the core mission
-Adaptability is the ability to operate outside the core mission for the benefit of the system of which the object system is a subsystem. The iDave Phase III Resource Management System is a subsystem of the iDave Phase II system.

I didn't think explicitly in these terms, but when one starts asking questions like

-what if the market drops 50%?
-what if I only get 50% of the SS the SSA is telling me I'll get?
-what if my or a family member's health takes an unfavorable turn?
-what if I get married and/or have another kid, or become primary caretaker of grandchildren?
-what if I have to relocate
-what if combinations of the above happen?

you're getting into the realm of those three characteristics. Chances are if you "and" enough of those kinds of things together the system will be increasingly difficult to build and actuate. It requires a judgement call of "good enough" at some point and an acceptance that the probability of failure is nonzero.

If we just consider a normal "salaryman's toolkit", tactics can be mapped

"Oversaving" (a big one for me) adds to resilience. Example: the iDave Phase III Resource Management system will not break down if the stash lost half its value and never recovered. It also adds to adaptability in that iD3RMS can keep up with a pretty substantial increase in ongoing spending without failing. It's marginally viable if both those things happen. As we see in this thread, it's ability to address redundancy is limited, although moving away from the stocks/bonds/cash recipe into real estate and commodities/resources can help.

Another tactic, simultaneously "designing" for a higher than planned spending level and keeping the ability to lower spending below planned contributes to all three. Becoming a skilled gardener or DIYer facilitates similarly.

I'm not recommending anyone go out and do those things.

Back in the engineering realm there is a whole subdivision of system engineering that called specialty engineering. Stuff like reliability, maintainability, availability, transportability, etc., go in there. For example, reliability speaks to how often a "breakdown" might occur. Maintainability is how much cost/effort is required to keep the system operational. A retirement resource management system that requires 80 hours/wk "care and feeding" might not fit everyone's definition of retirement. Others may jump at it because it can drive the need for ongoing cash flow down, maybe to almost zero, something a true ere-er might weight much heavier in their trade space than I did.

There's nothing fancy involved. If you think about it, we all think about these things routinely in our problem solving. System engineering provides a process intended to ensure all those considerations are given their due, tailored to what is relevant to the need being addressed, among other things.

Qazwer
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Re: Income Robustness Score Log

Post by Qazwer »

iDave - appreciate the education
The redundancy score is the number of independent sources that can replace expenses. That also needs a resiliency factor
Last edited by Qazwer on Fri Apr 02, 2021 11:24 am, edited 1 time in total.

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Alphaville
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Re: Income Robustness Score Log

Post by Alphaville »

nice writeup @idave

while it's true that we all think about these things routinely... it's nice to see them broken down and sorted so we can keep a checklist of what factors we may be missing.

i add my thanks as well.

7Wannabe5
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Re: Income Robustness Score Log

Post by 7Wannabe5 »

@IlliniDave:

Very interesting. My appreciation too. One thought I had was that the reason it is hard (for me anyways)to keep systems design concepts like robust, resilient, redundant, sustainable, well-defined is that it is often the case that one factor being present at one level or from one perspective can also be viewed as another factor being present at another level in the system. For instance, my health might be resilient in the face of a virus because there is redundancy in my immune system.

Another thought I had is that I semi-purposefully design my top level lifestyle system to rely heavily on my ability to adapt because I like variety. For example, my Ideal Day exercise/outline includes a loop where I am once again doing the Ideal Day exercise :lol:

Qazwer
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Re: Income Robustness Score Log

Post by Qazwer »

I think that is one of my issues that I see in a lot of the journals - due to competing goals of freedom and stability that chosen systems are not resilient to health shocks due to a lack of slack

Closing loops lessen slack which can be helpful if there are truly independent redundant mechanisms - but a lot of them rely on you staying healthy and young - the different forms of capital require navigation and ongoing maintenance that exceed that of money or easier financial capital

IlliniDave
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Re: Income Robustness Score Log

Post by IlliniDave »

7Wannabe5 wrote:
Fri Apr 02, 2021 2:18 pm
@IlliniDave:

Very interesting. My appreciation too. One thought I had was that the reason it is hard (for me anyways)to keep systems design concepts like robust, resilient, redundant, sustainable, well-defined is that it is often the case that one factor being present at one level or from one perspective can also be viewed as another factor being present at another level in the system. For instance, my health might be resilient in the face of a virus because there is redundancy in my immune system.
Robustness, redundancy, etc., are attributes. The system engineering part is the discipline of incorporating/evaluating them. And there can be a lot of overlap in those attributes especially when you get in the squishy realm of making a person content. Really, we don't even use terms like "robust" and "resilient" as technical terms (redundancy we do). It's just sort of implicit that they are part of systems that need to have durability, reliability, etc.

In your example I would tend to view it like 7Wb5 gains resilience from an immune system that gains robustness via redundancy. Mostly because the immune system's core function is mitigating effects of stress and damage from attackers. In a complex system of the system-of-systems type, subsystems operate within higher level systems or across systems. It can be challenging and fun to try to trace everything through. Even though my professional title is "systems engineer" with a couple fluff superlatives tossed in front, what I'm talking about here isn't what I do for a living. I'm on the performance modeling (not to be confused with model-based system design)/sim/analysis side of things. So my bias is always to look at things from the bottom line perspective. In a set of scenarios, did the thing perform its core mission acceptably well? We often work from the starting point of "it failed" and root out why. So the impact to the core mission is always close at hand. We often get into discussions like, "It met spec.", said the designer, "Yeah, but the system failed!" said the analyst.

Qazwer
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Re: Income Robustness Score Log

Post by Qazwer »

iDave - how would you look at durability and reliability in this context?

IlliniDave
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Re: Income Robustness Score Log

Post by IlliniDave »

Qazwer wrote:
Fri Apr 02, 2021 2:43 pm
Closing loops lessen slack which can be helpful if there are truly independent redundant mechanisms - but a lot of them rely on you staying healthy and young - the different forms of capital require navigation and ongoing maintenance that exceed that of money or easier financial capital
Yes, correlation is the great complicator. It's especially apparent when you try to derive the math. And if you're not mindful of it you can have a lot less redundancy than you think you have.

I'm not sure what types of systems you are envisioning.

You end in the realm of the cost/benefit trade off. Often highly situational. To some my form of RE might be described as the "lazy slob" RE. But at this point my youth is far behind me and I've burned through a big chunk of midlife. An easy-peasy ongoing resource generator for a 25-year-old, like a well thought out home garden, is not so easy-peasy for an 80 year old. I look at older people around me and observe where their lifestyles fail. So my requirements are intended to avoid reliance on personal capabilities that age tends to take away. A relatively young ere-er might have to plan for shifting gears and retiring from retirement. That's why it's important to tailor requirements rather than replicate a template. Sometimes one is better-served by extracting the principles from a template and play around with how they might be employed within one's budget. As we age the vigor budget tends to decrease. The whole idea of retirement came from what happens to people who sustain themselves largely by vigor when the vigor wanes.

IlliniDave
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Re: Income Robustness Score Log

Post by IlliniDave »

Qazwer wrote:
Fri Apr 02, 2021 6:25 pm
iDave - how would you look at durability and reliability in this context?
Durability is a more precise term for what we often envision when we (or maybe it's just me) say resilience. To a mechanical/materials-type resilience is the property of a material to regain its shape after applied forces deform it. Durability is more specifically resistance to wear and tear. In using them to talk about abstract things like streams of income they are pretty interchangeable since their literal meanings don't apply. A way to talk about things that keep working no matter what (within reason) without having to use so many words. For my part I would tend to think durable in terms of lower level systems and resilient for higher level just because bouncing back into shape seems like a higher level trick than not wearing out. :)

Reliability is usually measured by "mean time between failure". Of course we would want perfect reliability but the real world doesn't like perfect. If you use a garden for part of your resource generation, if you go old-school and just put seeds in the ground, maybe a little mild natural fertilizer on top, and hoe it, your garden or parts of it will fail sometimes. To make it more reliable you might increase its size, diversify crops, add irrigation, employ anti-insect/anti-fungal tactics, maybe even move it into a climate-controlled greenhouse. All at a cost, of course. Or a plan that caps spending from a portfolio to the amount its value grows. If you need a minimum amount from that source the system you built around it won't always produce enough growth (may even go down some years meaning $0 withdrawal by the system).

nomadscientist
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Re: Income Robustness Score Log

Post by nomadscientist »

Lucky C wrote:
Fri Apr 02, 2021 7:18 am
A careerist would be always working toward lowering the risk of being out of a career rather than lowering risk by having noncorrelated income sources. I am now able to obtain a work income something like 10x my minimum spending in a field that has been in demand for decades, which should still be in demand for decades, and where there will be higher level roles to fill as the boomers in those roles retire, plus the possibility to adapt to technological change in the coming decades (with just a little extra effort and the desire to learn). Yet this "robust" and adaptable 10x income source only counts as a max of 1.0, the same score I'd get if I was working as a cashier with no other skills in a store that was planning to incorporate automated checkout systems.
Do you have income 10x spending and yet no savings? With such a multiple it should be quick to add 1.0 from investments.

You may then choose to pile more into investments for SWR much lower than 3%, which would not give you anything else by the IR measure, or you could e.g. buy a website that historically produces 1.0 and go to 3.0. Or an owner-managed rental unit in your neighbourhood if you consider that a separate investment (I do personally) and go to 4.0.

IOW your stronger position from a large income should be represented by this scoring system indirectly even though it (intentionally) doesn't try to judge which job income is "good" job income.

Laura Ingalls
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Re: Income Robustness Score Log

Post by Laura Ingalls »

Using 2020 which is a huge outlier in terms of both spending (lower than normal) and unemployment insurance funding (usually zero).

We were:
Portfolio greater than 1
Laura work. .20
Farmer Boy work. .20
Laura UI. .25
Farmer Boy UI. .42
Interest. .01
Stimulus. .13

Total over 2.20, but .80 is basically windfall from Covid stimulus.

7Wannabe5
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Re: Income Robustness Score Log

Post by 7Wannabe5 »

I don’t think Covid stimulus was intended as windfall for semi-employed frugal, but it sure did work out that way. I am contemplating doing semi-volunteer governmental work in the fall to make up for my withdrawal from the Treasury. Since it will be work of my choice tutoring underprivileged kids, seems like win win due to net negative contribution to war toys budget etc.

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