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Ask HN: Income Share Agreement for high earners?

by ozb on 1/23/23, 3:26 PM with 5 comments

As a high earner with relatively modest assets so far, I often wonder about how much I should be spending: if my income were reliable then it would make sense to smooth consumption over the long term, ie spend a large portion of my income (and only save for known and unknown future expenses). But in practice it's more prudent to also save for unexpected changes in income, either from being laid off, or economic recessions, or long-term change in demand for my skills; there's disability insurance, but that's just a part of the picture.

So, is there any way for me to say "give me $X00,000 now, for 10% of my income over the next 10 years"? Obviously details would have to be worked out, eg pre- vs post-tax income, potentially adding a large "standard deduction" before earnings are shared, and a minimum yearly income for the sharing to take effect in a given year and count towards the 10. Target yield would presumably have to be around 10-15%. If there were such a deal available, would you as a high earner be interested? I'm wondering if I could make something like this happen for a group of us via private investment (think Yieldstreet and similar platforms).

  • by WJW on 1/23/23, 3:47 PM

    The obvious weakness in such a deal is that the customer disappears after taking the upfront money. Instead of disappears this could also be "suddenly loses interest in working" or "gets into a car accident and physically cannot work anymore" or any other variation, it doesn't have to be fraudulent or malicious. I think it would be very difficult to find investors who would agree to terms like "10% of income, whatever it is" since it would be so unreliable.

    If you change the terms to "give me $X00,000 now, for $XYZ each month over the next 10 years" then you get a regular loan, which is obtainable from a variety of institutions. If you are particularly worried about being disabled or laid off, insurance can cover most of that but those only pay out at the time of any incident actually happening, not upfront.

    The standard advice for people who are worried that their current good times might not last is to keep your monthly spending well below your monthly income and build up an emergency fund of at least 6-12 months of living expenses. This will give you enough time for job hunting if you are ever laid off unexpectedly and (more importantly IMO) relieve you from most of the stress of being dependent on your current job to survive. Look up the FIRE/ERE movements online for strategies to get started with this.

  • by 58x14 on 1/29/23, 3:24 AM

    I don't find this dissimilar to seed-stage VC. I think there's probably some ways of shopping this around if there were some provisions that trigger loan terms; think "if you don't exceed X% of minimum yearly income in _ years, here is a payment schedule with a variable interest rate"

    I've been exploring this idea and had this pinned to respond. My email is in my bio if you'd like to chat.

  • by bfeynman on 1/23/23, 3:33 PM

    Wow, you've discovered lending and personal loans.