Most of the interesting math happened at the margin: you’ve got just enough money that you could retire, but you’re susceptible to risk of a market crash in the first few years of retirement or an abnormally long life expectancy combined with a middling market.
Tontines fascinated me as an interesting piece of the puzzle for those who don’t plan on leaving an inheritance, and I’ve reread this guide[0] a few times - but ultimately it’s just another way to possibly move the margin a little bit, and the real solution is to save a little bit more, then spend a little bit less.
[0]https://rpc.cfainstitute.org/sites/default/files/-/media/doc...
The regular Tontine Trust is for parents that want to avoid the risking of running out of money in old age and becoming a financial burden on their children.
The Tontine Trust Fund is for parents that want to set aside an inheritance for their spouse or children now which they can configure to start paying the child a monthly income for the rest of their life starting at age X. This reduces the concern of parents that they will pass on a chunk of the inheritance to children that will 'blow the money' instead of making it last them for life.
Also, FYI: a) Research from the insurance industry indicates that tontiners/annuitants spend double what they would without having a lifetime income, thereby enabling a better quality of life in retirement. b) The Swiss Federal Institute of Technology, alma mater of Einstein and 28 other Nobel Prize Winners, has produced research showing that a retirees pension wealth is enhanced by 87% with zero added risk upon moving their savings into a Tontine, indicating that the gain is not 'marginal'.
All in all, the Tontine enables you to save a little less yet still spend more.
If you're familiar with the early retirement community, the simplest strategy is withdrawing a fixed percentage of your initial retirement portfolio, adjusting for inflation every year. For an 100% equities portfolio, these are the odds of success over a 30 or 60 year horizon[0] when backtested against Shiller's total real return data from 1871-2018
4%/30 year: 97%
4%/60 year: 89%
3%/30 year: 100%
3%/60 year: 100%
Hence my comment about spending a little less or saving more - 4% to 3% makes a massive difference in success rates. I'm sure you've done some backtesting of your offerings, and hopefully would be able to share some withdrawal amount vs success rate comparison, even if it's not an identical time period/comparison.
[0]https://earlyretirementnow.com/2016/12/14/the-ultimate-guide...
https://tontine.com/lifetime-income-calculator/#tontinator
I look forward to your thoughts
Contrast it with a calculator like this [0] that uses combines historical return and inflation data with actuarial data to show the variance of outcomes, not just average returns.
For instance, your calculator shows a scenario of investing in bitcoin and withdrawing >20% of your portfolio every year which makes zero sense once you account for variance of returns.
I like the idea of tontines, I'm glad someone is trying to bring them back, and I don't doubt that your product could help with longevity risk, but I haven't seen anything so far that actually shows that.
I'd like to see actual results from backtesting, or a prediction that takes risk into account, not just a fixed return.
They pool their money together and then rotate who it all goes to every month or some pet period.
Sounds like a scam run on the financially illiterate.
https://www.modernghana.com/news/772009/tontine-microcredit-...
Where they work is when each member of the group is known to each other and therefore would lose social status by defaulting on their obligations.
The benefit of these arrangements when run properly is that instead of saving $10 per month and after a year having the $120 to buy a productive asset (let's say a cow), they can get the $120 up front from the Tontine and pay the money back to the community group out of the earnings from the milk etc.
The persistance of these schemes everywhere indicates that this is a valuable means for the less well off to gain access to lump sum amounts for purchases without paying interest. Not everyone will be happy about the last part of course.
I play a survival game called Rust. Progress is meted out through the slow accumulation of Scrap, which is spent on learning technologies. People constantly kill each other, and those who are ahead on tech tend to accrue advantages in combat. There is no "Bank", and no guarantee of the ability to set up a minimum viable base to store your resources. One of the most pathetic strategies to resort to on the busiest most crowded servers, when you're a few days behind, is to linger around the edges of a safe zone collecting small amounts of Scrap(dying every few minutes), literally play roulette with it at the in-game gambling system in the safe zone at 1:20 odds, and when you eventually win big, use your scrap to progress through the tech tree; It might be 1000 scrap to get your tech to where it needs to be to compete, and you might average 50 (w/ Std dev of 25) scrap between deaths, but you'll get there eventually in this way, whereas the non-gambler needs incredible luck (+38 standard deviations of success) to actually progress through this high price threshold.
A typical tanda removes the random chance element, but preserves the "Eventually you'll get there" element even while holding on to no money.
Usually "Tontine" is used for a retirement plan that people pay into, which distributes the dividends evenly among the surviving cohort of investors; The last survivor gets the whole pot of investment. They fell into disrepute in small part for having salacious incentives to murder each other as the number of survivors drops, but mostly for being in competition with life insurance, pension, mutual funds, and later tax-incentive-investment-account models that ended up being more favored by governments & finance.
What you're describing is what I know as a 'tanda'.
https://en.wikipedia.org/wiki/Rotating_savings_and_credit_as...
https://en.wikipedia.org/wiki/English_coffeehouses_in_the_17...
That said, each Last Will & Testament creates the same scenario and (unlike in a Tontine) you typically know who you are in the Will alongside but this still doesn't seem to result in a spate of murder cases either.
csense•9mo ago
With a tontine, you bet you'll live.
The latter seems much more sensible to me.
rundmc•9mo ago
Biganon•9mo ago
rundmc•9mo ago
LiquidSky•9mo ago
One problem is that everyone else in the tontine is betting you don't and sometimes are willing to act on that.
rundmc•9mo ago
A good example is that the collapse of Swiss Air created am accidental Tontine among its pension beneficiaries. Rather than trying to bump each other off, they meet up every year to hear to jointly toast the good news about their rising income: https://tontine.com/news/swissair-the-accidental-tontine/
mrguyorama•9mo ago
Life insurance is for the Husband/Wife, Daughter, and Son you left behind to replace the income you used to support them with and pay for the (abhorrently and unethically expensive) process of putting you in the ground in most places.
It's the lottery you don't ever want to win.
Most people do lots of things that don't benefit themselves to the exclusion of all others.
jrflowers•9mo ago
With a tontine, everybody else bets you’ll die.
rundmc•9mo ago
Perhaps it's better to say that:
"With a tontine, others of the same age and sex bet that you’ll die before them".