By SA Gil Weinreich :
You like Social Security. You appreciate receiving a "paycheck" - you just wish it were higher. You're worried about the risk that the market will radically lower the value of your retirement portfolio at the worst possible time. In other words, you want the security of a guarantee.
One possible solution: an annuity . However, you're suspicious. You've read uncomplimentary reports about these products in the financial media and are worried that you'd be overpaying an insurance company. Or, perhaps you're confident in your ability to transact at a reasonable price with the insurance company - you're just worried that you will not live long enough to extract value out of the deal and you will have left money on the table, as it were.
Investors have agonized over these questions forever, resolving the dispute primarily based on their investor personality. Some are happy to let the insurance company take on their longevity risk. But for those who have qualms about "leaving money on the table," there is a theoretical solution that we discussed back in June. Here's what I wrote at the time:
Tontines, a once common annuity-style investment, pool subscribers' longevity risk in an investment that increases its payout to members who survive the death of their peers within the group (since the fewer people in the pool, the more the annuity can pay)….Let's hope that some financial services entrepreneur soon recognizes that those who successfully reintroduce a product enabling retirees to make more money stand to make a lot of money themselves."
Well, I'm pleased to report that what has hitherto been theoretical now appears to be materializing into a commercially available product. Gibraltar-based Tontine Trust is rolling out a "peer-to-peer longevity risk sharing platform generating an expected 40%+ higher payouts than guaranteed annuities." They characterize these tontines as "decentralized annuities where the profits go to the tontine members rather than annuity issuers." In other words, it appears that this company is trying to break through consumers' reluctance to purchase products they deem as overly costly but which they would otherwise value.
What's more, based on the information it presents on its website, Tontine Trust secures annuitants' investments via Blockchain technology and apparently does away with the risk of being killed by other tontine participants (these products are best known today through the genre of murder mysteries) through pseudonymous accounts. Trust members can collect their benefits via an ATM using biometrically authenticated "TonCards."
So, the bargain appears to be: more money, more security, and payouts that increase over time for survivors of the trust, as other trust members pass away. The company offers various flavors of annuity and investment sub-account and promises transparency: "Members always have unparalleled visibility on the underlying ETF or other assets as well as projected future payouts."
The company's first ETF-based tontine is due to launch in the third quarter of next year. It remains to see if Tontine Trust will live up to its promise and whether new competitors will enter the fray with different models. But its plans to squeeze out more retirement income for already squeezed retirees are undoubtedly a step in the right direction.
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