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May 4, 2019

Tontines: A Practitioner's Guide to Mortality-Pooled Investments

by Richard K. Fullmer & CFA Institute Research Foundation

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FOREWORD:

My introduction to tontine thinking came in 2007 in the form of Ralph Goldsticker’s Financial Analysts Journal article “A Mutual Fund to Yield Annuity-Like Benefits.” I had previously heard of the tontine concept but never really thought about it in depth. The article piqued my intellectual curiosity as the idea—and all its potential variations—began to sink in. Tontines became a hobby over the next few years. Scholarly materials on the subject seemed surprisingly scarce at the time, and it occurred to me that although tontines were a centuries-old product, modern tontine thinking was still in its infancy—a new frontier that had so far been explored only at its edges.

To my good fortune, Moshe Milevsky emerged as a leading expert on the subject and was kind enough to chat with me about the subject whenever our paths crossed. Milevsky introduced me to Michael Sabin, with whom I have since enjoyed a close collaboration in the study of tontines. Sabin introduced me to Jonathan Forman, a professor of law and fellow tontine researcher. I have learned much from these pioneers of modern tontine thinking.

The idea for this brief came from a conversation with Larry Siegel, CFA Institute Research Foundation Gary P. Brinson Director of Research. While chatting about other topics, the conversation eventually turned to my work on fair tontine design, which, in turn, led to a conversation about the potential benefit of producing an introductory practitioner’s guide on the subject. The timing seemed right for three reasons. First, interest in the potential of tontines and tontine-like solutions is picking up, spurred by the so-called global retirement crisis. Second, the products are widely misperceived and poorly understood. Third, practitioner curricula on the topic, whether investment or actuarial, are scarce if they exist at all. So, there was both a reason and a need.

Mortality-pooled investing, such as with tontines, requires a bit of a paradigm shift relative to traditional investing. Although this brief is far from a complete handbook on the subject, it aims to serve as a practitioner’s basic introduction.
If most of what you know about tontines came from a fictional novel, a film, a newspaper article...

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Tontine Trust is a fintech enabling consumer-friendly lifetime income retirement products such as the state of the art TontineIRA™ via banks, chartered trust companies and credit unions (each a ‘Bank’).

Banking, trustee and fiduciary services in the US are provided by partner Banks which are regulated in the US to act as fiduciaries on behalf of US Tontine IRA™ accountholders (‘members’).

Tontine Trust provides and operates the TontineIRA™ administration and record-keeping platform on behalf of and under the supervision of the Banks.

Tontine Trust is not a Bank or a trust company and does not provide banking & fiduciary services other than certain administrative services in a ministerial capacity as the Trust Advisors to the Tontine IRA™s.

No information on this website or the platforms provided by Tontine Trust should be taken as constituting individual advice to you. The information is informational and of general guidance only. Tontine Trust does not provide investment management services, financial advice, banking or fiduciary services.

The choices you make or do not make around the investment of your retirement account are your own responsibility.‍ Neither Tontine Trust nor the Banks can be held responsible for any financial loss arising from your retirement choices or lack of them.

The amounts and duration of the lifetime income from the Tontine IRA™ are indicative only. By design, neither the amounts nor the duration of retirement income payments from a tontine plan are fixed or guaranteed.

Based upon many years of research and development, the TontineIRA™ platform displays reasonable best estimates of what level of income you can expect to receive over the course of your lifetime. These estimates are constantly reviewed (sometimes nightly) to incorporate any effects on expected incomes caused by changes in interest rates, investment returns, life expectancy and/or the actual mortality experience of members sharing the same tontine.

The Banks we work with are required to manage US trust assets in accordance with the Uniform Prudent Investor Act.‍

To ensure maximum security of capital and income for members, the Tontine IRA™ assets will be invested by the Banks in a basket of FDIC insured deposits such that each up Tontine IRA™ account can obtain FDIC coverage up to approximately $10m of assets per member.

Note that while the deposits made on behalf of the Tontine IRA™s are FDIC insured, the IRA accounts themselves are not a deposit or other obligation of, or guaranteed by a Bank or state chartered trust company and are not directly insured by the FDIC. Therefore they should be considered as being subject to investment risks, including a possible loss on the principal amount invested, for example when a member passes away before they have received total income in excess of their original contribution to the TontineIRA™.