A bit more on Tontines

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sean.mcgrath
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A bit more on Tontines

Post by sean.mcgrath » Sun Jun 18, 2017 12:16 pm

I remember a couple of forum topics on tontines (including one covering Milevsky -- who's quoted in this one), and thought I'd share this Economist article. Interesting idea for me that a tontine could turn DC plans back into DB.

In any case a fun read: http://www.economist.com/news/finance-a ... rsc=dg%7Ce

MIpreRetirey
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Re: A bit more on Tontines

Post by MIpreRetirey » Sun Jun 18, 2017 12:30 pm

So the rate of patent applications on tontine ideas is rising? I won't hold my breath, though.
Interesting about the re-naming a kid with a deceased kids name (the beneficiary.) Never heard that one, myself.
Guess they were enrolling their kids in the tontine in hopes of getting a long-term benefit. When the kid dies, the benefit stops. So rename one.

dbr
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Re: A bit more on Tontines

Post by dbr » Sun Jun 18, 2017 12:59 pm

Everything in the world and a lot out of it is covered on The Simpson's, including a tontine: https://en.wikipedia.org/wiki/Raging_Ab ... ellfish%22

sean.mcgrath
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Re: A bit more on Tontines

Post by sean.mcgrath » Mon Jun 19, 2017 5:23 am

Yep, the Simpsons were mentioned in the last thread as well :-)

The basic idea that tontines served a purpose, but were flawed by conflicts of interest makes sense to me: it is risk pooling just like insurance. It also seems to make sense that you could anonymize the tontines with a big enough pool. Then you securitize them, sell them to banks, and it's just like mortgages.

Ok, we know where that story ended, but still a cool idea. 8-)

anonenigma
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Re: A bit more on Tontines

Post by anonenigma » Mon Jun 19, 2017 6:50 am

Note the episode of The Wild, Wild West: "The NIght of the Tottering Tontine":

http://www.imdb.com/title/tt0748583/?ref_=fn_al_tt_1

sean.mcgrath
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Re: A bit more on Tontines

Post by sean.mcgrath » Mon Jun 19, 2017 9:04 am

anonenigma wrote:Note the episode of The Wild, Wild West: "The NIght of the Tottering Tontine"
That's what happens when you don't use blockchains. :wink:

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DaftInvestor
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Re: A bit more on Tontines

Post by DaftInvestor » Mon Jun 19, 2017 9:06 am

I can't read the article as I don't subscribe to Economist and am getting blocked by its pay-wall (and didn't feel like taking the time for finding ways around it) - for those that want a bit more info on Tontines that don't subscribe to Economist I found this article informative:
https://www.kitces.com/blog/tontine-agr ... s-tontine/

sean.mcgrath
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Re: A bit more on Tontines

Post by sean.mcgrath » Mon Jun 19, 2017 4:39 pm

DaftInvestor wrote:I can't read the article as I don't subscribe to Economist and am getting blocked by its pay-wall (and didn't feel like taking the time for finding ways around it)
Not sure why -- I got to the article on two computers where I wasn't subscribed. I think you get three views a week without subscribing; maybe you have already used them up.

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DaftInvestor
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Re: A bit more on Tontines

Post by DaftInvestor » Mon Jun 19, 2017 4:59 pm

sean.mcgrath wrote:
DaftInvestor wrote:I can't read the article as I don't subscribe to Economist and am getting blocked by its pay-wall (and didn't feel like taking the time for finding ways around it)
Not sure why -- I got to the article on two computers where I wasn't subscribed. I think you get three views a week without subscribing; maybe you have already used them up.
It states on the pay-wall that you get 3 articles per week only if you register (don't need to subscribe - but do need to register). If you don't register - who knows - it was stating I've reached my limit though and I've used the site very rarely (maybe its 3 total ever). In any case, since I had a few minutes I went into my cookies and deleted those associated with the economist so I can now read it (as a side note - they nearly win the prize on the number of cookies dropped of all the sites I visit - with one visit to the article they dropped a total of 33 cookies!). I found the kites article I mentioned above a bit more informative but perhaps someone already posted that one on a prior thread.

tman9999
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Re: A bit more on Tontines

Post by tman9999 » Thu Oct 26, 2017 8:07 pm

Read http://www.npr.org/2017/10/26/560152250 ... nd-lottery today on NPR and started wondering whether someone would figure out away to come up with a block-chain based tontine.

And then I found https://tontinetrust.com. Huh. The guy behind it is in the U.K. and appears to be the real deal.

Thoughts?

Iridium
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Re: A bit more on Tontines

Post by Iridium » Fri Oct 27, 2017 1:34 am

sean.mcgrath wrote:
Mon Jun 19, 2017 5:23 am
It also seems to make sense that you could anonymize the tontines with a big enough pool. Then you securitize them, sell them to banks, and it's just like mortgages.

Ok, we know where that story ended, but still a cool idea. 8-)
I know you are saying this as a joke, but it seems reasonable to me. If you count the entire nation as a risk pool, apparently such instruments already exist. A tontine that uses such instruments to diversify longevity risk would be close to ideal: the insurance company wouldn't need to hold reserves, retirees would face very low risk that their payments would be disrupted (this could only happen if the pool suddenly lived much longer than expectations, out of proportion with national trends), and capital markets are quite good at spreading risk around in ways that reduce overall cost: a portfolio that is only 1% longevity trend bonds can value the bonds much more closely to their expected value, whereas the insurance company has to value their longevity risk more in terms of worst-case scenarios.

A further optimization: Tontines that allow people to participate without making an upfront payment. A retiree might be loathe to take $100K out of his/her portfolio, but might be more willing to pay the tontine $100K upon his/her death. Payment can be guaranteed with a lien on his/her house. Think about it as the inverse of life insurance: rather than making annual premium payments in return for a big payout at mortality, you receive annual payouts in return for a big premium payment at mortality. If a tontine balanced how much of each it took on, it wouldn't need to invest quite as much up-front as a fully traditional tontine, as it knows that it will be receiving premium payments from its 'premium on death' customers. With less money invested, its investment/interest rate risk should also be somewhat reduced.

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