# Modern Tontines



## PHEdinburgh (Aug 10, 2019)

Hi All- hope everyone's well! 

I just came across an idea that I thought was interesting, and wanted to see what others thought about it...

The challenge I'm interested in is how we can use a pot of money / savings to fund retirement.

We basically have 3 options at retirement as far as I see - 1. keep the savings invested and take cash out as and when you need it, 2. move it all into your bank account, or 3. buy an annuity (or a mixture of these options).

For options 1 and 2, you run the risk of running out of money, because you don't know if you're going to live until 70 or 100. Option 3 is often seen as expensive.

One of the reasons 3 is expensive is because an insurance company has to guarantee your income regardless of interest rates and general life expectancy (i.e. even if there's a big change, like a cure for cancer). Therefore- they err on the side of caution (from their perspective) and assume people are going to live long lives when setting annuity prices. If people live an 'average' amount of time, this means the insurance firm makes a profit.

I've heard something else mooted as an option between 1 and 3. Basically, people join a pool with people in similar circumstances to themselves, and each has a pot of savings that they draw from year by year (like option 1). However, when anyone in the pool dies, their savings get shared out across every £ in the pool (similar to how insurance companies manage annuities under the bonnet).

Therefore, this feels a bit like an 'interest rate'. In summary, this would likely offer a higher level of income than an annuity because you cut out the insurers profit, but nothing is guaranteed (i.e. if there's a cure for cancer and everyone loves longer, you'd get less than expected).

Would people go for this type of thing if it was an option?


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## C'est Moi (Aug 10, 2019)

No.    Are you selling them?


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## retiredtraveler (Aug 10, 2019)

_".....Basically, people join a pool with people in similar circumstances to themselves, and each has a pot of savings that they draw from year by year (like option 1). However, when anyone in the pool dies, their savings get shared out across every £ in the pool (similar to how insurance companies manage annuities under the bonnet)....."._

To do this would require far too much legal setup and trust for me. You have no idea how much anyone else is going to withdraw and if there is anything left for you if they do die. Too many variables.


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## Marie5656 (Aug 10, 2019)

*Sounds like a sales pitch. I am wary of people who join a forum and a post like this is their first one.   Often they never return*


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## mathjak107 (Aug 11, 2019)

nothing to see here folks --move along


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## PHEdinburgh (Aug 11, 2019)

Thanks for the replies, and sorry if I've put any noses out of joint. I'm not selling them (apologies if I gave that impression); this type of set up doesn't exist as far as I'm aware.

If context helps- I came across the idea in a book: https://www.waterstones.com/book/king-williams-tontine/moshe-a-milevsky/9781107430754. There's a shorter article on the same topic here (which is what led me to read the book in the first place).

I was just interested in garnering opinions from a broader range of people outside my small bubble. Having said that, I appreciate that I haven't earned trust by being a long term poster, so no problem at all if people would prefer not to reply.


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## Lethe200 (Aug 12, 2019)

Interestingly, the pooling of savings is VERY common among Asian immigrant families. This is especially advantageous for those who are poor, or of mixed racial heritage, who are usually restricted to certain types of jobs and can find it harder to get bank loans for starting a business or putting a down payment on a home. 

It is limited to family members, the whole "blood is thicker than water" thing. I have two sets of in-laws and both talked about how it worked. One family was from Hong Kong; the other from Shanghai. It's part of the culture of sharing. If you make it big, you are expected to be generous with other family members. 

Are there abuses of it? Oh, yes. But it would have to be truly egregious to warrant breaking family ties. 

Being a third-generation AmAsian (my spouse likes to call me a 'grapefruit', LOL) I found this absolutely amazing. Not a single member of my parents' generation would do this. They were very "Americanized."

How would the rules be set? In the US, since there is no nationalized healthcare, some people have minimal costs but others suffer enormous liability when a sudden illness/injury strikes. And obviously, if one person draws heavily on the pool for healthcare assistance and lifestyle costs but then dies, the pool can't recover any negative costs. If withdrawals are limited just to the amount one originally puts in, what's the incentive?

As many seniors don't have sufficient retirement savings, how would pooling ten or fifteen inadequately funded retirements help everyone? I can't see how that math works to anybody's advantage. Is there maybe something I'm not seeing here, PHEdinburgh?

Not to mention, the legal and tax implications of pooled money in the U.S. are rather staggering. It shouldn't be kept in cash; even with below-average inflation the total would lose anywhere from 30-50% of its buying power over, say, 25 yrs. That is not an unreasonable period of time for someone in their late 50's, at least not these days.

If the pooled money is invested, what happens when the market ends the year negative, as it did at the end of 2018? Does everyone get to write off their portion of the tax loss? What happens if the market goes into a severe correction (e.g., recession) as it did in 2008-2009? If a person gets spooked and wants to "cash out", I can't imagine they'll be happy receiving an amount 25% less than they put in a year ago. The image that gets conjured up is those TV ads for liability law firms who are happy to sue anyone, any time, for just about any reason, since win or lose they get paid regardless, LOL.

A great many items people purchase, even in retirement, are NOT counted in the CPI index. We travel in retirement. Travel costs have increased a minimum of 35% and in some categories, closer to 60%, from a decade ago. Even if we stayed home, utilities have increased substantially. But 'everyday budget items' differ according to city/county, even in a localized region. One person might have see their homeowner taxes go up, while a renter might not see anything change. 

How would you keep those kinds of issues on a strictly fair basis?


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