The Double Deuce!
September 30, 2015 7:56 AM Subscribe
It’s sleazy, it’s totally illegal, and yet it could become the future of retirement. Is it time to bring back the tontine?
Jeff Guo of the Washington Post writes:
At their peak, around the turn of the century, tontines represented nearly two-thirds of the American insurance market, holding about 7.5 percent of national wealth. It’s estimated that by 1905, there were 9 million tontine policies active in a nation of only 18 million households. Tontines became so popular that historians credit them for single-handedly underwriting the ascendance of the American insurance industry.
Tontines, you'll recall, are investment schemes in which the payouts get bigger as participants die and their money is redistributed to the remaining participants. Nowadays tontines are illegal and are mostly known as a pop-culture trope, as seen in The Wrong Box, The Simpsons, and Archer. But if you go to, say, the Tontine Mall in Brunswick, ME, or recall that the origins of the New York Stock Exchange can be traced to the Tontine Coffee House, you can see the effect that tontines had in the formation of the US. And in an age in which traditional pensions are dying out and newer plans like the 401(k) are proving to be inadequate, maybe, Guo writes, a modern version of the tontine is worth a look.
Jeff Guo of the Washington Post writes:
At their peak, around the turn of the century, tontines represented nearly two-thirds of the American insurance market, holding about 7.5 percent of national wealth. It’s estimated that by 1905, there were 9 million tontine policies active in a nation of only 18 million households. Tontines became so popular that historians credit them for single-handedly underwriting the ascendance of the American insurance industry.
Tontines, you'll recall, are investment schemes in which the payouts get bigger as participants die and their money is redistributed to the remaining participants. Nowadays tontines are illegal and are mostly known as a pop-culture trope, as seen in The Wrong Box, The Simpsons, and Archer. But if you go to, say, the Tontine Mall in Brunswick, ME, or recall that the origins of the New York Stock Exchange can be traced to the Tontine Coffee House, you can see the effect that tontines had in the formation of the US. And in an age in which traditional pensions are dying out and newer plans like the 401(k) are proving to be inadequate, maybe, Guo writes, a modern version of the tontine is worth a look.
Joint Tenancy with Rights of Survivorship always seemed to me like a way to do this within the existing legal framework (note: I am not your lawyer and I do not advise entering into a Tontine.)
posted by Navelgazer at 8:00 AM on September 30, 2015 [3 favorites]
posted by Navelgazer at 8:00 AM on September 30, 2015 [3 favorites]
Also, Betteridge's law of headlines.
posted by BuddhaInABucket at 8:01 AM on September 30, 2015 [3 favorites]
posted by BuddhaInABucket at 8:01 AM on September 30, 2015 [3 favorites]
The 401K hustle is bad enough - I'm in my 40s, and it's looking increasingly likely that my generation will be the one that sees the return of mass poverty in old age for Americans.
posted by ryanshepard at 8:05 AM on September 30, 2015 [5 favorites]
posted by ryanshepard at 8:05 AM on September 30, 2015 [5 favorites]
I think any retirement plan that has "pay this really substantial sum of money once you hit retirement age" is a problem because most people simply don't have that lump sum at that age - for those who do, it's simply yet another way for the wealthy to gamble.
posted by MysticMCJ at 8:05 AM on September 30, 2015 [6 favorites]
posted by MysticMCJ at 8:05 AM on September 30, 2015 [6 favorites]
I'm just waiting for "disruptive" tontines to show up. I'm sure it'll all be above board.
I do love the idea of putting $100K into an annuity so I can get $5,000/year. That's certainly enough to live on, and I certainly will have that kind of money to drop into it!
*weeps*
posted by xingcat at 8:09 AM on September 30, 2015 [10 favorites]
I do love the idea of putting $100K into an annuity so I can get $5,000/year. That's certainly enough to live on, and I certainly will have that kind of money to drop into it!
*weeps*
posted by xingcat at 8:09 AM on September 30, 2015 [10 favorites]
There's an incredibly long novel by Thomas Costain called "The Tontine" and I always wondered what the hell that was. Now I know. Thanks!
(I actually own this novel. I don't know why. I should not be allowed near library book sales)
posted by selfnoise at 8:10 AM on September 30, 2015 [8 favorites]
(I actually own this novel. I don't know why. I should not be allowed near library book sales)
posted by selfnoise at 8:10 AM on September 30, 2015 [8 favorites]
The first time I ever heard of a tontine was in an episode of M*A*S*H*, where Colonel Potter was the last survivor of his WWI platoon.
Other than the name, what does the Tontine Mall have to do with actual tontines? I've been there many times, but don't ever recall anyone explaining what the relationship was.
posted by briank at 8:19 AM on September 30, 2015 [2 favorites]
Other than the name, what does the Tontine Mall have to do with actual tontines? I've been there many times, but don't ever recall anyone explaining what the relationship was.
posted by briank at 8:19 AM on September 30, 2015 [2 favorites]
I am like 75% sure there was an AskMe question recently that asked for legal help on an inheritance arrangement that sounded almost exactly like a tontine.
posted by griphus at 8:20 AM on September 30, 2015 [3 favorites]
posted by griphus at 8:20 AM on September 30, 2015 [3 favorites]
Well, given as I'm thinking about changing my career to committing murder for hire, I'm totally down with the return of the tontine. More work and easier targets! Grandma ain't gonna see me comin'!
...Though it would lead to the murder-for-hire market being flooded, depressing prices...dammit. Maybe I could market myself as an "artisinal assassin," who dispatches targets using "classical methods and antique craftsman tools" to stand out in the marketplace? Maybe use flintlock pistols or Victorian-era carving knives? Man. This is stressful.
But still, any change to financial laws that directly encourages murder is a good change, amirite?
posted by Harvey Jerkwater at 8:21 AM on September 30, 2015 [17 favorites]
...Though it would lead to the murder-for-hire market being flooded, depressing prices...dammit. Maybe I could market myself as an "artisinal assassin," who dispatches targets using "classical methods and antique craftsman tools" to stand out in the marketplace? Maybe use flintlock pistols or Victorian-era carving knives? Man. This is stressful.
But still, any change to financial laws that directly encourages murder is a good change, amirite?
posted by Harvey Jerkwater at 8:21 AM on September 30, 2015 [17 favorites]
The life insurance industry's response to this would be interesting...
posted by Navelgazer at 8:24 AM on September 30, 2015
posted by Navelgazer at 8:24 AM on September 30, 2015
Retirement Ponzi schemes are illegal, too. Except when the government runs them.
posted by ZenMasterThis at 8:31 AM on September 30, 2015 [1 favorite]
posted by ZenMasterThis at 8:31 AM on September 30, 2015 [1 favorite]
Maybe I could market myself as an "artisinal assassin," who dispatches targets using "classical methods and antique craftsman tools" to stand out in the marketplace? Maybe use flintlock pistols or Victorian-era carving knives?
"Don't worry sir, all our poisons are ethically sourced, fair trade."
posted by garius at 8:31 AM on September 30, 2015 [10 favorites]
"Don't worry sir, all our poisons are ethically sourced, fair trade."
posted by garius at 8:31 AM on September 30, 2015 [10 favorites]
Other than the name, what does the Tontine Mall have to do with actual tontines?
Tontines used to fund lots of different things, not just retirement. From the paper cited in the WaPo article:
Additional tontine-based projects in the United Kingdom included projects in Glasgow (Coffee House), Stourport (Inn), Sheffield (Inn), Peebles (Hotel), Folkestone (Street), and Bristol (Assembly Rooms), among other places. The construction of the Covent-Garden Theatre in London was based on a tontine. A tontine provided more than 65% of the money to build the parish church in Wallsend in the northeast of England. The original Richmond Bridge, the second Kew Bridge over the Thames and the Birmingham Library building all owe their existence to tontine financing. In the United States the leading inn in New Haven for many years was the Tontine Hotel. There were other tontine developments in Maine; New Hampshire; Albany, NY; and several properties in Washington DC. The current evidence tends to be tontine as a name, usually for a building, sometimes a street.
posted by Cash4Lead at 8:31 AM on September 30, 2015 [3 favorites]
Tontines used to fund lots of different things, not just retirement. From the paper cited in the WaPo article:
Additional tontine-based projects in the United Kingdom included projects in Glasgow (Coffee House), Stourport (Inn), Sheffield (Inn), Peebles (Hotel), Folkestone (Street), and Bristol (Assembly Rooms), among other places. The construction of the Covent-Garden Theatre in London was based on a tontine. A tontine provided more than 65% of the money to build the parish church in Wallsend in the northeast of England. The original Richmond Bridge, the second Kew Bridge over the Thames and the Birmingham Library building all owe their existence to tontine financing. In the United States the leading inn in New Haven for many years was the Tontine Hotel. There were other tontine developments in Maine; New Hampshire; Albany, NY; and several properties in Washington DC. The current evidence tends to be tontine as a name, usually for a building, sometimes a street.
posted by Cash4Lead at 8:31 AM on September 30, 2015 [3 favorites]
I think any retirement plan that has "pay this really substantial sum of money once you hit retirement age" is a problem because most people simply don't have that lump sum at that age
a lot of people already do exactly this with single premium immediate annuities, though, so maybe not as many as you think.
posted by indubitable at 8:33 AM on September 30, 2015 [1 favorite]
a lot of people already do exactly this with single premium immediate annuities, though, so maybe not as many as you think.
posted by indubitable at 8:33 AM on September 30, 2015 [1 favorite]
This sounds suspiciously like adjuncting until a tenure-track line opens up.
posted by oddman at 8:34 AM on September 30, 2015 [10 favorites]
posted by oddman at 8:34 AM on September 30, 2015 [10 favorites]
Retirement Ponzi schemes are illegal, too. Except when the government runs them.
Social Security is not a Ponzi scheme.
posted by T.D. Strange at 8:35 AM on September 30, 2015 [32 favorites]
Social Security is not a Ponzi scheme.
posted by T.D. Strange at 8:35 AM on September 30, 2015 [32 favorites]
and I thought they smelled bad... on the outside!
posted by mean square error at 8:37 AM on September 30, 2015 [15 favorites]
posted by mean square error at 8:37 AM on September 30, 2015 [15 favorites]
Now, a growing chorus of economists and lawyers is wondering if the world wasn’t too hasty in turning its back on tontines. These financial arrangements, they say, have aspects that make a lot of sense despite their history of disrepute.
This is basically a group annuity, then, right? Except the risk sharing is done at the purchaser level, instead of by the insurance company. I don't see any problem with this beyond the incentive to murder, which ostensibly exists at all sorts of successful group business ventures. It's solved by not killing people because killing is wrong.
posted by leotrotsky at 8:38 AM on September 30, 2015 [6 favorites]
This is basically a group annuity, then, right? Except the risk sharing is done at the purchaser level, instead of by the insurance company. I don't see any problem with this beyond the incentive to murder, which ostensibly exists at all sorts of successful group business ventures. It's solved by not killing people because killing is wrong.
posted by leotrotsky at 8:38 AM on September 30, 2015 [6 favorites]
Social Security is not a Ponzi scheme.
A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator.
Social Security payments are not based on realistic rates of return from individuals' historical contributions. Rather, a portion of payments comes from others' CURRENT contributions. What part of this doesn't fit the above definition of a Ponzi scheme?
posted by ZenMasterThis at 8:44 AM on September 30, 2015 [2 favorites]
A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator.
Social Security payments are not based on realistic rates of return from individuals' historical contributions. Rather, a portion of payments comes from others' CURRENT contributions. What part of this doesn't fit the above definition of a Ponzi scheme?
posted by ZenMasterThis at 8:44 AM on September 30, 2015 [2 favorites]
Sorry, I can't engage with someone who obviously didn't even click of any of the myriad links I just provided you which would answer your ignorant proposition.
posted by T.D. Strange at 8:46 AM on September 30, 2015 [30 favorites]
posted by T.D. Strange at 8:46 AM on September 30, 2015 [30 favorites]
Webster's dictionary defines taxes as blar blar blar.
posted by nom de poop at 8:47 AM on September 30, 2015 [8 favorites]
posted by nom de poop at 8:47 AM on September 30, 2015 [8 favorites]
I am like 75% sure there was an AskMe question recently that asked for legal help on an inheritance arrangement that sounded almost exactly like a tontine.
Oh yeah a lot of them do! My grandfather died and left money in trust for my father and my brother and me and I refer to it as a tontine* because if my brother dies before my father I get a bunch more money and the idea of either of them dying really upsets me so I need a way to find bleak humor in the situation and referencing absurd financial structures is apparently the way my brain decided to go on this.
*My husband won't call it a tontine and my roommate refused to call it a tontine until I told him that I would put him in my will as like the twentieth recipient in case everyone related to me died and somehow being even tangentially affiliated with it made him change his mind. We are a household of absurdity.
posted by Mrs. Pterodactyl at 8:48 AM on September 30, 2015 [3 favorites]
Oh yeah a lot of them do! My grandfather died and left money in trust for my father and my brother and me and I refer to it as a tontine* because if my brother dies before my father I get a bunch more money and the idea of either of them dying really upsets me so I need a way to find bleak humor in the situation and referencing absurd financial structures is apparently the way my brain decided to go on this.
*My husband won't call it a tontine and my roommate refused to call it a tontine until I told him that I would put him in my will as like the twentieth recipient in case everyone related to me died and somehow being even tangentially affiliated with it made him change his mind. We are a household of absurdity.
posted by Mrs. Pterodactyl at 8:48 AM on September 30, 2015 [3 favorites]
I don't see any problem with this beyond the incentive to murder, which ostensibly exists at all sorts of successful group business ventures. It's solved by not killing people because killing is wrong.
If killing is outlawed, only outlaws will kill.
posted by jetsetsc at 8:51 AM on September 30, 2015 [1 favorite]
If killing is outlawed, only outlaws will kill.
posted by jetsetsc at 8:51 AM on September 30, 2015 [1 favorite]
It's solved by not killing people because killing is wrong.
Jeez, thanks, dad.
posted by Navelgazer at 8:52 AM on September 30, 2015 [4 favorites]
Jeez, thanks, dad.
posted by Navelgazer at 8:52 AM on September 30, 2015 [4 favorites]
Mod note: Tontines are a more interesting and less done-to-death subject than Let's Argue About Social Security and also happen to be the subject of this post, so let's maybe drop the SS thing.
posted by cortex (staff) at 8:53 AM on September 30, 2015 [15 favorites]
posted by cortex (staff) at 8:53 AM on September 30, 2015 [15 favorites]
I just love learning a new word!
posted by OHenryPacey at 8:55 AM on September 30, 2015 [1 favorite]
posted by OHenryPacey at 8:55 AM on September 30, 2015 [1 favorite]
Cortex, if you're not doing a tontine to death you're kinda doing it wrong.
posted by Navelgazer at 8:57 AM on September 30, 2015 [31 favorites]
posted by Navelgazer at 8:57 AM on September 30, 2015 [31 favorites]
hoyooooooo
posted by cortex at 8:58 AM on September 30, 2015 [13 favorites]
posted by cortex at 8:58 AM on September 30, 2015 [13 favorites]
In theory, a properly managed tontine with enough participants would be an almost ideal retirement vehicle.
The best vehicle currently is the annuity. Take what you've built up, buy the annuity, and you'll get $X every year as long as you live. The problem is people don't understand what retirement savings needs to do, and they see the annuity cost and annual payout and think 'I'm not going to live long enough to recoup' -- where the point of it is if you die, you can't spend it anyway, but if you live until 100, you'll have a constant income. To care for your descendants, you pair that with life insurance. If you have that, you'll have income for the rest of your life *and* your descendants will get a payout when you pass away.
And that is the point of retirement -- you are allowed to retire and not worry about income, no matter if you live 1 day or 50 years pass that day.
But many people don't buy that. When corporate pensions were a thing, that was a logical stance -- you were effectively buying an annuity by paying over your career into the pension scheme and then getting a fixed income after you retired. Now, they just think investments, but investments, when they run out, are out, and they see "I'm paying $100K for a $5K/year annuity and that's not going to pay off until I'm 85 and that's dumb."
And they run out of money at 79 and they're fucked.
Tontines, though -- people die as we get older. It's just the nature of life. So, as you get older, the payout increases, because less are collecting.
The right way to run it, however, is the key. Today, too many would get suckered into tontines with bad investments, and get little to nothing, because Wall Street is built to make sure money flows into it and not to you.
The keys you'd want in a fair tontine to make sure you retire as long as you live.
1) You need a safe investment vehicle -- a combination of government bonds and very low risk stocks, ideally index funds. The idea here is far more preservation of true capital rather than growth. If the fund fails, everyone gets $0.
2) You want a large population base to start, all of the same age -- at least 100, probably over 1000. This leads to a large capital base, which can more effectively invest the capital to grow it, at least to beat inflation, ideally, to grow a bit more than that. But, again, preservation is far more important that growth. You want some growth, but you cannot accept major losses to the fund.
3) At the retirement age, you start paying out. The capital base stops growing because none of you are investing in anymore and the profits from the base are being distributed out, rather than reinvested. You, if you've made it to the retirement age, get the sum of the profits divided by the number of survivors.
4) At some time after the retirement age, call it 10-20 years, the capital base is cashed out to buy annuities for the surviving members of the tontine, and the tontine ends. At this point, everybody left alive now has a fixed income for life -- and probably a rather high one, given that most of the tontine will have passed away. Regardless, though, they will have that income for the rest of their life. This differs than a true tontine, where you keep paying out until there's one survivor, who then gets the capital fund.
5) There's no heirs or assigns. You are making the tontine bet, and only you. If you allow assigns, then the number of people in the tontine never shrinks, and come the end of the tontine, the annuity payments will be almost nothing. This means everybody needs to have their own investment.
Done like that, you can use tontines to leverage annuities into a fully-funded pension scheme.
However, the problem is that capital base. It has to be invested correctly. You let a manager gamble it away, or fee it away, and you lose everything you put in and don't have a retirement.
And that's the real kicker there. It requires honesty on the part of the tontine investors, and that flat out doesn't exist in the real world right now. So, you'd buy in, they'd invest in high fee investments, and probably lose money, and you'd be fucked. It's no better than a 401K.
That's basically the problem here -- a large part of the ruling class of the US want to make sure you are in poverty in your old age. No solution at all works so long as they are there to make sure that they win and you lose.
posted by eriko at 9:06 AM on September 30, 2015 [34 favorites]
The best vehicle currently is the annuity. Take what you've built up, buy the annuity, and you'll get $X every year as long as you live. The problem is people don't understand what retirement savings needs to do, and they see the annuity cost and annual payout and think 'I'm not going to live long enough to recoup' -- where the point of it is if you die, you can't spend it anyway, but if you live until 100, you'll have a constant income. To care for your descendants, you pair that with life insurance. If you have that, you'll have income for the rest of your life *and* your descendants will get a payout when you pass away.
And that is the point of retirement -- you are allowed to retire and not worry about income, no matter if you live 1 day or 50 years pass that day.
But many people don't buy that. When corporate pensions were a thing, that was a logical stance -- you were effectively buying an annuity by paying over your career into the pension scheme and then getting a fixed income after you retired. Now, they just think investments, but investments, when they run out, are out, and they see "I'm paying $100K for a $5K/year annuity and that's not going to pay off until I'm 85 and that's dumb."
And they run out of money at 79 and they're fucked.
Tontines, though -- people die as we get older. It's just the nature of life. So, as you get older, the payout increases, because less are collecting.
The right way to run it, however, is the key. Today, too many would get suckered into tontines with bad investments, and get little to nothing, because Wall Street is built to make sure money flows into it and not to you.
The keys you'd want in a fair tontine to make sure you retire as long as you live.
1) You need a safe investment vehicle -- a combination of government bonds and very low risk stocks, ideally index funds. The idea here is far more preservation of true capital rather than growth. If the fund fails, everyone gets $0.
2) You want a large population base to start, all of the same age -- at least 100, probably over 1000. This leads to a large capital base, which can more effectively invest the capital to grow it, at least to beat inflation, ideally, to grow a bit more than that. But, again, preservation is far more important that growth. You want some growth, but you cannot accept major losses to the fund.
3) At the retirement age, you start paying out. The capital base stops growing because none of you are investing in anymore and the profits from the base are being distributed out, rather than reinvested. You, if you've made it to the retirement age, get the sum of the profits divided by the number of survivors.
4) At some time after the retirement age, call it 10-20 years, the capital base is cashed out to buy annuities for the surviving members of the tontine, and the tontine ends. At this point, everybody left alive now has a fixed income for life -- and probably a rather high one, given that most of the tontine will have passed away. Regardless, though, they will have that income for the rest of their life. This differs than a true tontine, where you keep paying out until there's one survivor, who then gets the capital fund.
5) There's no heirs or assigns. You are making the tontine bet, and only you. If you allow assigns, then the number of people in the tontine never shrinks, and come the end of the tontine, the annuity payments will be almost nothing. This means everybody needs to have their own investment.
Done like that, you can use tontines to leverage annuities into a fully-funded pension scheme.
However, the problem is that capital base. It has to be invested correctly. You let a manager gamble it away, or fee it away, and you lose everything you put in and don't have a retirement.
And that's the real kicker there. It requires honesty on the part of the tontine investors, and that flat out doesn't exist in the real world right now. So, you'd buy in, they'd invest in high fee investments, and probably lose money, and you'd be fucked. It's no better than a 401K.
That's basically the problem here -- a large part of the ruling class of the US want to make sure you are in poverty in your old age. No solution at all works so long as they are there to make sure that they win and you lose.
posted by eriko at 9:06 AM on September 30, 2015 [34 favorites]
the problem with annuities is the awful sales charges (among other things), and the usual "who's more likely to be right (ie win the bet) - you, or the company with lots of data and actuaries/tables etc" ?
Now, are the annuity companies heavily regulated enough (like casinos) where some minimum percentage of their take must be paid back out ?
posted by k5.user at 9:26 AM on September 30, 2015 [1 favorite]
Now, are the annuity companies heavily regulated enough (like casinos) where some minimum percentage of their take must be paid back out ?
posted by k5.user at 9:26 AM on September 30, 2015 [1 favorite]
Look, it's clearly impossible - and what's more, morally wrong - to feed, clothe and shelter people who are no longer contributing directly to the wealth of others through active employment. We've tried every possible approach, for generations now, and none of them work. It just can't be done.
The "Hunger Games" model of the tontine is as close as we've been able to come, granted. It reduces the number of older, non-productive citizens greatly, yes, but someone always wins. Even if they're a bloody, gasping mess barely able to hang on to their walkers, there will always be a last man (or woman) standing, who will then demand their prize - indeed the full prize originally promised to all contestants. So even if we reduce the number of these parasitic monsters to a twentieth of their original number - and I freely admit that is a beneficial end in itself - those who remain ultimately soak up as much capital as the original 20 would have collectively. Financially, we're back to square one.
At the same time, climate change is wreaking havoc on the ecological balance and I keep hearing that the melting ice pack in the arctic will make it impossible for polar bears to feed themselves and we're looking at a collapse of the species.
The solution seems obvious: feed the old people to the polar bears. They can't produce. Their consumption is irrelevant as they are well outside the crucial 18-35 demographic. They have nothing left to offer society but financial ruin and endless prescription drug commercials. By feeding them to polar bears, we would solve that age old problem, AND we would preserve an important part of our priceless ecological heritage for future generations.
posted by Naberius at 9:35 AM on September 30, 2015 [13 favorites]
The "Hunger Games" model of the tontine is as close as we've been able to come, granted. It reduces the number of older, non-productive citizens greatly, yes, but someone always wins. Even if they're a bloody, gasping mess barely able to hang on to their walkers, there will always be a last man (or woman) standing, who will then demand their prize - indeed the full prize originally promised to all contestants. So even if we reduce the number of these parasitic monsters to a twentieth of their original number - and I freely admit that is a beneficial end in itself - those who remain ultimately soak up as much capital as the original 20 would have collectively. Financially, we're back to square one.
At the same time, climate change is wreaking havoc on the ecological balance and I keep hearing that the melting ice pack in the arctic will make it impossible for polar bears to feed themselves and we're looking at a collapse of the species.
The solution seems obvious: feed the old people to the polar bears. They can't produce. Their consumption is irrelevant as they are well outside the crucial 18-35 demographic. They have nothing left to offer society but financial ruin and endless prescription drug commercials. By feeding them to polar bears, we would solve that age old problem, AND we would preserve an important part of our priceless ecological heritage for future generations.
posted by Naberius at 9:35 AM on September 30, 2015 [13 favorites]
A pox on the tontine. I have a living from the prizes I have taken as a post-captain. Ever the sea for me!
posted by Splunge at 9:36 AM on September 30, 2015 [13 favorites]
posted by Splunge at 9:36 AM on September 30, 2015 [13 favorites]
I'm just waiting for "disruptive" tontines to show up. I'm sure it'll all be above board.
Instead, we'll follow the Apple model: underpowered retirement vehicles whose administration costs are three times as high as their contemporaries, who hold lavish unveilings every year, desperately trying to prop up their revenue sources by selling to a new generation of credulous fools who think that a a new font on the glossy brochure is reason enough to buy the newest iteration.
This was supposed to be an argument ad absurdum for what my retirement will be like, but I accidentally just made myself really sad.
posted by Mayor West at 9:46 AM on September 30, 2015 [7 favorites]
“This might be the iPhone of retirement products,” says Moshe Milevsky, an associate professor of finance at York University in Toronto who has become one of the tontine’s most outspoken boosters.At least she didn't call it "the Uber of retirement products," which would imply a sharing economy, where, say, you need a hip replacement and you just use the Retir app to find a local fellow retiree who will perform it for you in exchange for Retir Bux, which get added to the tontine.
Instead, we'll follow the Apple model: underpowered retirement vehicles whose administration costs are three times as high as their contemporaries, who hold lavish unveilings every year, desperately trying to prop up their revenue sources by selling to a new generation of credulous fools who think that a a new font on the glossy brochure is reason enough to buy the newest iteration.
This was supposed to be an argument ad absurdum for what my retirement will be like, but I accidentally just made myself really sad.
posted by Mayor West at 9:46 AM on September 30, 2015 [7 favorites]
The writer makes a rather poor case for the tontine. Basically it boils down to "annuities are the rational solution to retirement, but since people are irrational, we should give them a second best, irrational choice that they will accept."
Tontines and annuties are much alike. The biggest difference is that a tontine is like batch processing, while an annuity is continuous real time processing.
An annuity is like a tontine that allows new members to be added while old members die and are removed and unlike a tontine, never ends. The annuity has the same characteristic as the tontine in that people who die early surrender their contributions which increases the payout to those who live longer. It is just that those surrendered contributions are distributed evenly over time to members rather than just to a diminishing number of winners.
The biggest problem with a tontine is that the annual payout increases over time and for any member, so your biggest payout occurs immediately before your death, which is useless. An annuity gives precisely defined payments each year so you can plan your spending years in advance and smooth your consumption for your remaining life.
The cost issue that the writer brings up is a red herring. There is no reason to believe that management of a tontine will be any less expensive than an annuity in the commercial market. In fact Social Security and state employee pensions are good examples of low cost annuities.
posted by JackFlash at 9:52 AM on September 30, 2015 [7 favorites]
Tontines and annuties are much alike. The biggest difference is that a tontine is like batch processing, while an annuity is continuous real time processing.
An annuity is like a tontine that allows new members to be added while old members die and are removed and unlike a tontine, never ends. The annuity has the same characteristic as the tontine in that people who die early surrender their contributions which increases the payout to those who live longer. It is just that those surrendered contributions are distributed evenly over time to members rather than just to a diminishing number of winners.
The biggest problem with a tontine is that the annual payout increases over time and for any member, so your biggest payout occurs immediately before your death, which is useless. An annuity gives precisely defined payments each year so you can plan your spending years in advance and smooth your consumption for your remaining life.
The cost issue that the writer brings up is a red herring. There is no reason to believe that management of a tontine will be any less expensive than an annuity in the commercial market. In fact Social Security and state employee pensions are good examples of low cost annuities.
posted by JackFlash at 9:52 AM on September 30, 2015 [7 favorites]
What happens when the Singularity occurs and we're all uploading our brains into immortal robots? What happens to the tontine then?
posted by fifteen schnitzengruben is my limit at 9:53 AM on September 30, 2015 [4 favorites]
posted by fifteen schnitzengruben is my limit at 9:53 AM on September 30, 2015 [4 favorites]
At that point, I believe that the tontine converts into payouts in poutine. Which no one will be able to eat.
except me, because I'm not uploading my goddamn brain.
posted by Existential Dread at 9:55 AM on September 30, 2015 [7 favorites]
except me, because I'm not uploading my goddamn brain.
posted by Existential Dread at 9:55 AM on September 30, 2015 [7 favorites]
As an alternative to the tontine, can we just invent the holodeck already and allow everybody to believe that they are living an above-stairs lifestyle in England between the wars?
posted by Navelgazer at 9:58 AM on September 30, 2015 [4 favorites]
posted by Navelgazer at 9:58 AM on September 30, 2015 [4 favorites]
this is gonna cause chaos at the Olive Garden when all the seniors demand to be seated with their backs to the wall, facing the entrance
posted by prize bull octorok at 10:00 AM on September 30, 2015 [19 favorites]
posted by prize bull octorok at 10:00 AM on September 30, 2015 [19 favorites]
They'll have to re-arrange the restaurant like one of those brownie pans that gives you crispy corners on all the brownies.
posted by griphus at 10:02 AM on September 30, 2015 [9 favorites]
posted by griphus at 10:02 AM on September 30, 2015 [9 favorites]
One of my uncles was the last survivor of a tontine. However, he was a Ranger Pathfinder who parachuted in before D-Day to set up landing zones, so most of them were dead by sunset on June 6th, and most of the others didn't survive the rest of the war. I don't think this is really a sustainable structure for the rest of us.
posted by tavella at 10:03 AM on September 30, 2015 [6 favorites]
posted by tavella at 10:03 AM on September 30, 2015 [6 favorites]
All swingin' saloon-style doors at every entry-point. (Does Olive Garden already have this? I't been literally at least 20 years for me.)
posted by Navelgazer at 10:03 AM on September 30, 2015 [1 favorite]
posted by Navelgazer at 10:03 AM on September 30, 2015 [1 favorite]
One of my uncles was the last survivor of a tontine...
"Earn this."
Holy cow but that's awful, tavella.
posted by notyou at 10:06 AM on September 30, 2015 [2 favorites]
"Earn this."
Holy cow but that's awful, tavella.
posted by notyou at 10:06 AM on September 30, 2015 [2 favorites]
Wait, for tontines where it's funding a capital project, if everyone dies early does the borrower simply get off without paying the entire thing out?
That would explain why they were so popular.
Then you get the situation where you get that one cantankerous old person who refuses to die and costs the scheme half of its payouts or something.
posted by GuyZero at 10:19 AM on September 30, 2015 [1 favorite]
That would explain why they were so popular.
Then you get the situation where you get that one cantankerous old person who refuses to die and costs the scheme half of its payouts or something.
posted by GuyZero at 10:19 AM on September 30, 2015 [1 favorite]
Yeah. The worst part, to me? He lied about his age to join the army, so he was 17 when he landed in Normandy.
He only talked about the war very late in life, and even then some of the things he saw and did made him cry.
posted by tavella at 10:19 AM on September 30, 2015 [1 favorite]
He only talked about the war very late in life, and even then some of the things he saw and did made him cry.
posted by tavella at 10:19 AM on September 30, 2015 [1 favorite]
I read this a day or two ago and it was an interesting bit of history but I couldn't quite figure out the point of it from a current-times perspective. It's clearly an inferior approach to having a large insurance pool with actuarial assessment. Oh hey, people like to gamble? Well, okay. Since they like to gamble and won't do the responsible annuity thing let's offer them this as a way to soften the blow! Well, if you want to subvert people's tendency to make bad individual choices why don't you have something like a nation-wide tontine so we insure we get the full cross-section of results and we can make it mandatory and if we care about it being enough to live on we can set the levels and... wait don't we have something like this already?
posted by phearlez at 10:31 AM on September 30, 2015 [2 favorites]
posted by phearlez at 10:31 AM on September 30, 2015 [2 favorites]
Wait, for tontines where it's funding a capital project, if everyone dies early does the borrower simply get off without paying the entire thing out?
I think it's not that different from floating a bond. One big difference is that, instead of promising fixed coupon payments up until the maturity date, the amount of each payment varies depending on how many surviving investors there are. The other big difference is that you don't necessarily need to pay back the principal; most tontines seem to operate on the annuity model where the investor trades having a lot of money now for having a guaranteed revenue stream for the rest of his days.
I suppose the advantage of a tontine over a bond is that, if you think your investors will die sooner than expected, that lowers the amount of money you have to pay out. But that seems harder to plan around compared to a fixed maturity date.
posted by Cash4Lead at 10:38 AM on September 30, 2015
I think it's not that different from floating a bond. One big difference is that, instead of promising fixed coupon payments up until the maturity date, the amount of each payment varies depending on how many surviving investors there are. The other big difference is that you don't necessarily need to pay back the principal; most tontines seem to operate on the annuity model where the investor trades having a lot of money now for having a guaranteed revenue stream for the rest of his days.
I suppose the advantage of a tontine over a bond is that, if you think your investors will die sooner than expected, that lowers the amount of money you have to pay out. But that seems harder to plan around compared to a fixed maturity date.
posted by Cash4Lead at 10:38 AM on September 30, 2015
1) You need a safe investment vehicle -- a combination of government bonds and very low risk stocks, ideally index funds. The idea here is far more preservation of true capital rather than growth. If the fund fails, everyone gets $0.
The benefit of the tontine could be that the fund could be a little riskier. It's the same reason pensions can be more aggressive: they have a longer time horizon.
posted by jpe at 10:42 AM on September 30, 2015
The benefit of the tontine could be that the fund could be a little riskier. It's the same reason pensions can be more aggressive: they have a longer time horizon.
posted by jpe at 10:42 AM on September 30, 2015
Ponzi schemes would have less of a bad rap if they changed the name to Fonzie schemes.
posted by kirkaracha at 11:09 AM on September 30, 2015 [3 favorites]
posted by kirkaracha at 11:09 AM on September 30, 2015 [3 favorites]
Hey, Grampa, do you thing I could've been a Flying Hellfish?
You're a gutsy daredevil with a give-em-hell attitude and a 4th grade education. You could've made sergeant.
(That's how I learned what a tontine was.)
posted by MCMikeNamara at 11:13 AM on September 30, 2015 [4 favorites]
You're a gutsy daredevil with a give-em-hell attitude and a 4th grade education. You could've made sergeant.
(That's how I learned what a tontine was.)
posted by MCMikeNamara at 11:13 AM on September 30, 2015 [4 favorites]
Which I now realize was actually referenced in the {more inside} and I'm so embarrassed I want to die, which is good news for my tontine buddies.
posted by MCMikeNamara at 11:15 AM on September 30, 2015 [4 favorites]
posted by MCMikeNamara at 11:15 AM on September 30, 2015 [4 favorites]
I studied abroad in Cameroon, which has tontines, and I went with my host mom to a monthly tontine meeting. I hadn't heard of them in the American context. In Cameroon, tontines are more like a savings club.
posted by candyland at 11:18 AM on September 30, 2015 [4 favorites]
posted by candyland at 11:18 AM on September 30, 2015 [4 favorites]
Look, it's clearly impossible - and what's more, morally wrong - to feed, clothe and shelter people who are no longer contributing directly to the wealth of others through active employment. We've tried every possible approach, for generations now, and none of them work. It just can't be done.
Jonathan? Jonathan Swift? I thought you was daid!
posted by Mental Wimp at 11:18 AM on September 30, 2015 [2 favorites]
Jonathan? Jonathan Swift? I thought you was daid!
posted by Mental Wimp at 11:18 AM on September 30, 2015 [2 favorites]
OHenryPacey: I just love learning a new word!
Just when I thought I'm up to date on the old-school stuff, BAM! The universe forks and retcons a completely new concept, prompting a MeFi FPP.
posted by dr_dank at 11:22 AM on September 30, 2015 [3 favorites]
Just when I thought I'm up to date on the old-school stuff, BAM! The universe forks and retcons a completely new concept, prompting a MeFi FPP.
posted by dr_dank at 11:22 AM on September 30, 2015 [3 favorites]
Is that a quote from something referenced here, Mental Wimp?
posted by tavella at 11:24 AM on September 30, 2015
posted by tavella at 11:24 AM on September 30, 2015
In Cameroon, tontines are more like a savings club.
And, importantly, they don't rely on outliving the other club members to reap their benefits.
posted by Cash4Lead at 11:25 AM on September 30, 2015
And, importantly, they don't rely on outliving the other club members to reap their benefits.
posted by Cash4Lead at 11:25 AM on September 30, 2015
the problem with annuities is the awful sales charges (among other things), and the usual "who's more likely to be right (ie win the bet) - you, or the company with lots of data and actuaries/tables etc"
Doesn't that depend on what the bet is? "I bet I will get more money of of this annuity that I paid for it" vs. "I bet this annuity will pay me every year until I die, no matter how long I live."
As I understand it, you've got a pretty good chance of winning the latter bet.
And as eriko pointed out, if you lose that former bet, you will never know, because you will be dead.
posted by layceepee at 11:40 AM on September 30, 2015
Doesn't that depend on what the bet is? "I bet I will get more money of of this annuity that I paid for it" vs. "I bet this annuity will pay me every year until I die, no matter how long I live."
As I understand it, you've got a pretty good chance of winning the latter bet.
And as eriko pointed out, if you lose that former bet, you will never know, because you will be dead.
posted by layceepee at 11:40 AM on September 30, 2015
My favorite exchange comes from Archer:
CYRIL: You know tontines are illegal, right?
PAM: So's all kinds of shit!
posted by Navelgazer at 11:45 AM on September 30, 2015 [8 favorites]
CYRIL: You know tontines are illegal, right?
PAM: So's all kinds of shit!
posted by Navelgazer at 11:45 AM on September 30, 2015 [8 favorites]
I'm not uploading my goddamn brain.
posted by Existential Dread at 12:55 PM on September 30
Eponysterical!
Also, if any of you are worried about buying an annuity and dying soon after, there are annuities that pay death benefits! They could be a certain amount for a certain period of time, or just the remaining balance of the annuity fund.
posted by LizBoBiz at 11:48 AM on September 30, 2015
posted by Existential Dread at 12:55 PM on September 30
Eponysterical!
Also, if any of you are worried about buying an annuity and dying soon after, there are annuities that pay death benefits! They could be a certain amount for a certain period of time, or just the remaining balance of the annuity fund.
posted by LizBoBiz at 11:48 AM on September 30, 2015
Yeah it's actually pretty flexible. We can screw you all kinds of ways! Just pick a couple you don't want.
posted by nom de poop at 12:13 PM on September 30, 2015
posted by nom de poop at 12:13 PM on September 30, 2015
Also, if any of you are worried about buying an annuity and dying soon after, there are annuities that pay death benefits!
yeeeesss... however, that just makes the annuity more expensive, or alternately, it just decreases the size of the income stream that you're purchasing. generally you are better off investing the "death benefit" portion yourself.
really, anything more than a bare bones SPIA is just giving insurers room to obfuscate their fees with complex products that are difficult to shop across vendors.
posted by indubitable at 12:20 PM on September 30, 2015 [2 favorites]
yeeeesss... however, that just makes the annuity more expensive, or alternately, it just decreases the size of the income stream that you're purchasing. generally you are better off investing the "death benefit" portion yourself.
really, anything more than a bare bones SPIA is just giving insurers room to obfuscate their fees with complex products that are difficult to shop across vendors.
posted by indubitable at 12:20 PM on September 30, 2015 [2 favorites]
I am pretty sure I participated in a tontine-like RESP to help pay for my university- my parents joined this fund when I was born. I received about 4x what they contributed, due to the accrued interest from students who participated in the fund but never went to university.
posted by beepbeepboopboop at 12:21 PM on September 30, 2015
posted by beepbeepboopboop at 12:21 PM on September 30, 2015
Also, if any of you are worried about buying an annuity and dying soon after, there are annuities that pay death benefits!
If course nothing comes free. In exchange for death benefits you get a drastically lower annual payout if you don't die early. Essentially you are compromising between a life insurance policy and an annuity.
Annuities are very good retirement vehicles. To reduce fees, annuities could be run by the government. Essentially you would be buying as much extra Social Security as you want.
posted by JackFlash at 12:22 PM on September 30, 2015 [1 favorite]
If course nothing comes free. In exchange for death benefits you get a drastically lower annual payout if you don't die early. Essentially you are compromising between a life insurance policy and an annuity.
Annuities are very good retirement vehicles. To reduce fees, annuities could be run by the government. Essentially you would be buying as much extra Social Security as you want.
posted by JackFlash at 12:22 PM on September 30, 2015 [1 favorite]
It would have been very helpful if a complete life cycle of an actual tontine was explained. Like, exactly what age people where when they formed one, how much it cost, when they started receiving money, how much money, how often it went up, etc. I mean, I get the general picture, but what are some actual amounts here?
posted by yesster at 12:31 PM on September 30, 2015
posted by yesster at 12:31 PM on September 30, 2015
I was trying to think what kind of tontine we should form as Mefites, and then I realized that no matter what, the final outcome would be:
$20 SAIT
posted by nubs at 1:23 PM on September 30, 2015 [3 favorites]
$20 SAIT
posted by nubs at 1:23 PM on September 30, 2015 [3 favorites]
Am I the only one who saw that TIAA CREF had a 'tontine-like' product and immediately wondered which product it was? I mean, I know whatever I have through them is some kind of 'good' annuity but beyond than that? Who knows. Could be there's Mefites enrolled in a tontine (ok, 'tontine-like product') and they don't even know it!
posted by librarylis at 2:11 PM on September 30, 2015
posted by librarylis at 2:11 PM on September 30, 2015
Is that a quote from something referenced here, Mental Wimp?
It might be that M.W. is referencing A Modest Proposal and a John Wayne movie (Big Jake) at the same time. Which is a pretty good trick, when you think about it.
posted by LeLiLo at 2:24 PM on September 30, 2015 [1 favorite]
It might be that M.W. is referencing A Modest Proposal and a John Wayne movie (Big Jake) at the same time. Which is a pretty good trick, when you think about it.
posted by LeLiLo at 2:24 PM on September 30, 2015 [1 favorite]
To reduce fees, annuities could be run by the government. Essentially you would be buying as much extra Social Security as you want.
I like this idea. But some conservative jackass would inevitably argue that government run annuities meant there was no need for a social security system anymore. Never mind the people who can't save up enough money to buy an annuity in the first place...
posted by Kevin Street at 3:49 PM on September 30, 2015
I like this idea. But some conservative jackass would inevitably argue that government run annuities meant there was no need for a social security system anymore. Never mind the people who can't save up enough money to buy an annuity in the first place...
posted by Kevin Street at 3:49 PM on September 30, 2015
And let us not forget the estranged, slightly drunk uncle of the tontine.
The sou sou.
posted by Splunge at 4:30 PM on September 30, 2015 [2 favorites]
The sou sou.
posted by Splunge at 4:30 PM on September 30, 2015 [2 favorites]
A pox on the tontine. I have a living from the prizes I have taken as a post-captain. Ever the sea for me!
Well, joy to you on the prizes, but never raised a flag for all love ?
posted by OHenryPacey at 4:35 PM on September 30, 2015
Well, joy to you on the prizes, but never raised a flag for all love ?
posted by OHenryPacey at 4:35 PM on September 30, 2015
I would not advise getting into a sou-sou with anyone who doesn't have at least a four-star Trustworthiness rating on Peeple.
posted by prize bull octorok at 4:39 PM on September 30, 2015 [4 favorites]
posted by prize bull octorok at 4:39 PM on September 30, 2015 [4 favorites]
OHenryPacey: "A pox on the tontine. I have a living from the prizes I have taken as a post-captain. Ever the sea for me!
Well, joy to you on the prizes, but never raised a flag for all love ?"
All of my love is for the sea, and adventures to be had 'pon it. In you I discern a man of letters. Mayhap one day we could share a bottle of tawny port or two, and speak of the wind and the wave. Well met, sir!
posted by Splunge at 4:59 PM on September 30, 2015 [2 favorites]
Well, joy to you on the prizes, but never raised a flag for all love ?"
All of my love is for the sea, and adventures to be had 'pon it. In you I discern a man of letters. Mayhap one day we could share a bottle of tawny port or two, and speak of the wind and the wave. Well met, sir!
posted by Splunge at 4:59 PM on September 30, 2015 [2 favorites]
This- is where I learned about tontines. At least nobody had to die to inherit this one.
posted by jenfullmoon at 6:48 PM on September 30, 2015
posted by jenfullmoon at 6:48 PM on September 30, 2015
Is that a quote from something referenced here, Mental Wimp?
My bad. I should have linked to the commenter I quoted.
It might be that M.W. is referencing A Modest Proposal and a John Wayne movie (Big Jake) at the same time. Which is a pretty good trick, when you think about it.
Yep, you nailed it.
posted by Mental Wimp at 7:47 PM on September 30, 2015
My bad. I should have linked to the commenter I quoted.
It might be that M.W. is referencing A Modest Proposal and a John Wayne movie (Big Jake) at the same time. Which is a pretty good trick, when you think about it.
Yep, you nailed it.
posted by Mental Wimp at 7:47 PM on September 30, 2015
Guys, guys. There's no need for murder! Just generously invite your whole tontine to a bacon fest to celebrate each of your significant holidays. Generosity and thriftiness combined!
posted by corb at 7:28 PM on October 2, 2015
posted by corb at 7:28 PM on October 2, 2015
« Older Oh, Pun for Business | Peaking at 90 Newer »
This thread has been archived and is closed to new comments
posted by BuddhaInABucket at 8:00 AM on September 30, 2015 [11 favorites]