Tontines: The retirement plan of the future?

Question: What is a tontine? How do tontines work? And, what’s the financial and economic thinking behind them?

Milevsky: A tontine can be thought of as an arrangement with some friends to purchase a very long-dated bond. You agree to split the coupons as they get paid, but (and this is the key) if one of the friends dies, the coupons get split among the survivors. So, people that live a long time end up getting (very) large coupons, at the expense of those who died earlier. The financial economic idea here is that it allows investors to earn mortality credits without requiring an insurance company to guarantee anything.

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Damian Sylvia

Retirement Income Solutions

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