Retirement Tontines: Using a Classical Finance Mechanism as an Alternative Source of Retirement Income

Abstract

We explore how a classical finance mechanism — the tontine — could help retirees manage their assets. Tontines are investment pools where members commit funds irrevocably and where the interests of members who die are given to those who survive. Tontines were popular in the U.S. in the late 19th and early 20th centuries, until they were effectively prohibited in response to insurance company mismanagement. Tontine-inspired products are receiving renewed attention around the world as efficient, transparent ways to finance retirement. Unlike fixed income annuities, tontine pooling does not guarantee future payments, but should pay more on average per dollar invested, with less costly regulation.