Live longer could become the new retirement advice in coming years amid growing interest in tontines — investment pools where participants share longevity risks by distributing the assets of those who die as "mortality credits" to surviving participants.
Boiled down to their essentials, tontines are investment vehicles in which "members commit funds irrevocably," with the resources and income claims of those who die distributed among those who survive, according to an October report on tontines by The Brookings Institution, a Washington-based think tank.
Beyond that, tontines can be structured in any number of ways, from closed-end pools with increasing monthly distributions and the last man or woman standing "winning the lottery," to open-ended pools with mortality credits adjusted to account for the different life expectancies of surviving members and monthly payouts maintained at a constant level.
Some observers say the financial vehicle, first put into effect roughly 350 years ago, is poised to gain traction as retirement architects focus more attention on ensuring retirees don't outlive their savings.
"The scope and pace of reform" in Western retirement systems is accelerating and one seismic change could be the widespread adoption of tontine-style structures — an income solution to longevity challenges with the added attraction of not creating liabilities for government or company plan sponsors, predicted Nadeem Jeddy, founder and executive director of Karachi-based Magnus Investment Advisors Ltd.
According to Brookings' October report, tontine-inspired structures are "receiving attention around the world as tools to finance retirement income because they are efficient and transparent," with mortality credits making expected income for each dollar invested superior to that offered by traditional annuities.