The Tontine Coffee-House (2018)

Before having children, I was quite interested in the idea of, and the math behind early retirement.

Most of the interesting math happened at the margin: you’ve got just enough money that you could retire, but you’re susceptible to risk of a market crash in the first few years of retirement or an abnormally long life expectancy combined with a middling market.

Tontines fascinated me as an interesting piece of the puzzle for those who don’t plan on leaving an inheritance, and I’ve reread this guide[0] a few times - but ultimately it’s just another way to possibly move the margin a little bit, and the real solution is to save a little bit more, then spend a little bit less.

[0]https://rpc.cfainstitute.org/sites/default/files/-/media/doc...

Ahead of the launch of the first Tontine company in over 100 years, we have heard similar comments from many parents and for that reason have now created the Tontine Trust Fund.

The regular Tontine Trust is for parents that want to avoid the risking of running out of money in old age and becoming a financial burden on their children.

The Tontine Trust Fund is for parents that want to set aside an inheritance for their spouse or children now which they can configure to start paying the child a monthly income for the rest of their life starting at age X. This reduces the concern of parents that they will pass on a chunk of the inheritance to children that will 'blow the money' instead of making it last them for life.

Also, FYI: a) Research from the insurance industry indicates that tontiners/annuitants spend double what they would without having a lifetime income, thereby enabling a better quality of life in retirement. b) The Swiss Federal Institute of Technology, alma mater of Einstein and 28 other Nobel Prize Winners, has produced research showing that a retirees pension wealth is enhanced by 87% with zero added risk upon moving their savings into a Tontine, indicating that the gain is not 'marginal'.

All in all, the Tontine enables you to save a little less yet still spend more.

Those rates and risks are meaningless without a baseline, as Einstein and 28 other Nobel Prize Winners may agree.

If you're familiar with the early retirement community, the simplest strategy is withdrawing a fixed percentage of your initial retirement portfolio, adjusting for inflation every year. For an 100% equities portfolio, these are the odds of success over a 30 or 60 year horizon[0] when backtested against Shiller's total real return data from 1871-2018

4%/30 year: 97%

4%/60 year: 89%

3%/30 year: 100%

3%/60 year: 100%

Hence my comment about spending a little less or saving more - 4% to 3% makes a massive difference in success rates. I'm sure you've done some backtesting of your offerings, and hopefully would be able to share some withdrawal amount vs success rate comparison, even if it's not an identical time period/comparison.

[0]https://earlyretirementnow.com/2016/12/14/the-ultimate-guide...

You will enjoy playing with this then:

https://tontine.com/lifetime-income-calculator/#tontinator

I look forward to your thoughts

I mean, this just appears to be fixed nominal returns, minus a fee, multiplied by a factor from an actuarial table.

Contrast it with a calculator like this [0] that uses combines historical return and inflation data with actuarial data to show the variance of outcomes, not just average returns.

For instance, your calculator shows a scenario of investing in bitcoin and withdrawing >20% of your portfolio every year which makes zero sense once you account for variance of returns.

I like the idea of tontines, I'm glad someone is trying to bring them back, and I don't doubt that your product could help with longevity risk, but I haven't seen anything so far that actually shows that.

I'd like to see actual results from backtesting, or a prediction that takes risk into account, not just a fixed return.

[0]https://engaging-data.com/will-money-last-retire-early/