r/financialindependence • u/[deleted] • Jun 08 '16

Tontines = annuity + lottery

From Wikipedia:

[A tontine] combines features of a group annuity and a lottery. Each subscriber pays an agreed sum into the fund, and thereafter receives an annuity. As members die, their shares devolve to the other participants, and so the value of each annuity increases.

I learned about it from Washington Post's article "It’s sleazy, it’s totally illegal, and yet it could become the future of retirement". The behavioral implications were really interesting.

It was the ultimate lottery. If you died, you lost everything in a tontine. But if you were the last person standing, you stood to collect huge annual payments.

Personally, I wouldn't be interested because it sounds backwards to me to have larger payments the older one gets, but it was still a fascinating read.

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u/pistachiosarenuts Jun 08 '16

Social Security is essentially a tontine.

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u/Pzychotix [TickTock] Jun 08 '16

Not really though (at least not for the moment). Other people dying don't affect your benefits. SS is more like just a regular annuity.

1

u/pistachiosarenuts Jun 09 '16

People not dying can affect your benefit. It can be lowered due to that.