He Dies, You Make Money

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He Dies, You Make Money

While it’s a different kind of future than we’re used to talking about – the concept of saving money for your future has been around before futures existed. But the way we save has been evolving ever since the word retirement has been around. The concepts of pensions, 401ks, and Roth IRAs are the first to come to mind; but not so long ago the most popular way of saving in the early 1900s was investing on the idea that others would die before you, called the Tontine. No, not this tauntan:

The Washington Post had a rather detailed report on how the now illegal retirement plan could potentially be the future of retirement plans that fill in the gaps of a pension plan or 401k.

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“Tontines, you see, operate on a morbid principle: You buy into a tontine alongside many other investors. The entire group is paid at regular intervals. The key twist: As your fellow investors die, their share of the payout gets redistributed to the remaining survivors.

In a tontine, the longer you live, the larger your profits — but you are profiting precisely off other people’s deaths. Even in their heyday, tontines were regarded as somewhat repugnant for this reason.

At one point, more than 9 million tontine policies existed in the United States, in more than 18 million households, representing around 7.5% of the nation’s wealth. Besides the fact that you take profit from others dying, it’s popularity led to lots of money coming into policies, and eventual fraud with those in charge of that money. Tontines were eventually banned in response, but some economists suggest that banning the concept might have been an overreaction. Via the Washington Post.

“This might be the iPhone of retirement products,” says Moshe Milevsky, an associate professor of finance at York University in Tor