Are you worried about outliving your savings but do not like the idea of annuities? Then a modern-day tontine is a product that you might want to consider.
Tontines are fascinating financial products that have been around for centuries. They are essentially a form of group annuity where participants pool their money together and receive payments over time. The unique feature of tontines is that as members pass away, their share of the payments is distributed to the surviving members. This can result in higher payouts for surviving members as the pool of participants dwindles.
The origins of tontines can be traced back to France in the 17th century. They were initially created to provide retirement income for members of the French military. The concept quickly spread throughout Europe and eventually made its way to America.
Tontines were particularly popular in the United States in the 19th century. They were often used by groups of people who were excluded from traditional insurance products, such as African Americans and women. Tontines provided a way for these groups to pool their resources.
In recent years, there has been renewed interest in tontines as a tool to provide retirement income and mitigate longevity risk. This is in part due to traditional retirement products, such as annuities, having relatively lower payouts. Tontines can provide a higher payout for participants, as the pool of members decreases over time. Currently there are two providers of tontine type products in Canada – Guardian Capital and Purpose Investments.
One potential benefit of tontines is that they can be structured to be more transparent than traditional annuities. Participants can see how the payouts are calculated and have a better understanding of how their money is being used. Additionally, tontines are built in a way that rewards participants for staying healthy and living longer.
Tontines may provide a higher payout for participants than annuities, but they are not without risk. As with any financial product, it is important to carefully consider the risks and benefits before investing.
Speak to your advisor to see if a tontine-type product may be an appropriate product for you to consider as a tool to generate lifetime pension income.
Disclaimer: This article is for general information purposes only, and is not legal, financial, or tax planning advice. Everyone’s situation is unique, and this article cannot apply to every person. The reader should not take any action, or refrain from taking any action, as a result of this article without first obtaining legal or professional advice.
