Tag Archives: tontines

Retired Money: Sun Life enters the Decumulation market

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My latest MoneySense Retired Money column looks in-depth at a new “Decumulation” offering from Sun Life, unveiled late in September. You can find the full column by clicking on the highlighted headline: What is Sun Life’s new decumulation product?

As you can see from image below taken from MyRetirement Income’s website, the emphasis is on providing regular income to last to whatever age a retiree specifies. That income is not, however, guranteed as a life annuity would be.

The Globe & Mail’s Rob Carrick first wrote about this shortly after the Sun announcement. My column adds the opinions of such varied Canadian retirement experts as author and finance professor Moshe Milevsky, retired actuary Malcolm Hamilton, Caring for Clients’ Rona Birenbaum and Trident Financial’s Matthew Audrey, as well as Sun Life Senior Vice President, Group Retirement Services, Eric Monteiro.

Some of the more cynical takes are that this is a way for Sun Life to continue to profit from client financial assets gathered during the long accumulation phase, rather than seeing them migrate to other solutions, such as annuities provided by either one of its own life insurance arms or that of rivals.

Aiming for Simplicity and Flexibility

As Sun’s Eric Monteiro told me in a telephone interview, the company’s preliminary research found that rival products that were first on the market (see full MoneySense column) were often perceived as complicated, and as a result uptake of some of these pioneering Decumulation products have been underwhelming. It sought to create a solution that was relatively simple and flexible.

In essence, it is not dissimilar to some Asset Allocation ETFs, such as Vanguard’s VRIF, which is 50% equities and 50% fixed income. But Sun’s product may and probably will have different proportions of the major asset classes. In fact, it lists 16 external global money managers who deploy up to 15 different asset classes, which include Emerging Market Debt, Liquid Real Assets, Direct Infrastructure, Liquid Alternatives and Direct Real Estate. Managers include BlackRock Asset Management, Lazard Asset Management, Phillips, Hager & North, RBC Global Asset Management and its own Sun Life Capital Management. Continue Reading…

MoneySense Retired Money feature on Canada’s new “Tontine” Retirement solutions

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My latest MoneySense Retired Money column looks at the revolutionary “Tontine” type Retire Solution announced by Guardian Capital and finance professor Moshe Milevsky earlier this month. My initial take was here on the Hub and the more in-depth MoneySense feature story can be viewed by clicking on this highlighted headline: Tontines in Canada — Moving from Theory to Practice as a solution to our Retirement Crisis.

We’ve illustrated this blog with financial projections of one of the three new Guardian Capital Retirement solutions developed in partnership with Milevsky. Some of the ideas were adapted from Milevsky’s latest book: How to Build a Modern Tontine. The theory behind this book is a driving force for Guardian Capital’s efforts to commercize these concepts and put them in the hands of retirees and would-be retirees worried about outliving their money. Nobel Laureate Economist William Sharpe has described this as “the nastiest, hardest problem in finance.”

Milvesky’s book is certainly aimed at industry practitioners and sophisticated financial advisors and investors, and contains a lot of mathematics that may beyond the reach of average investors or retirees. So rather than attempt to review it, we’ll move on to the efforts to bring these ideas to the market. What Milevsky calls “tontine thinking” is belatedly showing up in the marketplace in Canada, starting last year with Purpose Investments’ and now with three different solutions from Guardian Capital. Hub readers also can read an excerpt of the book which ran earlier Wednesday: Longevity Insurance vs Credits — a Primer.

All this has been a long time coming. MoneySense readers may recall two of my Retired Money columns about Milevsky and the future of tontines published in 2015: Part one is here and part two here. Also see my 2018 column that explains tontines in detail: Why Ottawa needs to push for tontine-like annuities.

Last June (2021), Purpose got the tontine ball rolling in Canada with its Purpose Longevity Fund. Here’s my MoneySense take on that one: Is the Longevity Pension Fund a cure for Retirement Income Worries? 

As the MoneySense feature explains, Milevsky is Guardian Capital’s Chief Retirement Architect. It sums up the original 2021 launch of Purpose Longevity Fund, and how it compares to Guardian’s three solutions.

Think of Purpose’s product as a lower-case tontine, and Guardian Capital’s as a Tontine with a capital T.

Guardian Capital’s Modern Tontine  

Guardian Capital’s September 7th press release uses the term “Modern Tontine.” There, Guardian Capital Managing Director and Head of Canadian Retail Asset Management Barry Gordon said “With our modern tontine, investors concerned about outliving their nest egg pool their assets and are entitled to their share of the pool as it winds up 20 years from now … Over that 20-year period, we seek to grow the invested capital as much as possible to maximize the longevity payout.”

 Along the way, investors who redeem early or pass away leave a portion of their assets in the pool to the benefit of surviving unitholders, boosting the rate of return. “All surviving unitholders in 20 years will participate in any growth in the tontine’s assets, generated from compound growth and the pooling of survivorship credits. This payout can be used to fund their later years of life as they see fit, and aims to ensure that investors don’t outlive their investment portfolio.” Continue Reading…

Longevity Insurance vs. Credits: A Primer

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This guest blog is excerpted from Moshe Milevsky’s recently published book, How to Build a Modern Tontine

By Prof. Moshe A. Milevsky, Ph.D.

Special to the Financial Independence Hub

I have been asked about the difference between a tontine – be it modern or medieval – and a conventional life annuity, purchased from a regulated life insurance company. Both might appear to perform similar tasks at first glance, but the differences are subtle and important and get to the essence of the distinction between longevity insurance versus longevity (or survivorship) credits.

One aspect of the life annuity story is the financial benefit of risk pooling, and the other is the insurance benefit and comfort from having a guaranteed income that you can’t outlive. Allow me to elaborate with a statement that some readers might find shocking. If you are 75 years old with $100,000 in your RRIF and would like to guarantee a fixed annual income for the rest of your life, there is absolutely no need to purchase a life annuity from an insurance company to achieve that goal. There are other options.

This might sound like something odd for a long-term annuity advocate to say. But the fact is that a non-insurance financial advisor can design a lovely portfolio of zero-coupon strip bonds that will do the job. That collection of bonds will generate $4,000 per year for the rest of your life, even if you reach the grand old age of 115. Ok, financial advisors need to eat too, so they may not do it for $100,000, but I’m sure that a lump sum of $1,000,000 will pique their interest and in exchange you will get $40,000 per year.

Moreover, with these strips, if you don’t make it all the way to the astonishing age of 115, they will continue to send those $4,000 (or $40K) to your spouse, children or favourite charity until the date you would have reached 115, if you had been alive. This collection of strips would be completely liquid, tradeable and fully reversable, although subject to the vagaries of bond market rates. For this I have assumed a conservative, safe and constant 2.5% discount rate across the entire yield curve, which isn’t entirely unreasonable in today’s increasing environment.

Stated technically, the present value of the $4,000 annual payments, for the 40 years between your current age 75 and your maximum age 115, is exactly equal to $100,000 when discounted at 2.5%. Yes, those numbers and ages were deliberately selected so my numerical example rhymes with the infamous 4% rule of retirement planning but has absolutely nothing to do with it.

Now, I’m sure you must now be thinking (or even yelling) “Moshe, but what if you live beyond age 115, eh? You will run out of money!”

Touché. Let’s unpack that common knee-jerk reaction to non-insurance solutions for a moment. To start with, the probability of reaching age 115 is ridiculously and unquantifiably low. If you do happen to be the one in a 100 million (or perhaps billion) that reaches age 115, I suspect you will have other things on your murky mind. Personally and post-covid, there is a very long list of hazards that worries me more than hitting 115.

Nobody really “runs out of money” in this century

Second and more importantly, nobody really “runs out of money” in retirement in the 21st century. That is plain utter fear-mongering nonsense. With CPP, OAS/GIS, the elderly will continue to receive some income for as long as they live even if they have completely emptied every piggy bank on their personal balance sheet. In fact, with tax-based means-testing you might get more benefits if you actually do empty your bank accounts.

Ok, so back to my prior claim and the supporting numbers, if you want a guaranteed (liquid, reversable, bequeathable) income for the rest of your life, you can exchange your $100,000 for a bunch of strip bonds and voila, you have created a sort of pension plan. My point here is that the primary objective isn’t a guaranteed lifetime of income: which anyone can create with a simple discount brokerage account and a DIY instruction manual. Continue Reading…

Moshe Milevsky and Guardian Capital unveil a Modern Tontine in new Retirement solution

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Moshe Milevsky

A revolutionary new approach to preserving portfolio longevity through a modern “Tontine” structure was unveiled Wednesday by Guardian Capital LP and famed author and finance professor Moshe Milevsky.

GuardPath™ Longevity Solutions, created in partnership between Guardian and Schulich School of Business finance professor Milevsky, is designed to address what Nobel Laureate Economist William Sharpe has described as the “nastiest, hardest problem in finance” 1

Announced in Toronto on September 7, a press release declares that the “ground-breaking step” aims to “solve the misalignment between human and portfolio longevity.” See also this story in Wednesday’s Globe & Mail.

Over the years, I have often interviewed Dr. Milevsky about Retirement, Longevity, Annuities and his unique take on how the ancient “Tontine” structure can help long-lived investors in their quest not to outlive their money. Milevsky has written 17 books, including his most recent one on this exact topic: How to Build a Modern Tontine. [See cover photo below.]

Back in 2015, I wrote two MoneySense Retired Money columns on tontines and Milevsky’s hopes that they would one day be incorporated by the financial industry. Part one is here and part two here. See also my 2021 column on another pioneering Canadian initiative in longevity insurance: Purpose Investment Inc.’s Longevity Pension Fund.

Addressing the biggest risks faced by Retirees

In the release, Milevsky describes the new offering as a “made-in-Canada” solution that addresses “the biggest risks facing retirees and are among the first of their kind globally. Based on hundreds of years of research and improvement and backed by Guardian Capital’s 60-year reputation for doing what’s right for Canadian investors, I am confident these solutions will revolutionize the retirement space.”

Milevsky’s latest book is on Modern Tontines

In an email to me Milevsky said: “You and I have talked (many times) about tontines as a possible solution for retirement income decumulation versus annuities. Until now it’s all been academic theory and published books, but I finally managed to convince a (Canadian) company to get behind the idea.”

In the news release, Guardian Capital Managing Director and Head of Canadian Retail Asset Management Barry Gordon said that “for too many years, Canadian retirees have feared outliving the nest egg they have worked so hard to create.” It has answered that concern by creating three solutions that aim to alleviate retirees’ greatest financial fears: The three solutions are described at the bottom of this blog.

With the number of persons aged 85 and older having doubled since 2001, and projections suggesting this number could triple by 2046,2 Guardian Capital says it “set out to create innovative solutions that this demographic could utilize when seeking a greater sense of financial security.”

Tontines leap from Pop Culture to 21st Century reality

Tontines were one of the most popular financial products for hundreds of years for individuals willing to trade off legacy for more income, Guardian says. Once in a  while the tontine shows up in popular culture, notably in the film The Wrong Box, where the plot revolves around a group of people hoping to be the last survivor in a tontine and therefore the recipient of a large payout.

“With our modern tontine, investors concerned about outliving their nest egg pool their assets and are entitled to their share of the pool as it winds up 20 years from now,” Gordon says, “Over that 20-year period, we seek to grow the invested capital as much as possible to maximize the longevity payout. Along the way, investors that redeem early or pass away leave a portion of their assets in the pool to the benefit of surviving unitholders, boosting the rate of return. All surviving unitholders in 20 years will participate in any growth in the tontine’s assets, generated from compound growth and the pooling of survivorship credits. This payout can be used to fund their later years of life as they see fit, and aims to ensure that investors don’t outlive their investment portfolio.” Continue Reading…

My review of The Boomers Retire

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My latest MoneySense Retired Money column reviews the new fifth edition of The Boomers Retire by certified financial planners Alexandra Macqueen and David Field. Click on the highlighted headline here to retrieve full article: Fresh takes on the challenges facing baby boomers as they approach retirement.

As I note in the column, the original edition of The Boomers Retire (which I read at the time) was by Lynn Biscott and was published back in 2008.

Macqueen and Field are both CFPs and the book is aimed at both financial advisors as well as their clients, as indicated in the book’s subtitle.

Clearly, retiring boomers constitute a massive potential readership. I myself co-authored The Wealthy Boomer, way back in 1998. At that time, baby boomers may have started to worry about Retirement but most, including myself, would have been squarely in the Wealth accumulation camp.

Wealthy Boomers now well on way to transition to Decumulation

Here in 2021, Decumulation is the emerging financial focus of Baby Boomers, many of whom will already be retired or semi-retired, and considering new decumulation solutions like the Purpose Longevity Fund, which this site has looked at more than once. (here via Dale Roberts and here via another MoneySense Retired Money column.) Continue Reading…