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Old 03-05-2008, 11:53 PM   #41
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I'm curious what Milevsky had to say about tontines. They seem like the perfect vehicle for the ERF crowd - people who don't trust insurance companies, like equities, and could use the few percent annuitization bump in yield. Are they legal these days?
To me, a classic "tontine" pays out nothing until the next-to-the-last death, and then gives everything to the sole survivor. That doesn't seem very useful to retirees.

Milevsky talks about a series on one-year "tontines" in which all the funds are paid every year, regardless oft he number of deaths. This type of "tontine" seems useful to me. As he points out, it is closely related to a payout annuity, which is certainly legal.
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Old 03-06-2008, 04:19 AM   #42
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Interesting.

I will stick with the balanced diversified portfolio as the main portion of our assets.

I have a hodge podge of small pensions coming including SS (whatever I get from it). I might purchase an annuity to form a base income around 65.

Some one commented about wealthy people having too much fixed. I do not know if it is true or not. But, it seems to me that once one (average well-to-do person) has arrived, they do not want to go back. It would seem reasonable to be somewhat conservative. Most people would like to have more money, but they probably want to maintain their lifestyle more.
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Old 03-06-2008, 06:41 AM   #43
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In case people are still wondering about Milevsky's portfolio, check out:

http://books.google.com/books?id=Sud...capital and AA]

Is that Client a Bond or a Stock?

Appears to me as if he's 100% stocks. Now Milevsky has a very stable job and an expected pension, his job is probably quite immune from shocks to stocks, and is in his 40's [probably], so if his stocks tank he can always work longer.

Contrast that with Zvi Bodie who is near retirement [in his 60's] with no pension [only defined contribution plans], and if his stocks tanked he probably wouldn't want to be working into his 80's. He is roughly 90% laddered TIPS/i bonds, and 10% stocks/options.

My father is in the same boat [prof in his 60's looking to retire within 3 years] as Bodie and is roughly 70% bonds/ 30% stocks, and will probably annuitize a good portion of those bonds at retirement.

There is certainly nothing wrong with either of these 3 asset allocations because they are very client specific.

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Some one commented about wealthy people having too much fixed. I do not know if it is true or not. But, it seems to me that once one (average well-to-do person) has arrived, they do not want to go back. It would seem reasonable to be somewhat conservative. Most people would like to have more money, but they probably want to maintain their lifestyle more.
Ah, the diminishing marginal utility of wealth.

- Alec
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Old 03-06-2008, 10:53 AM   #44
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In regards to the first, what exactly do you mean?
Hey, that's the article I read about. Thanks, Alec!

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As a tenured university professor, my human capital—and the subsequent pension I am entitled to—has the identical properties of a fixed income bond fund with monthly coupons. I am truly a walking inflation-adjusted real return bond. Therefore, I have very little need for fixed income bonds, money market funds and GICs in my financial portfolio. As a result, my total portfolio of human and financial capital is well-balanced, despite the fact that individually my financial capital and human capital are not.
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Furthermore, if you think of the flexibility involved in the decision of when to retire or whether to work overtime, then you can extract more human capital if and when needed to offset losses from your financial assets.
It'd be interesting to see what he thinks of ERs.
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Old 03-06-2008, 10:59 AM   #45
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It'd be interesting to see what he thinks of ERs.
Would you like me to email him, get an answer, and report back on here??
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Old 03-06-2008, 11:02 AM   #46
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I'm curious as to when these professors find time to teach? I understand the current theory is "publish or perish", but with Milevsky jetting all around the country, who the heck is teaching his class? I'd be a tad ticked if my kid was taking his class and sitting through lectures with a teacher's asst.
The biggest problem I have with the University of Texas is that the school is more of a publishing school, so the professors deal with the kids like they are a necessary evil. They take in the money, but teaching has become secondary. Just strikes me as something wrong here.
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Old 03-06-2008, 11:07 AM   #47
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I'm curious as to when these professors find time to teach? I understand the current theory is "publish or perish", but with Milevsky jetting all around the country, who the heck is teaching his class? I'd be a tad ticked if my kid was taking his class and sitting through lectures with a teacher's asst.
The biggest problem I have with the University of Texas is that the school is more of a publishing school, so the professors deal with the kids like they are a necessary evil. They take in the money, but teaching has become secondary. Just strikes me as something wrong here.
Common theme in business schools.........I'll bet Moshe takes time for the MBA and PhD students........
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Old 03-06-2008, 11:09 AM   #48
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FD, he's been on the road for months! Perhaps he e-mails them their assignments?
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Old 03-06-2008, 11:10 AM   #49
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Would you like me to email him, get an answer, and report back on here??
Dude, absolutely. Thanks!
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Old 03-06-2008, 11:14 AM   #50
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and don't forget to ask him about Uruguay!
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Old 03-06-2008, 11:26 AM   #51
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To me, a classic "tontine" pays out nothing until the next-to-the-last death, and then gives everything to the sole survivor. That doesn't seem very useful to retirees.

Milevsky talks about a series on one-year "tontines" in which all the funds are paid every year, regardless oft he number of deaths. This type of "tontine" seems useful to me. As he points out, it is closely related to a payout annuity, which is certainly legal.
You could do that, but the one-year variety would only work for sudden deaths, as people would drop out after deteriorating health is discovered. A tontine can pay out dividends and some agreed-on percentage of capital each year (like an annuity) and then liquidate after 50 years, for example. You could avoid the investment restrictions, overhead, and risk premiums of insurance companies and still hedge some of your longevity risk. Interestingly, on Wikipedia there's a comment that they operate "underground" today. It also mentions JTWRS, but I think you'd have estate-tax issues there.
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Old 03-06-2008, 01:38 PM   #52
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I'm curious as to when these professors find time to teach? I understand the current theory is "publish or perish", but with Milevsky jetting all around the country, who the heck is teaching his class? I'd be a tad ticked if my kid was taking his class and sitting through lectures with a teacher's asst.
The biggest problem I have with the University of Texas is that the school is more of a publishing school, so the professors deal with the kids like they are a necessary evil. They take in the money, but teaching has become secondary. Just strikes me as something wrong here.
This was one of the reasons I left UVA for a smaller school. The profs lectured and the teaching assts [i.e. grad students] answered the questions, graded papers/tests, etc. I remember one stats class were 2/3 of the class dropped it after 2 classes. We couldn't understand a thing the prof was saying, and his board writing was terrible.
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Old 03-06-2008, 08:12 PM   #53
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I'm curious as to when these professors find time to teach? I understand the current theory is "publish or perish", but with Milevsky jetting all around the country, who the heck is teaching his class? I'd be a tad ticked if my kid was taking his class and sitting through lectures with a teacher's asst.
A common misconception. A school earns its real money on research, not teaching. If possible, universities would become purely research institutions.
One of the large Midwestern monoliths, a Big Ten school, has a saying.
"Students cost money, research makes money".

A professor who is teaching is neglecting his real job.
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Old 03-06-2008, 11:28 PM   #54
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I'm curious as to when these professors find time to teach? I understand the current theory is "publish or perish", but with Milevsky jetting all around the country, who the heck is teaching his class? I'd be a tad ticked if my kid was taking his class and sitting through lectures with a teacher's asst.
The biggest problem I have with the University of Texas is that the school is more of a publishing school, so the professors deal with the kids like they are a necessary evil. They take in the money, but teaching has become secondary. Just strikes me as something wrong here.

My friend is a wholesaler for one of the largest variable annuity distributors. He recently had Jeremy Siegel in for a lunch meeting with his best advisors. He said that in order to get him to speak for ONE HOUR he had to pay $25,000 plus first class airfaire. I wouldn't be spending much time in the classroom either!
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Old 03-07-2008, 11:07 AM   #55
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You could do that, but the one-year variety would only work for sudden deaths, as people would drop out after deteriorating health is discovered. A tontine can pay out dividends and some agreed-on percentage of capital each year (like an annuity) and then liquidate after 50 years, for example. You could avoid the investment restrictions, overhead, and risk premiums of insurance companies and still hedge some of your longevity risk. Interestingly, on Wikipedia there's a comment that they operate "underground" today. It also mentions JTWRS, but I think you'd have estate-tax issues there.
The 50 year thing is interesting. I think that a more practical example would be 20 years. Imagine a pool of 65 year-olds who agree to all invest $x in a mutual fund. No payouts to anyone for 20 years. Then split the balance among the survivors at age 85.

There are practical problems. You don't know how many other people will die, so you aren't sure what your share will be (if you're one of the survivors). Of course you get more preditability if you have more people in the pool.

You also need to: Assemble all the people; Create a legal structure to own the assets; Do regular accounting and auditing; Find a way to assure that the "survivors" are really alive on the payout date. Pretty soon, you look a lot like an insurance company.
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