I wonder . . .
Could the risk of outliving assets be handled in a much lower-cost fashion?
....
Okay, so why not build a cheap means to gather and bundle risk.
....
- Or, maybe this is not being done because it is actually a phantom insurance company and would need to be regulated.
If legal and not being done already, I hereby cede all rights to the Samclem Retirement Lottery Trust Construct (C) to the Early Retirement Forum.
samclem, I am glad you brought this up. Here is a fascinating (IMO) podcast on the subject and its history. I heard it a while back, and tyour comment reminded me to share it with this group. While the title refers to Carbon Credit financing, it is largely about the history of finance, and discusses this and other remarkable concepts. I think many here will find it interesting. It is long, 90 minutes with Q/A, but here are some highlights:
Yale Business & Management
~ 10 minutes: Finance = Time Machine. A loan makes future money appear now.
~ 27 min - The 'invention' of checks, bonds - Marco Polo had 'traveler's checks' in China.
33 M - Perpetual Bonds from the Holland Water Boards are still paying interest today from the 1600's! (Never defaulted, but they did need to cut the promised interest rate).
38 M - 'Tontines' from the 1700's - these are the pooled annuities you describe.
51 M - some 'trivia' of Ben Franklin developing anti-counterfeit techniques for bonds, using a marbled background and cutting the bond in half, so the holder and the issuer had matching halves.
55 M - discuss a 'basket of goods' measure of inflation on a bond. The bond could be paid in a combination of wheat, meat, etc, - the pictures of those commodities were on the bond.
And my favorite - @ 59 min; They talk more about these pooled annuities, and the issuers didn't really have the data to figure life expectancies, so they didn't. Buyers soon figured out that they would buy the annuity in the name of their child. But this still left you with a risk based on a single person. So pools were created by organizations, made up of 6-8 year old girls (past the risk of many childhood diseases, had to be smallpox survivors, girls were ineligible for war drafts, etc).
There was also mention that the traditional multi-generation household provided the financial 'smoothing' that many of us seek today - mortgages in our youth, annuities and pensions in old age. Pooling several generations is another solution.
Also, some of these early bonds/annuities included an annual lottery - some earned 5%, but paid out 4% and the lottery winner got the group's 1%. Is this really an AA construction of low and high risk investments?
and some background info:
Q2 Fall 2007: What is a long life worth?
Tontine - Wikipedia, the free encyclopedia
-ERD50