Optimal retirement income tontines

Moshe Milevsky and Thomas S. Salisbury

Insurance: Mathematics and Economics, 2015, vol. 64, issue C, 91-105

Abstract: Tontines were once a popular type of mortality-linked investment pool. They promised enormous rewards to the last survivors at the expense of those died early. While this design appealed to the gambling instinct, it is a suboptimal way to generate retirement income. Indeed, actuarially-fair life annuities making constant payments–where the insurance company is exposed to longevity risk–induce greater lifetime utility. However, tontines do not have to be structured the historical way, i.e. with a constant cash flow shared amongst a shrinking group of survivors. Moreover, insurance companies do not sell actuarially-fair life annuities, in part due to aggregate longevity risk.

Keywords: Annuities; Variable annuities; Longevity insurance; Retirement planning; Mortality risk (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (35)

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Working Paper: Optimal retirement income tontines (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:64:y:2015:i:c:p:91-105

DOI: 10.1016/j.insmatheco.2015.05.002

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