A New Approach to Retirement Planning
When you think about retirement, there’s always this nagging worry about running out of money. People are living longer than ever, and traditional pensions aren’t always keeping up. Bitcoin offers some protection against inflation, sure, but it doesn’t solve the fundamental problem of not knowing how long you’ll live. That’s what they call longevity risk in the insurance world.
I remember writing about this back in 2022, suggesting a Bitcoin-based annuity product. Well, it seems someone actually went and built something similar, but with a twist. The Tontine Trust has launched what they’re calling a Bitcoin Tontine, which lets people pool their longevity risk while keeping their investments in Bitcoin.
How Tontines Actually Work
A tontine is basically an investment arrangement where participants receive income for as long as they live. Each person has their own separate trust account, and they designate a “Tontine Class” – basically a group of people around the same age and gender – as beneficiaries when they pass away.
Here’s where it gets interesting. When someone in the Tontine Class dies, whatever money is left in their trust gets distributed proportionally to everyone else still alive in the group. This means the remaining participants see their retirement income gradually increase over time as others pass away. The process continues until only one person remains.
The income payments aren’t fixed though. They’re calculated based on your life expectancy, your current investment value, and expected returns. This means your income could go down if investments perform poorly, but mathematically, it should never run out completely. The trust charges a 1% annual fee for managing everything.
Comparing Tontines to Traditional Annuities
Traditional annuities guarantee a fixed income for life, but insurers have to hold extra capital to cover people who live longer than expected. This makes them more expensive and less transparent. Tontines, on the other hand, are more straightforward – the money just gets redistributed among the living participants.
The Tontine Trust offers different investment options too. You can go all-in on Bitcoin, or choose a mix with gold, index funds, or money market funds. You can even change your investment strategy over time as your risk tolerance changes.
One potential issue with tontines is fraud prevention. The trust has developed a proof-of-life system using their mobile app to verify members are still alive before making payments. They also use blockchain technology for transparency, showing all transactions and fees in members’ accounts.
Regulatory Developments and Future Potential
Tontines have a complicated history – they were restricted in the US after some questionable practices in the early 1900s. But recent developments suggest they’re making a comeback. The OECD has recommended that retirement plans should protect against longevity risk, and recent executive orders have opened the door for alternative retirement options including tontines.
This could potentially become a new model for social security systems. National tontines backed by Bitcoin could provide inflation-protected retirement income without burdening government budgets. The traditional pay-as-you-go pension systems are struggling with demographic changes anyway.
It’s been 17 years since Bitcoin launched, and now we’re seeing retirement products built around it. The choice for retirement income is becoming clearer: traditional annuities tied to government bond returns, or tontines powered by Bitcoin’s potential returns. Which approach will people prefer? Only time will tell, but it’s certainly an interesting development in the retirement planning space.
