Imagine that a group of people are locked in a room with a big of pot of cash. Whoever outlives everyone else gets to keep the remaining money.
Most people today would describe this as the plot of a slightly demented Netflix series. Coming from the insurance industry, I would simply call it a “tontine” - one of the world’s earliest form of annuity.
Starting in the 17th century, nations used tontines as a way to raise revenue and create streams of income for segments of the population. The last person in the pool typically received a disproportionate share of capital. In the insurance industry, we refer to this as the “power of pooled mortality.”
Did the Man in The Middle call the piggy bank on the ceiling an annuity? Of course not. However, the games and survival strategies do offer basic lessons about savings and planning for retirement.
1) Slow and steady actually can win the race. Just like playing Red Light, Green Light, running hard for a big market win can backfire in the end and cause catastrophic losses for your portfolio. It’s much better to systematically contribute to a 401(k) plan
2) Don’t simply follow the herd. Just because your neighbor picks one path for retirement doesn’t mean it’s right for either you or them. Yes, a few people like the glass factory worker may have unique insights into specific investment choices, but most people really are just playing the odds. Focus on diversifying your retirement savings across asset classes and types so that one misstep doesn’t cause your plan to fail.
3) Always think about your loved one, or *Gganbu* when planning for retirement. Just like playing the marbles game, one spouse will always outlive the other. When taking social security, buying an annuity, or applying for life insurance, always lean towards opting for a “spousal continuation benefit.” Your immediate benefits may be lower, but the long term impact on your loved ones may prove enormous.
4) Get out of debt as fast as possible. Few people would play these horrible games if they had simply managed expenses and lived within their means. Carrying any amount of debt can be horribly expensive over a long period time. Instead of paying a credit card company interest payments, start putting those dollars into an IRA.
5) Leverage the power of “mortality pooling” through annuities to fund your retirement. Many people equate annuities to investments, but they really are insurance against living too long. By purchasing an annuity from an insurance carrier, you really can gain access to regular income payments that last a lifetime - a lifetime that hopefully exceeds that of the characters of the series!
Contributed by Paul Tyler.
About The Author
Paul Tyler is Chief Marketing Officer for Nassau Financial Group, an insurance company based in Hartford, Conn. Nassau focuses on four business segments: insurance, reinsurance, distribution and asset management. Paul also oversees the company’s insurtech incubator, Nassay Re/Imagine, helping innovative startups. Paul earned a J.D. from Cornell Law School and an A.B. for Princeton University.
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