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"The financial world is having its tontine moment" - Prof. Moshe Milevsky

Professor Moshe Milevsky, was interviewed by David Emanuel of D-Benefits Podcast. It's a great listen with an awesome takeaway at the end. Spoiler alert: we are mentioned!

"The financial world is having its tontine moment" - Prof. Moshe Milevsky

Listen to the full episode here or read the unofficial transcript below.

D-Benefits podcast transcript

David: Welcome to D-Benefits Podcast the show in which we examine amazing history we're privileged to be a part of with traversing an inflection point. That is launching us from the modern era into the gig age, the gig economy, whatever you want to call it.

Stick with us as we engage thought leaders innovation and domain specialists in an effort to bring clarity to a world moving at hyperspeed. To see the signals in the noise, to understand what changes are happening, how they impact us, what we can individually do to take advantage of the changes to the best to our best outcomes.

The D benefits podcast are focused on the New Age drivers reshaping the world of employee benefits, health, wellness, wealth and wellness. And so with that, welcome to the show. Thank you so much for joining us.

Moshe Milevsky is a finance professor at the Schulich School of Business, George University in Toronto, he is also a member of the creative faculty in the Department of Mathematics and Statistics and Managing Director of Parker, pi longevity extension Corporation Parker is a FinTech company that develops algorithms, intellectual property and economic strategies to extend the longevity of any portfolio.

Intelligent drawdown is a process that begins with conversations around financial opportunities and trade offs, is then, it then proceeds to the numerical by quantifying protecting extending and continuously monitoring portfolio maturity.

Moshe Milevsky has published 15 books translated into six languages and over 60 Peer Reviewed scholarly papers in addition to hundreds of popular articles and blog pieces. In addition to being an award winning author, he is a FinTech entrepreneur with a number of US patents and computational innovations in the retirement income space.

He was named by investment advisor magazine was one of the 35 most influential people in the US financial advisory business driven almost 35 years. And he received a lifetime achievement award from the retirement income Industry Association.

I'm really pleased to have the opportunity to interview Moshe, he is certainly a widespread thinker.

He thinks in a lot in novel ways in which creativity to what sometimes is a stuckness in thinking, he breaks the show, and opens up to new ways of assessing the same situation, listen to this podcast and get Moshe's take on retirement planning versus financial advice around decumulation. clearly Moshe is not a fan of retirement planning in the context of financial advice. How different is financial planning for your decumulation phase today versus the 50s and 60s. The 1950s and 60s What's changed, what do we face today, inflation and how it applies in the world of accumulation planning.

And then he speaks a little bit about annuities and tontines Altogether, This has been a fascinating hour with Moshe. I was really pleased to have the opportunity, and I hope you enjoy what he has to say.

Caught in this computer. Okay. Moshe welcome it's an absolute pleasure to have you and I appreciate you agreeing to be on the podcast.

Milevsky: My pleasure.

David: Thank you. So I want to start the podcast asking you to, about two people that are noted you and dedicated two of your books to one is Joel Diana, and the other is Rob Hellermans. So if you could maybe tell us a little bit more about these two people and how they may be influenced you in your life.

3:45 Milevsky: That's a very interesting question to lead off of podcasts with it,

3:49 **David: ** if it's too personal, I can back it up.

3:52 Milevsky: No, not, Not at all. In fact, I'm delighted to talk about both of them, we can probably use up the entire show. Joel Diana was my father in law, rest in peace. And he passed away about a week or two before I'd finished one of my books and I thought that it would be very appropriate considering the literally the book was going to publish, while the family was in shiver morning was seven day morning through. So I thought that would be very appropriate to do that. Joel Diana as I said my father in law was an economist. He taught at Queen's University for many years. He then went to work for Statistics Canada in Ottawa, and you know obviously had a huge influence on the family and as I said, the nicest guy I ever met in the world, hands down, so that was the book dedicated to him, and Hellerman is which goes back a little bit longer was my grandfather, rest in peace. My grandfather passed away about 15, possibly even 20 years ago now. And I dedicated one of my earlier books to Him, Rabbi Hellerman. My maternal grandfather actually grew up in Germany, in the 1920s, and he attended the University of Berlin. And he was actually working on his PhD in Psychology at the University of Berlin, When the Nazis took over, and they obviously kicked him out of the country. Obviously left with his life thankfully, I wouldn't be here to talk about it. And he always felt very very guilty that he wasn't able to finish his PhD really bothered him that he was six months away from defending his thesis at the University of Berlin, before he was told to get out of the country. So when I got my PhD and my brothers got their PhDs, we have a family of PhDs, he was extraordinarily proud of the fact that he wasn't able to finish it. He was a Ph D C candidate, what his grandchildren were all able to do, and he attended my graduation with my PhD so that would be very very appropriate to dedicate one of the books. So those are the two people, thank you very much for asking

David: no You're welcome. How do you view. How do you view, I mean there's the Jewish perspective one intergenerational transition or transmittance etc but your respect for tradition, and where knowledge comes from, how its how it's important from one generation to another. Do you feel that these two men influenced you in that regard.

Milevsky: Well, they certainly do I'd hate to be what historians like to call it theological where you work your way backwards and say something was inevitable, but the fact is that I and many of my siblings continued on in higher education, all the way to the end and became professors, and that's got to come for a reason and I think that that certainly can be sourced to the fact that that's what he wanted to do until his life was disrupted and he had to run away. So I do think that there's an influence there.

David: Thanks for sharing. So, I sometimes feel that, you know, and it's a wider audience but I do, I do want to, to some degree, create some analogy between the way that I think the academic aspect and legal aspect of Judaism evolves, in that I think that there's a unit Torah is a process by which we move information from generation to generation to generation. It's alive. And it gets applied and reapplied based on immutable principles, in consideration of the surroundings finds itself in. Right. So sometimes if that's a true statement, would you agree that that's a true statement.

Milevsky: I'd have to think about it but it sounds reasonable.

David: In that, again we have certain immutable laws that govern existence, just like gravity we can't see that we, we need to try and work with those and interact with them from a human perspective, in order to actually navigate forward as we find new civilizational territory to conquer, and I guess that brings me to the point where I kind of feel with retirement age and bring it back to someone would return a PhD but now but really is not because it has huge impact on people's lives. The question is, are we locked into some kind of planning process as advisors as insurers, as consumers of retirement plans. Are we stuck in some kind of a convention, the conventional way of thinking that you because that it seems to me and I can't quite put my finger on it but when I read your material, or listen to you speak, you're provoking a different way of thinking and approaching things I mean very specifically, there's the focus intro, we don't have to discuss that now but it came up in some of your reading that challenged the way I've kind of just conventionally come to think about retirement planning. So, have we become trapped in convention. And then my guess my next question for you is, is there a way forward, Is this kind of gig age that we're going into now the gig economy, offering solutions, information technology that can help to redefine that we should be looking to to redefine the way we think about these things.

Milevsky: There's a lot there, so let me try to unpack your question and deal with pieces at a time. I think that the world obviously changes over time, in ways that make old thinking obsolete. So whereas a lot of research science data supports a particular course of action. When you are living in early world, the world changes and you know you can't do that and I mean just to be more practical interest rates for very long time, interest rates were in the double digits. I remember mortgages in the 1819 20% region. That's what interest rates were, and then interest rates pierced 10% And that was a big deal, you know, interest rates are now single digits. And, of course, right now, early 2021 interest rates are close to this role globally. Some places are negative, the rules that we developed when interest rates were in the 1819 20% the rules of how to conduct ourselves financially, simply do not work anymore. When interest rates have gone down to close to zero so anything that is remotely connected to the compounding of money and how much you have to save and how much you can afford to draw down and when you can retire. All of that was developed in the 60s and 70s and 80s when interest rates were at much, much higher levels than they are now. So if you pull out a rule that was developed in that time, it's simply not going to be a applicable today. So when someone says to me, do you by your view agree with or do you subscribe to this view. My initial reaction is well as a developer, I know nothing about it, and I'm trying to figure out, does this make them almost developed. And if they say well the research came out in 1986 I don't have to think very definitely that. It's a new world. It's a new world. So I think that's the reason that we have to rethink, you know a lot of things, I mean not everything, you know, you drop something Newton's law of gravity still works today as it did in the 1970s it doesn't care about interest rate so you obviously can't just say everything has to be rethought and thrown out the window, but when it comes to financial markets. I think that a lot of rethinking has to take place and it's not a counter cultural anarchist view that we have to throw out the past, it's more a question of realism pragmatism which just doesn't work anymore in the stock market is not the beast that it was in the 1920s and 30s you know that the central banks and the Federal Reserve wasn't supporting the, the financial markets as it is now, implicitly as well as explicitly. So I mean it's it's a different beast. You can say that a stock in 1920 is a stock in the year 2020 So that I think that's the reason you have to revisit those. The rules were made in different times. ** David:** So this is a question I hadn't actually anticipated. So would you suggest that, that, so your seven, the seven equations for retirement, they are those immutable, or those kind of tangible.

Milevsky: So, that that was a book that I wrote called The seven equations, and it was an attempt to sort of summarize, I mean I was trying to do a lot there. First of all, you know what are the basic financial mathematical tools that people need to think carefully about retirement income. What are some of the, you know, issues around numeracy and literacy that I think have to be strengthened. But, you know I as I tried to explain to the book there's a very big difference between any equation and the parameters that you use in an equation. So I think the equation to use your term might be immutable, but the parameters the values that you throw in, definitely have to change over time. So, you know, how long does it take how long does it take for money to double, that's a well known formula it's been around for 800 years, what interest rates should I use in my formula for how long it takes my money to double Oh, you got to use a much lower number now. So, the equation may be immutable, the parameters in the equation, you better update them, you really better update them, and if you force them to be values that make no sense. It's indefensible. I remember doing consulting work, you know, five or 10 years ago when interest rates really started declining very very dramatically and I would see that the simulations that were being run by financial companies used interest rates that were very high, at the time and when I sent to them, you know, how do you justify those high long term interest rates, They said well we believe in mean reversion that will eventually go back, and then I would ask them a year later, you know my friends that hasn't gone back yet you're still using that assumption. Oh for sure it'll go back now it's been so long and you know this goes on for 5-10 years and it's horrible assumptions so I have no problem with their equation in the sense of they're assuming a mean reversion model, it's just the level to which it was mean reverting I thought it was completely unrealistic. So sentence equations last longer than parameters.

David: Okay, so that's the, so the moving part is the numerical part is the actual equation, equals MC squared whether you like it or not. But, like I knew we wouldn't even know what to do with that key equation but depending on what the assumption is that you're going to put in about what mess really is or what, those are the variables that will, will, will impact the way the outcome is gonna is going to what the outcome will be. So let's go to, let's go to one of them, which is biological age I mean I found that book, longevity insurance for a biological age to be also very, I thought might go a little further in some areas that I've been at then it did but it should be. It ended up asking me questions or provoking questions that I hadn't even considered yet, but so where does the age 65 come from, Let's just start with the chronological age, let's first define chronological age the way you do so succinctly and then where is 65 come from.

Milevsky: So, chronological age is, very simply, the number of times that you have circled the sun. You were born, Earth going around the sun. How many times did you do that, it's a measure of, in some sense almost distance. That tells you nothing about who you are as a person how healthy you are how long you're going to live and it is weakly correlated obviously if you're 20 chronologically, you have longer to live than if you're 80 chronologically but you know, it's definitely not, you know, going to give you a high degree of certainty about how long you're going to live, and, and we need to know that because we're planning for retirement or we're planning in retirement. So that's chronologically, it's an extremely convenient number, it's it's hard to argue with it it's on your birth certificate you subtract off today's dates, it's easy to measure, it's extremely convenient, and you know it's just gained traction because it's just so transparent. This number came about, probably in the late 19th century, when the German Chancellor Bismarck, in the 1880s introduced the first national pension scheme, he announced in the rice stock that anyone who reached a certain age would be entitled to a pension for the rest of their life. Initially he selected the age of 75, not 65. The number 75 was obviously an extraordinarily high chronological age very, very few people were alive at the age of 75 So he was talking about a very small fraction of the population. Later on, and I'm talking decades later, they reduced it to the age of 65 because they realized that 75 was just too late to be starting people with a pension. So he started in 65 And then of course the US Social Security system adopts 65 Canadian pension plan so and that number just gets in shrine there, partially due to the beginning with Bismarck so that's chronological age.

DAVID If you could just match that as well. Going back to what you said before if we talk about immutability and things that need to show 65 is not an immutable law. It's an arbitrary number selected for some political reason.

Milevsky: It is, it is one of the most arbitrary numbers around today it's a useless meaningless benchmark, it means nothing you can be 65 I can be 65 We're in completely different health. In fact in England in 1907 or 1906 when they introduced their state pension plan. They were very opposed to chronological age, I mean I, I pulled out the debates in the House of Commons in the House of Lords. What do you mean age 65 Like, you can be 65 and be very healthy, I'm not saying you should use some other age you should use some of some measure, they didn't use the word biological age they use some sense of how healthy you really are, are you capable of working. Are you capable of continuing to work it really disturbed them to pick an arbitrary number and say that's it, that's the agent when she retired, but again it was extremely convenient they realized that the cost of subjectivity was very high, I mean if I have to start evaluating how old you really are, before being able to do blood tests, measuring telomeres and biomarkers and all these wonderful it will be possible to do it so I said all right, well, we'll go with the second best solution chronological age and it stayed with us and it becomes almost an entitlement and, and then it moves to 60 and then you have some countries where people can do it in 55 and then you have women that can retire at 50 But men have to wait to 55 Or it's just arbitrary chronological numbers, And then when you look at it in another dimension which is biological age there's variations in 20 years you know you can be 65 I can be 65 My biological age can be in 50 your biological age can be 80, and it just, we're stuck with chronological age our entire tax system, and tax code is stuck in chronological age thinking. And I believe that that's going to change sooner or later we're gonna have a watch, tell us not only what the time is but how old we are biologically. Good morning, David. Today, you're 46 years old, you've been eating well you've been taking care of yourself. Good for you, you're 46, of your chronological age Yeah, forget about it that's irrelevant, and then clients consumers start to say that that is their age and they start associating themselves with that age, I mean let's be honest. If gender is fluid, why not age, or you can ask a woman gender you identify yourself with a legitimate question, 30 years ago you'd have been laughed off the stage, if you could declare what gentlemen, now it's acceptable in fact it's acceptable to the extent that you can't even laugh about it but why age, why should age be something that's pre determined. I, we didn't test on biologically 42.

David: So I think she'll point I mean right now I think you're almost, I think we have that technology I had the good fortune of interviewing the fella by the name of Adrian Gore a few weeks ago, Adrian is the CEO of a company called Discovery Health in South Africa, we're doing a lot of this stuff actually in reverse, I'm not sure how it would apply in terms of calculating biological age through death or through I think they would go through the health, they if you have got the living sequence. In that what they do is they look at some markers and then they give you what they call their by your vitality age, and it can scare you into going hey I need to make some changes right now. So for instance you can plug in a whole bunch of scenarios you can say your chronological ages but be when once you've plugged in your health information, it says, well, your vitality age is 68, or less, so hopefully it's, it's a different number, and then clearly, you know you need to take some, some action so I guess that's the question, what is biological age and then, how, how does it matter and really what I wanted to get to different points and maybe I'll ask this question though as well, you've suggested in your book, that there will be a rather in time and biological age of 65 Again, I mean I would suggest 65 is maybe arbitrary now I'm not sure if it is or it isn't. But if you're just using that as a baseline as indicated. The point being that you're saying okay, if we're going to make 65 the number. Let's make it Elastic based on a person's state of health. So the question is, can you leverage on, on, On what what the impacts of biological age are for retirement planning, how dramatic is.

Milevsky: So you know, first of all in terms of the definition of biological age I don't want to veer too far from my area of expertise, one of the biggest problems nowadays is that somebody has declared a guru in Area A, and suddenly they think that they have the right to pontificate about everything under the sun because they're a Guru an area A. Hey, I am not a biologist and I certainly am not a medical profession. I have read some of the literature there I understand that there's still a consensus emerging around how to measure biological age for a long time we thought it was telomere length, the length of their telomeres, these are the, at the end of the chromosomes, we have these caps these caps get shorter over time, the faster they get shorter, the worse it is the shorter your telomeres, the older you are, so for a long time that was the Professor Elizabeth Blackburn at the University of California, she won the Nobel Prize for telomeres, For a long time we thought or the scientific community thought that the biological age is measured by telomeres, and then other researchers came along and said well you know what, that's not really a good measure, there are other biomarkers of aging that are more effective that are more reasonable. Then you have groups that are saying every organ in your body has their own biological age factors the company in Korea, where you can send your blood to, and they will give you the age of the seven major organs in your body, your spleen, your spleen David, not a day over 30. Your liver oy 97 And then they average all of those numbers together and they give you about seven this is an enormous fertile area of research. There's no way that one of your into a pining on what's the right metric, but what I can tell you is in a few years that consensus will emerge and the consensus will be that you have two ages chronological age and biological age, and we will become aware of those two numbers and how they move with each other, and they will become anchors in our life, and all I'm advocating is retirement policy should be gearing and should be prepared for, and should be ready for the day where we all know our biological ages.

David: What are the leavers then that we could use. So actually the question I guess, comes back to my next question was what if, what if any different challenges exist in retirement plans today compared to say seven years ago I'm going to assume that this one is one of them. So, biological age is interesting in that “A” it's something we've come to understand, in that it's elastic person to person, person, but it's also interesting in that it seems to be something that scientific advances technological advances are playing a role in modifying as well. The kinds of drugs that are coming onto the market, the kinds of treatments that are out there today, all of a sudden that person's life expectancy maybe over another 10 years can be extended for another, another 10 beyond that. So, what I guess the first question is, how different is all the challenges that we have, could you quantify, or at least enumerate challenges that exist in retirement planning today versus what what existence in the 1950s or 60s for retirement planning.

Milevsky: I think that, you know 40 50 60 years ago, retirement planning was a very different exercise for more than just the biological chronological gap that we are now aware of. I think that, you know, part of it is that pensions that were certainly a bigger part of our life. 50 years ago, were a crutch that we could rely on them that we don't rely on now. There was an awareness that you know a lot of people not everyone had the defined benefit pensions, whether it was from work, or from other employers that provided them an income for the rest of their lives as long as they lived, so you know that was important that was necessary, and the people now retired from gig economy jobs or will be retiring from getting jobs, they're not going to have that. We have to teach people how to create their own pensions, which is sort of another conversation. But what I'm trying to get at, to answer your question is that, you know, in the 1960s and 1970s, There were many different things about retirement planning than just the health aspects that we are aware of today, I think, you know, if we were to go back if I was in a time machine, and I was sent back into the 1950s and 60s and I work to meet a financial planner or advisor or consultant or stockbroker whatever they were called then, and I had you know five minutes to really impress them to shock them about the future. I think that one of the things that I would mention to them in addition to the fact that interest rates are negative, which would probably, you know, stun them. I would tell them that the disparity in life expectancy between different socio economic groups is, is, you know 25 years and they were like, What do you mean, like how do you know that that well we have the data that you know, you live in the wrong neighborhood you don't take care of yourself and you're out with the wrong genetic makeup and you're obese and overweight and have diabetes, your life expectancy is going to be 25 years shorter than somebody who doesn't have all those factors, therefore plan differently for their retirements, I think that, you know that that's a big difference. In addition to the pension environment in addition to the stock market environments, how cheap it is to invest in stocks and diversify, big expensive to buy a stock portfolio in the 1950s and 60s and other brokerage commissions along the way, bankrupted you, and we had to do regulation that became cheaper diversification becomes a lot easier. So I don't know I'm probably rambling now another lot has changed in 50 years..

David: I think you put a good, you could you could kind of brackets around the issue of, didn't, didn't even anticipate it going, we went, which is more of a lot more informative than I even in answers that I had conjured for myself. So what resources do we haven't returned bench day that that could well yeah, do we have resources today that are meeting the challenge that have now, that are now facing us.

Milevsky: So I mean I don't know if now's a good time to digress into the difficulty I have with the word retirement planning. I like to differentiate when I teach my courses, the Schulich School or speak to audiences. I like to differentiate between retirement planning and decumulation planning. According to the Webster Dictionary decumulation is now words I'm able to use it without editors telling me that that's not, that doesn't exist, the accumulation is the process of drawing down your wealth. As you get older, and living on your wealth, drawing it down. Retirement is something about you, your daily activities in the labor force, and those are, those are two things that must be separated. I personally I have absolutely no intention of retiring. I have no intention of retiring, and I know people say well that's what you're saying now and 50 I would like to teach less courses as they get older, I would like to travel much less as I get older, I'd like to do less committee work as I get older, but I never want to go from one to zero at any age, I want to slowly do that, I have no intention of retiring decumulation yes I plan to start at some point, then probably soon where I start with this level of wealth and at the end of the year I have less and I have less and I have less decumulation so financial advisors have a big responsibility to help people, Decumulate optimally to tell them, No no no no no you're not drawing down fast enough, you're going to leave a lot of money to the kids, maybe that's what you want to do but you're going to have a better lifestyle or no no don't take money from that account that's tax inefficient, take it from this account or don't start the pension now wait three years, that's decumulation advice. I am hesitant to get involved in retirement advice. Yeah, quit your job with your job. That's my identity, why don't I go in the morning, that's what I do I hate it, but it's my identity. Now you should retire at 67, and do what all day. Like, no retirement is a personal sociological psychological religious ad, you know, financial advisors aren't trained to give retirement advice, they're trained to give decumulation advice, optimal decumulation and I like to separate those two. So I'm not sure if I'm answering your question but I guess the issue is is that retirement planning, I'm careful not to do too much of decumulation planning, I'd be glad to chat about. And initially, those two are mixed together and some people have a difficult time differentiating the two and, but once they get a clear vision of those are two separate things. You know I'd be delighted to chat about the decumulation.

David: So I feel like I feel like, in the most positive way possible. That's a story that I often have with with my kids, my kids are growing up, but I'm also very particular about parsing parsing words, using the right words. So I absolutely appreciate that point. And, you know that does mean for me to say you're absolutely correct, you are correct. This and sometimes we step out of our domain of expertise as you said earlier, what makes a financial adviser, or retirement specialist, you're really not. You're a Decumulation specialist, if that's the area that you've chosen to work in as well.

**Milevsky: ** David, I'll say it even early in our scene and strong, especially if you're a 30 year old. There is nothing more ridiculous, Nothing more ridiculous than a 32 year old who never bought a house, who has no children who barely knows what they want to do with their life but decided they're going to sell insurance for a while, telling a 67 year old when they should retire. It's horrible. Least it's a more modest thing to give them advice about decumulation which is a slightly more mathematical Object. I mean it's just it's so arrogant, it's empty, it's you I don't even know, which is very different than when it comes to you know say medical advice, You know I need a heart transplant or, you know, or some medical procedure. Yeah, he's 32 years old graduated Harvard best in his class, yes he owes a half a million dollars to the bank for student loan what he's done 30 of these operations, sure, cut me open Doc, I don't care if there's a 30 year age gap when it comes to these personal lifestyle decisions about how to manage all the aspects of my life just ridiculous. It's ridiculous.

David: So the point being, your clarity is stick to sticks, you know shoemakers stick to last what you do is you help me with the money issues the questions around the money. So then the question is is are there tools are the algorithms are there to tell what to do. I'll drive to one example very specific example. Is there any technology that I thought I'd actually done this in two different ways and maybe I haven't heard this question twice. So let me ask you this, inflation, how big, because it's going to come back, I'll come back to technology as a question I have, it's a humble question hopefully you've got some domain expertise or some expertise and have done enough research to have an answer from the year, but inflation, it's not this one I'm sure this one, how big of a problem is inflation in decumulation planning. And is it a variable problem that we could actually work to solve.

Milevsky: So, because you know the short Twitter answers is the big problem. That's the short answer is a problem. The longer answer is that people misunderstand inflation, they think it's an atmospheric phenomenon. You go to the thermostat, then you take a look at the temperature, or you look outside and you measure the temperature, and we all experience it the same. You experienced the temperature today, you know 19 Celsius and I experienced at 19 Celsius, and you know we're both experiencing, inflation is extremely personal because it depends on your basket of consumption. If you don't spend the money. The way the government is computing the basket or Statistics Canada's computing the best and your inflation rates going to be different. So this is Canada as a very difficult task, they have to average everybody's consumption baskets and that's what they use for inflation, they have two or three baskets, but the fact is is they're using baskets, my basket can be very different, you know, I spend all my money on expensive scotch and cigars and caviar, my inflation rate is going to be very different than the basket of consumption. The basket of consumption tends to depend on both my income on an after tax and pre tax basis it depends on my age, it certainly depends on where I live. And it very much depends on whether I have children and grandchildren that I want to spoil or whether I'm living alone. Inflation is extraordinarily personal, you can have an inflation rate I can have an inflation rate, it's very different. And that difference can be, not just the half a percent or over present it could be many percentage points many percentage points. So when you're planning for retirement in, you use this atmospheric inflation rate and that's what you plug into your software, you might end up with things that are very Misrepresentative of what your future is going to look like. That's number one. I think an even bigger problem is how do you measure inflation for things that don't exist. The stuff that we spend money on today, did not exist 20 years ago, there was an exercise that I like to do, where I show a list of 20 things on the screen, and I asked people, you know, how much do you spend on this thing and how much do you spend on that thing and I asked them to predict inflation rates, and then the punch line is I asked them to predict what the inflation rate has been over the last 30 years on those goods and services, you know, Viagra pills CDs ear pods, and so on, and the light bulb goes on on the audience when they realize that none of those 30 things that they love existed 30 years ago. So you're trying to predict what this basket of consumption is going to cost in 30 years 2 percent 1% One and a half percent, my friend, you're going to be spending money on 30 Things that have yet to exist, what's the inflation rate. So this whole notion of inflation was never ever created to make long term projections on an Excel spreadsheet for 100 years. And this is what your spending is going to be in the year 2072, also ridiculous. Now we have no idea what that's going to be we don't know what the spending is going to look like inflation was measured was created to measure is the economy heating up. Is this year a lot worse than last year was measured for short things not for 50 year things and then it's a number so we go back and we do it 1000s of years and we can measure inflation from the Roman period and today we can measure it, of course, this is the meaningful to your life. That's the issue. And I'm concerned about it. So I worry about upside risks on personal expenditures, you're going to be spending money on things that don't exist, make sure you have enough so that you can spend on it.

David: So it's interesting because the question was coming from a very different place or not to say that I haven't thought in those terms of I think maybe I add that I've been kind of absorbed into this new world of cryptocurrency of, you know, Blockchain or what do we call it dispersed not dispersed we call it, Ledger's that are diffused or whatever, whatever the word is keeping getting away. But distributed distributed Ledger's right district. So there's a lot of conversation. This is a fellow Robert Breedlove, who is a fascinating guy to listen to and some others as well. We're talking about that, the notion that Bitcoin is a hedge against inflation Probably the purest hedge against inflation. But then really only deals with inflation as a result of governments, or the central, whoever it is that actually prints more money I don't even know what the components are, is it the central bank that authorizes isn't this government that authorizes printing on mobile humanitarian, maybe say, but that that is what is the driver of inflation in that your money was devalued relative to things you have to go to spend more, to buy. So that's only one aspect of control of inflation is what I'm hearing you say because the other thing is, logically, certainly things that don't exist in the world today that pop into the world have gotten infinite inflationary, and then other things are going to go growth right i mean drugs, which is a fascinating part of this whole conversation, because they're the things that can sustain life, get $200,000 a year for a drug that's a cancer treatment, that didn't exist, you know, 30 years ago, and then as we spend more on research, etc. So these are the drivers have, have all this aspect of of inflation. So, if we were to not consider the aspect of invention creativity and the cost of developing new things that are only at them on the monetary side. What is a hedge against inflation.

39:22 Milevsky: So, you know, your questions can enable me to go in so many different directions. So with regards to Bitcoin, which you know I've struggled to come to grips with, you know, how do you handle Bitcoin, so I've come to two conclusions with Bitcoin. So, here's how I live with Bitcoin, number one, number one, I do not understand it. I consider myself a relatively, you know, intelligent guy, I've tried to understand it. I don't really understand it, And I don't quite get how it works. I certainly don't trust a lot of the aspects of its I don't understand it. Number one, and my motto is, don't invest in things you don't understand, you know, Warren Buffett, Peter Lynch whatever so that's number one I don't, I don't understand it. Number two, this was harder for me to come to grips with. Number one, and demeaning I don't understand something that's that's difficult, I've accepted the fact that I don't understand it, and I don't think I'll ever understand, number one. Number two, and this is more difficult. I have come to grips with the fact that you might get very very rich with Bitcoin and I won’t. those two things, I've now accepted I'm at peace with, I don't understand it, and you might become very wealthy, and I'm ready for it. When I say you I mean, all the big line promoters out there that are telling me I should be doing this, and then they're gonna laugh at me in 10 years because they're billionaires on yachts, I've prepared myself for the humiliation of them becoming multimillionaires, I'm ready for it. And that's it, I just I refuse to participate in that. And it took me a while to be able to accept those two things, but if you really are disturbed by the fact that someone else is going to become a phenomenal rIch and you won't that disturbs you as a person if you can't live with that, get on the bandwagon, my friends, get on the bandwagon, that might happen.

David: So my question is more of more moving it up lit, because it certainly I don't understand gold. I don't know what created gold, I don't know how it is used

Milevsky: Gold is used in the industrial process there's cultures where gold as part of religious ceremonies, I mean, count the number of people in India that needed for marriage. You know there's a supply and demand there there there's an industrial use to it, central banks for a while we're giving you interest in gold on gold when interest rates. So I get it, I get it, it has a 5000 year history of being used for ceremonies that it's a demand and, you know, and no I am not puzzled by it at all. And and and the ratio of its price to Silver has been relatively stable and silver has industrial uses, and I own some of both of them not crazy amounts as a head edge against other things but no I would never ever put gold in the same category as a sum, transformed in a Chinese server that's giving me a bit more.

David: So you're picking up a whole bunch of points and I mean I've been listening to a lot of debates by young people that are pro and con and serious minded people. So I would like to get it out I want to try and bring it down to a neutral place where, let's, let's say that the was a mechanism of storing value, simply for the sake of value stored there was limited, and highly transferable, as opposed to gold's good store of value, more expensive to move around very hard to swell somewhat hard to secure. So, but you had a limited supply and this is where the similarity with gold is and we call this an example so let's use gold actually as the hedge against inflation because I'm trying to understand this, I don't.

**Milevsky: **I'm going to interrupt you, hedge against inflation. I don't say that. Okay, what once I disabuse you of the notion that there's a number called inflation that goes up and down and there are other things that, that that's that way it's a personal cost of living, that's going to be different based on. So this whole notion of hedging and doing the thing that central banks keep an eye on that number that that number, they're going to try to keep low and they've already told us they wanted to go above 2% that we have to differentiate the number the central banks use to find to monetary policy, and my personal costs, the things I want to buy as I get older.

David: So help you to understand then you're suggesting to me there's nothing that I could. Okay, you're you're looking at your end but the two of the books that I did, I did read them, I wish I had better retention I don't have the best retention, but I did read these books and you more than once, talk about the impact of inflation on, you know that you could be in a negative earnings situation energy accumulation phase if you're if you're, if your portfolio is appreciating by 2% and, and you want your inflation rate for the marriage two and a half years and you're underwater about half a percent, you're losing money every year. Rather you're spending that your money actually devalued as well. So my question, there, there is, Is there anything there is anything for you to add as to what people could do to not choose a different word that's a better word, and more or less kind of parochial word, protect, protect yourself yeah.

**Milevsky: ** Buy the things today that will give birth to the things you'll want tomorrow. How do you do that, do an example, a house, a house gives birth to the benefits of living somewhere. So I don't know what rents are going to be 10 years from now, but I don't want to expose myself to what you're calling inflation and I call uncertain costs, so I bought the house today, because it will give birth to benefits, living benefits tomorrow, that I will take advantage I plan to, I have a portfolio tilted towards PharmaCare, I am not indexed, when it comes to retirement I tilted towards pharmaceuticals why because they're going to be giving birth to the medicines, then I'm going to want to improve my quality of life and that's what I mean by buying things today that will give birth to the things that I want for my eye in some level, it means buying the economy and buying these, the economy and tilting it towards things. That's the way I protect myself hedge would be an appropriate inflation I have issues with I use it because that's a term that is associated with a view of something, so you just have to use it, but that's that's the way I look at it it's, you know, in some sense you already paid the cost today.

David: By doing that, there's no way to beat inflation bottom line of this conversation where I'm coming away with it, which seems to me, actually, to be a heart moment of a real magnetometer, of being not getting, which is, you're not going to beat inflation, you have a better but not a you're not going to be to God our unique one figure it out. If you can, and deal with it, deal with that make sure that what you're doing in terms of saving for you to your decumulation phase is, is going to be able to provide for your increasing costs,

**Milevsky: ** Your cookie cutter is not going to work so you know when you pull out your spreadsheet and you say I'm assuming 2% And here's what your future looks like for the next 50 years because I lose respect and trust and reliability. I need you to interview me about my unique consumption patterns so that I am confident you understand my consumption. Now up until a year ago, many people said they want to travel when they retire in quotation marks, I think that that's changing now in terms of how what the risks and how long they'll travel, what's the inflation rate on travel versus, you know people that just want to stay at home and read that you really do have to understand your personal habits, your your your spending your consumption your lifestyle, to be able to talk about what things are going to class for you going forward. It's extremely difficult for people to DEcumulate There's fascinating research coming out of many different countries that show that they retire on average with the same amount of money they die with. Let me say that again. They die with an amount of money that on average, is what they retired with 30 years earlier, because of fear, fear, they don't want to draw down, they don't. So they live off the interest they live off the interest and what if interest rates go down they less than less and less and less. And if one year they get a big kick in their wealth okay they spend it down to their anchor of what it was in there. And then this this evidence I mean, you know, this means something, you still want to spend down, we have to train people to do that. And that's a financial exercise which is why I'm a fan of annuities which help you spend down.

David: — What do you what I heard in your answer before I wanted to come back to annuities in a moment but just because of where we were at, is that the opposite when I was listening to an interview yesterday with a guy who I think you're aware of. I'm not sure about his whole game, but his thing, but we'll, we'll talk a little bit about the area that is in a moment, is Dean McClelland, the company called Tontine Trust but he was being interviewed. And then there was a note about I think it's Malaysia, that has saved something like $200 billion over the last 25 years, and yet what they found is that as what as good as these people are doing in terms of saving, because of their relationship with money, they're blowing through their money in 18 months from date of retirement so they retire with this successful portfolio in terms of what they've established, but decumulating in the face, far quicker than they life than their longevity, so there's both of those sides of that problem right but Andre Briscoe that this this whole conversation of the pension crisis which governments are facing, private plans are facing as well, that pension crisis, what is it that defines the pension crisis. What are the components.

Milevsky: So again these are words that are used to describe something it's not necessarily accurate but the pension crisis is this transition from defined benefit and defined contribution and people are arriving at retirement and many of them do not have enough to sustain their lifestyle, they don't know how to sustain their lifestyle, they certainly don't know how to draw it down, I mean, it all comes under the rubric of pension crisis. There's the demographic crisis you know how can government afford to give us CVB OAS GIS payments for the rest of our lives if they really budgeted for and correctly, the pension crisis is also about the, you know the fees that individuals are paying on their pension pots and their investment so anything remotely to do with retirement planning nowadays can be thrown under the pension crisis label,

David: and it's and it's, it's, it's a, what do you call it, what's the term when you do it for what it's done for effect or for sensationalism in order to drive a sales agenda or something to that effect. So what I'm hearing you say and I don't want to put words in your mouth so maybe you could just clarify the pension crisis is an overblown term.

Milevsky: It's real there are aspects of patient pension decumulation period longevity, all of these things that are impacting us we need to pay attention because they can be highly problematic at an individual level, but they're not a crisis unless you're just not paying attention.

Every once in a while words take on a certain meaning and we, you know, we use those meanings to, I don't know if I'd say further an agenda but to, you know, become memorable. So, you know the word decumulation just doesn't stick in people's minds, you know, five minutes later they forget it, and then just doesn't doesn't pension, that's a word that you know that sticks in people's mind so if you want to do something memorable and then jump on a bandwagon that people will remember pension and crisis are great if you want to file for a government grants, and you use pension crisis, you know, you're more likely to be successful in academic research grants, I mean, sometimes it's just taking advantage of what a particular word means right now. You know it's like covid funding, and any of the outlets anything to do with covid Are you really helping covid Are you doing surveys on how people feel about the Amazon delivery...its covid so it you know, so we do words and, you know, if you want to use the word but if you want to dig into what's the crisis exactly, you know a lot of people that the crisis is they're not spending enough. I don't know about Malaysia I haven't seen the data there, You know maybe Dean is right, but a lot of wealthy people in our g7 G 30 countries are retiring, they just don't know how to spend it down, and they're not running out of money, it's the exact opposite, that they're dying with wealth that they could have spent down, and they just don't, they don't know how to do it, maybe it's out of fear, maybe they don't know the mechanism to do it. I'm sure their kids are thrilled about it their grandkids are thrilled about it, but it's very very, if I can sort of circle this back since we're approaching the, our retirement planning or what I like to call the cumulation planning is a very very heterogeneous problem that affects different people in different ways and sometimes it's in opposite ways, so you know you can have two neighbors one next to the other on the same street and they have the complete opposite problem, they are spending too much, you're running you have too much debt you're spending down you're living beyond your means you need help, spending less and then you go to the neighbor next door and they've been careful on their life and they save then every single expenditure was sweated and, and you have to tell them, you don't live a little, like, you know your kids self sufficient, they don't need this link, and it's on the same street.

David: So I'm regretting I'm regretting actually having this conversation but it's so fascinating, because it is right at the point where the work but then I wanted to get to the substance substance from you I'm not sure we'll take another five minutes if you don't mind but, but there's the annuity puzzle, people just not buying annuities for some reason and listening to you is actually changed my mind, on, on what to do personally about annuities that are going to have a certain element of my decumulation period phase insured, in one form or another, because I just don't trust my spending habits on one hand I don't know I'm not sure if the, the, the volatility of the markets, etc. I'm concerned that I want to have a certain baseline, that's secured, regardless of when I live and I'm prepared to pay a premium for that, because, so I'm not really too concerned about the buying decision about the, the investment. What's the investment, What's the ROI on this thing, I don't know why is that I'm gonna have money when I'm, when I'm alive if God willing, I live 220 So, that I really, I guess what I wanted to get was the unities. What,

David: what, what am I going to drive a person should not necessarily look at the ROI on an annuity, in considering it, there's a different buying motivator to buying an annuity and what would you say, and then I want to get to tontines Just really quickly, what's the difference between a tontine and an annuity, what's the relative value of a Tontine and has the technology of distributed Ledger's come to the point where we can do something that tontine wants to gain in a meaningful way. Is there a real value prop to the, to the consumer, relative to the flow.

Milevsky: So, mindful of the time, so let me try to address both of those with sort of separate statements you know number one, I think that the annuity proposition is a financial one, as well as a psychological one, and and I've grown to appreciate the psychological one over time. When I was in graduate school, it was all about the financial aspect of it, so the internal rate of return is not how you measure an annuity, it's an insurance policy, you know the IRR on life insurance is negative, I'm not buying it for an IRR, the annuity comes with mortality credits and longevity insurance and I presume your listeners understand that if I live longer, I get subsidized by those who don't. So that's one aspect it's the financial aspect that's been recognized by economists for a very long time. I think that, you know the key paper article in that area is better than nothing the RV, professor of Hebrew University, who I really do think deserves the Nobel Prize in Economics for this and other workplace sort of said, you know, hey, you're in retirement like you're buying an annuity so that's it. But the other aspect is the psychological aspect and let me explain to you the psychological aspect. I not one of my objectives is I get older, and I progress through the lifecycle, is to make less decisions, less decisions I make an average of about 300 decisions a day. What should I wear what am I eating for breakfast... and one of the many decisions that I make on a regular basis is asset allocation, you know, should I have more in Europe now the Euro seems to be going up or should I be tilted more towards dividends or more towards value and more probes growth in my portfolio small cap now or large cap should I be going through momentum or not. And I enjoy them at my age, it's fun, I enjoy asset allocation I pull up my spreadsheet and I take a look at the moment that I enjoyed at the age of 50 I teach it at 60 lightly still tinkering with my asset allocation and deciding what the right answer is I hope I am. I hope that when I like 70 at 70 Will I still be pulling up my Excel spreadsheet every month, and trying to figure out whether it's time to offload some of the aefi stocks and go more towards emerging market. I know it's 70 I don't think I'm gonna want that decision then I want it on autopilot. How about it at 80 God willing, I'm alive. Mike and me pulling up my Excel or whatever it's called in 30 years from now and try to figure out whether I should have more money in this ETF or that ETF, I doubt. What about 90 95 95 Egg if I reached 95 I'll be glad to have a decent bowel movement at 95.

I don't want to make any decisions if I get to 95 I want it all on autopilot. Give me my check every month that I can live on. I don't want to figure out what this. Why, because you know unfortunately Alzheimer's dementia, age and we can't make as many decisions, the annuity, in addition to all the other things that we can talk about is a mechanism to transfer wealth into a monthly paycheck, So you don't have to make decisions.

Sorry, Mr Smith, we can't sell that this month because it's down sequence of returns risk, which is 97. We can't sell that No, no, we're gonna take dividends from him, and it reduces fraud and it reduces abuse and reduces incentives, Send me my damn check, I'm alive. That's what an annuity means 97 Send me my check, that is a psychological value that goes well beyond the mortality credits now as far as your central question about tontines. tontines is another way of arranging mortality in an advanced stage, you don't need distributed ledger technologies, we don't need Bitcoin for it. It's simply a group of people getting together, sharing dividends amongst those that are alive. It's It's you and me and a couple of other people buying a bond buying the bond and saying, Hey, here's the deal, whatever is alive gets this look the bond coupons. But what if I'm not alive. The person who's not who's alive gets to get a couple more coupons, but they're going to be getting more money over time. Well you know inflation things are expensive, they'll give more to the grandkids. That's it. It's about sharing these about sharing amongst survivors. society for a while was doing it was called pensions, it became problematic, we want to do it as a community, as individuals, and and I think that that's the future in some sense of these products should have those tools.

David: Should a tontine be cheaper for me and I was produced a better retirement,

**Milevsky: **It will, you know we can go through the mathematics of it because of lack of guarantees and low capital requirements and the reserves are different and we're exposed to a little bit of risk, so sort of the difference between a risk free rate and a risk free rate you get a little bit more an expectation, because you're taking that uncertainty.

David: You think tontine are going to make a comeback, that they are going to resurface now.

Milevsky: You know, if you judge it based on the number of Google searches for it that seems to be taken off, you know you can go to Google and you can see certain words are, are becoming very popular and others that say, you know if that's what I like objective measure so that seems to be increasing. There's more and more articles that are being written in scholarly journals about tontines, I know I'm editor of a number of journals and I'll get more of these articles to review. That's one side request to talk about them all over the world. So that's another metric. There a couple of that are in development, I do think so. The problem is is that they're very boring but their essence, they provide you with income for the rest of your life, you go to one boring now, even one Bitcoin and ether in lead and you know things up and down and up and down that's not exciting and boring,

**David: ** But just to close off it seems to me that what the tontine does at some level is again with the Vitality program, it does with, you know, with, with healthcare incentives, it's a behavioral economics program and that, you know, I think that I correct me if I'm wrong, it's just my perspective in terms of reading and then assessing the annuity puzzle is written in the fact that he has actually a very viable product that will help you provide to all kinds of benefits where people don't want to do it because, you know, I've got to put into this lump of money to get this trickle of income nothing sexy about it. But with the tontine. You may not hit the lottery. Lucky, so maybe that you know maybe that's an incentive to securitize longevity period,

**Milevsky: ** There's a lot of jokes you can tell about it, you know how you get to become senile for a bit , you'll get a lot of money, you won't know, but you'll get a lot of money. You know the incentive.

Look, the world is having or the financial world is having its Tontine moment, if I can say it that way based on the interest in this topic so you know what, this will go anywhere will fade, I don't know it's tough to predict these things but it there's certainly a lot of interest in it people talking about it in a very established organizations, whether it's the World Bank or the OECD, talking about it you know there's something nice to see about it being that I was writing about this, you know 20 years ago and I've written 9 books.

I know that you sort of know that a topic is really taking off when & this was a while ago I was on a zoom call on some other thing and somebody asked me, Professor Have you heard of these things called tontines? I’m like, oh okay, so you know, it’s definitely going mainstream if they're asking me if I've heard of (David laughing in the background), if they had bothered searching looking googling others have I heard of tontines… Yeah vaguely vaguely.

Anyway, I got to run this was a lot of fun I got to jump to another call

David: and I really really appreciate this thing so many I appreciate you taking all of it.

Prof. Moshe Milevsky

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