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Jul 17, 2018

Individual Tontine Accounts

by Richard K. Fullmer & Michael J. Sabin

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Abstract:

An individual tontine account (ITA) is an investment product similar to a conventional brokerage account, but with the added feature of mortality pooling
through participation in an open-ended fair tontine. The ITA exploits the property that participants in a fair tontine need not be confined to a common investment portfolio or to a common payout method. Instead, participants are allowed to select and trade investments as they wish and to choose from a variety of payout methods, with each participant's results being largely unaffected by the investment and payout choices of others.

We envision the ITA as being complementary to an individual retirement account (IRA), allowing retirees to derive extra income from savings without taking on additional investment risk and to obtain lifetime income at a lower cost than with comparable insurance products. The mortality-pooling features of ITAs compare favorably to those of insurance products. The cost per dollar of income is lower. The opportunity for individual choice is increased. Fees are transparent rather than opaque.

Accounting is transparent and conveyed simply on account statements. The downside of ITAs is that income from mortality pooling is
not guaranteed, and a participant might experience less income than hoped for if other participants live longer than expected.

ITAs represent a new arrow in the quiver for addressing global retirement needs
and may address the “annuity puzzle” by giving retirees a more transparent, lower cost alternative to insurance-based products.

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Tontine Trust is a fintech enabling consumer-friendly lifetime income retirement products such as the state of the art TontineIRA™ via banks, chartered trust companies and credit unions (each a ‘Bank’).

Banking, trustee and fiduciary services in the US are provided by partner Banks which are regulated in the US to act as fiduciaries on behalf of US Tontine IRA™ accountholders (‘members’).

Tontine Trust provides and operates the TontineIRA™ administration and record-keeping platform on behalf of and under the supervision of the Banks.

Tontine Trust is not a Bank or a trust company and does not provide banking & fiduciary services other than certain administrative services in a ministerial capacity as the Trust Advisors to the Tontine IRA™s.

No information on this website or the platforms provided by Tontine Trust should be taken as constituting individual advice to you. The information is informational and of general guidance only. Tontine Trust does not provide investment management services, financial advice, banking or fiduciary services.

The choices you make or do not make around the investment of your retirement account are your own responsibility.‍ Neither Tontine Trust nor the Banks can be held responsible for any financial loss arising from your retirement choices or lack of them.

The amounts and duration of the lifetime income from the Tontine IRA™ are indicative only. By design, neither the amounts nor the duration of retirement income payments from a tontine plan are fixed or guaranteed.

Based upon many years of research and development, the TontineIRA™ platform displays reasonable best estimates of what level of income you can expect to receive over the course of your lifetime. These estimates are constantly reviewed (sometimes nightly) to incorporate any effects on expected incomes caused by changes in interest rates, investment returns, life expectancy and/or the actual mortality experience of members sharing the same tontine.

The Banks we work with are required to manage US trust assets in accordance with the Uniform Prudent Investor Act.‍

To ensure maximum security of capital and income for members, the Tontine IRA™ assets will be invested by the Banks in a basket of FDIC insured deposits such that each up Tontine IRA™ account can obtain FDIC coverage up to approximately $10m of assets per member.

Note that while the deposits made on behalf of the Tontine IRA™s are FDIC insured, the IRA accounts themselves are not a deposit or other obligation of, or guaranteed by a Bank or state chartered trust company and are not directly insured by the FDIC. Therefore they should be considered as being subject to investment risks, including a possible loss on the principal amount invested, for example when a member passes away before they have received total income in excess of their original contribution to the TontineIRA™.