America's Road to a DIY Retirement

SPEAKER_1 (0:00)

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Catherine Sullivan (0:15)

So, Jason Zweig, what is a tontine?

Jason Zweig (0:19)

So a tontine is an informal kind of insurance in which a group of people get together, and they pool their money, and as each member of the tontine dies off, the money is then redistributed among the survivors.

Catherine Sullivan (0:39)

Jason Zweig writes the Intelligent Investor column at the Wall Street Journal. He spends a lot of time thinking about how people invest and how they used to invest. You may have heard about tontines from popular culture. They've been the subject of an episode of The Simpsons.

SPEAKER_4 (0:54)

How many of you are familiar with the concept of a tontine?

SPEAKER_5 (0:57)

They essentially, we all enter into a contract whereby the last surviving participant becomes the sole possessor of all them birdie pictures.

Catherine Sullivan (1:07)

We're in the animated television show Archer and we're also the subject of a 1966 movie called The Wrong Box starring Michael Caine.

SPEAKER_6 (1:16)

Grandfather has murdered Uncle Joseph and then suffered a conniption fit.

Francis Townsend (1:23)

No one ever saved.

SPEAKER_6 (1:25)

And he did it because he wanted me to have the tontine.

Catherine Sullivan (1:29)

Tontines originated in Europe but became popular as a financial tool in the early years of American independence. Alexander Hamilton even proposed using a tontine system as a way to manage and fund national debt. His plan wasn't approved and tontines eventually lost popularity due to fraud and corruption. They also had a bad reputation in popular culture.

Jason Zweig (1:50)

Robert Whalen, Professor, University of New York University of New York Members of some tontines developed an unfortunate habit of murdering some of the other members to get the money early.

Catherine Sullivan (2:02)

But before they fell out of fashion, tontines were some of the earliest tools that people used for retirement.

Jason Zweig (2:09)

If you think about it, it is in principle not that different from a lot of forms of insuring for retirement. And it's an interesting metaphor for the risk that's inherent in every retirement system. We're all making a gamble that the money set aside for retirement, either by us, by our company, or by the government, will be there when we need it when we retire. And it doesn't always feel like a gamble, but there's always some risk inherent in it.

Catherine Sullivan (2:47)

Today Americans no longer resort to tontines for retirement. We rely instead on three main pillars of savings. Pensions, social security, and savings in a 401k or IRA. That system might be less secure than we think.

Jason Zweig (3:03)

People like to call this the three-legged stool, but it's, oh, the stool is a little shaky.

Catherine Sullivan (3:12)

What would you say is the shakiest leg of that stool?

Jason Zweig (3:15)

Well.

Catherine Sullivan (3:16)

Or are they all at equal risk of collapse?

Jason Zweig (3:21)

I think all the legs of that stool are a little shaky.

Catherine Sullivan (3:28)

A lot of Americans don't feel like they're financially prepared for retirement. Only about a third of people approaching retirement age report feeling, quote, on track.

SPEAKER_8 (3:38)

I'm a nurse, he's an electrician. It's hard, even with the money that we make, to feel like we're putting an adequate amount aside for our future.

SPEAKER_9 (3:45)

So I don't get no 401k or no pension or any of that kind of matter. So I'm in the process of looking for a side hustle, maybe a little crypto.

SPEAKER_10 (3:54)

I feel like I'm going to have to work till I die.

Catherine Sullivan (3:57)

For more than a hundred years, the US has been grappling with what retirement should look like and how we should achieve it. At the same time, the challenge has been growing. People are living longer and have many more post-work years than they used to. Who bears the responsibility for funding our retirement? And how is that changing? It's Sunday, March 8th. I'm Catherine Sullivan for the Wall Street Journal. This is USA250, a podcast series connecting America's economic present to its past. We'll be occasionally dropping into your What's News feed over the next few months with stories that interrogate, celebrate, and make sense of our economic history. This is episode 3, America's Road to a DIY Retirement.

James Chappell (4:43)

The fact that a human life is twice as long now as it was just 100 years ago is this enormous shift just in what we expect a life to be. And it struck me that this is one of the biggest challenges morally, ethically, economically, politically that modern societies face.