American ETF provider Stone Ridge has come up with a simple product that has the potential to help income poor Americans entering their ninth decade secure an income till they are 100. The FT reports
Stone Ridge aims at retirement market with ‘longevity income’ ETFs https://t.co/Sh8N7B8CAq via @ft
— Josephine Cumbo (@JosephineCumbo) July 3, 2024
Initially, the funds will invest in US Treasuries and US government money market funds, while a companion suite dubbed Inflation-Protected Longevity
Income ETFs will start out investing primarily in Treasury Inflation-Protected Securities as well as government money funds, generating monthly distributions equal to $0.0833 per outstanding share of the fund, for a total of $1 per share per year.
The “modelled cohort” of investors will turn 80 starting in 2028, when they become eligible to channel their shares into a corresponding closed-end fund designed to maintain the monthly distributions for the next 20 years.
Alternatively, investors could remain invested in the fund past the age of 80, receiving “term income” distributions adjusted to last 20 years.
Another option: investors could mix the term-income and closed-end fund allocations.
The ETF and corresponding closed-end fund would then liquidate in December of the target year, as both would have distributed substantially all of their assets by that time.
The SeLFIE, pioneered by Arun Muralidhar, is a variant on this product. It is not target dated so more generally applicable , but it too provides a strip of payments and like the Stone Ridge ETF is purchased for predictable outcomes , not for speculative purposes.
It must certainly is not designed to provide inherited wealth but to help people with a wage for life solution. We are told that Stone Ridge will be partnering with a major US insurer for those who want any residual capital to purchase an annuity, annuity rates for 100 year old purchasers are likely to be attractive!
This is a capital markets solution to an insurance problem; it is encouraging that insurers are being challenged in this space and it will be interesting to see the popularity of what is likely to be a low cost alternative to the annuity.
For those who want self-determination rather than collective pensions, this seems to me an attractive concept and it will be interesting if it will be picked up by the likes of BlackRock and L&G and imported into the UK.
If any fund manager is working on such a product and would like to contact me, I would be pleased to have a conversation – we need such innovation in the UK for the many people who need simple solutions to the financial problem of growing old – how to make your money last as long as you do.
Joe Biden should be in the queue. I would be surprised if his name doesn’t get linked to the product!