Stone Ridge Asset Management of New York is introducing a new line of bond funds that utilize longevity pooling to deliver a high monthly paycheck in retirement through age 100—without using annuities or any other insurance products.
The new fund family, which is expected to launch in January, is called LifeX. “LifeX invests in Treasurys, rather than riskier assets such as stocks or high yield bonds, to generate reliable monthly payouts for investors,” said Nate Conrad, head of LifeX, in an email interview. “The stability of these payouts makes them particularly powerful as a financial planning tool in the post-paycheck years.”
The reason these funds differ from other bond funds, and can offer unusually high monthly distributions, is that they use longevity pooling to maximize the monthly payouts. Longevity pooling is a way of gauging risk, largely based on the ages of the members of the investment pool. It’s a formula commonly used in life annuities. In this case, the longevity pooling is derived from actuarial data from New York Life.
This longevity pooling, however, means that inheritability is somewhat limited. If a shareholder dies before age 80, his or her heirs can sell the shares at their net asset value, just like with any other mutual fund. But if a shareholder passes away after age 80, the shares will be “canceled at zero value,” said Conrad—unless the account was held by a married couple, in which case the surviving spouse inherits whatever percentage of ownership she or he had in the original investment. If, for example, ownership was evenly split 50-50, the surviving spouse will continue to receive 50% of the payouts.
Any residual value forfeited by the death of an investor goes to surviving stakeholders in the fund. “That’s what enables LifeX to make high distributions through age 100,” he said, adding, “The dollar amount of distributions a living investor receives each month, starting the month after they purchase shares of LifeX, does not depend on how many others have passed away.”
In an extreme case where people live significantly longer than actuarial tables predict, the fund might end a year or two earlier than age 100, the company said.
That's why, when it debuts in January 2024, it will only be available to people between age 60 and 75.
Both will be available exclusively through financial advisors, primarily fee-only fiduciary advisors. There will be no minimum investment. The funds are expected to have an expense ratio of 1.00%.
“We have unlocked the ability for financial advisors to deliver high fixed or inflation-protected monthly payouts to their clients for life through age 100,” said Conrad.