Longevity Credit Pooling for Retirement Prediction Accuracy
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Solution Overview
Problem
Retirement planning tools often rely on deterministic models that fail to account for uncertainties in future rate of return and life expectancy, leading to misleading portfolio value predictions for investors.
Innovation Solution
A computer-based system that manages a 'longevity credit' by pooling investments among members, reallocating funds from deceased members to surviving ones, and providing payouts based on pre-agreed rules, using AI to determine deaths and encryption for security.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If deterministic models are used to calculate portfolio value, then the calculation is simple and straightforward, but the prediction accuracy is low and may be misleading due to uncertainties in future rate of return and life expectancy
Solution Approach 1:
The patent introduces a mortality risk factor as an intermediary element that mediates between the deterministic model and the uncertain future outcomes. By incorporating this intermediate factor that accounts for life expectancy variations, the system bridges the gap between simple deterministic calculations and the complex reality of uncertain returns and lifespans, thereby improving prediction accuracy without requiring full complexity of stochastic models
Solution Approach 2:
The patent changes the parameters of the deterministic model by introducing adjustable mortality risk factors and life expectancy variables. These parameter changes allow the model to adapt to different uncertainty scenarios while maintaining the computational simplicity of deterministic frameworks, thus improving prediction accuracy without proportionally increasing model complexity
2Reliability
If traditional retirement calculators are used, then the ease of operation is high, but the reliability is low because they do not account for mortality risk and life expectancy variations
Solution Approach 1:
The patent extracts the mortality risk component from the traditional retirement calculation framework and treats it as a separate, manageable factor. By isolating this critical element, the system can incorporate it into the calculation without fundamentally redesigning the entire calculator interface or operation flow, thus maintaining ease of operation while significantly improving reliability
Solution Approach 2:
The patent performs preliminary assessment of mortality risk and life expectancy factors before the main retirement calculation. By pre-evaluating these reliability-critical parameters, the system can integrate them seamlessly into the final calculation without requiring additional user input or complex interactions, thereby maintaining user-friendly operation while enhancing overall reliability
3Reliability
If pooled investment with longevity credit is implemented, then the financial return certainty is improved, but the device complexity increases due to fund management and reallocation mechanisms
Solution Approach 1:
The patent merges multiple individual investment accounts into a single pooled investment vehicle. By combining the funds and mortality risk exposures of multiple participants into one unified structure, the system achieves economies of scale in management and automatically realizes longevity credits through the pooling mechanism, thereby improving financial return certainty without requiring complex individual account management for each participant
Solution Approach 2:
The pooled investment structure serves multiple functions simultaneously: it provides investment growth, manages mortality risk collectively, allocates longevity credits, and simplifies administration. This multi-functionality allows the system to achieve reliable financial returns through a single unified mechanism rather than requiring separate complex systems for each function
4Measurement precision
If AI technology is used to determine death occurrence, then the measurement precision is improved, but the use of energy and computational resources increases
Solution Approach 1:
The patent applies AI technology selectively rather than universally - using it specifically for death determination where high precision is critical, while relying on other simpler methods for routine tracking. This partial application of advanced technology achieves the necessary measurement precision for mortality assessment without consuming excessive computational resources across the entire system
Data Source
AI summary
A computer method and system for processing data for a constituency of investment pool members wherein each member is a participant to an investment transaction product that is in-part dependent upon other member's investment transaction products. Initial user inputs are received for defining an investment transaction product for a user in the constituency of pool members, comprising at least an initial funding amount and one prescribed user payout age. Electronic documentation is associated with the user investment transaction product which can provide encrypted security for the user investment transaction. Upon determination of a death a portion of a pool member's funds, determined to have deceased prior to their prescribed user payout age, is reallocated to investment funds associated with surviving pool members. A determined payout distribution is provided to a pool member upon the occurrence of a pool member reaching their prescribed user payout age.