Stock Market Returns and Annuitization

39 Pages Posted: 19 Mar 2010 Last revised: 21 May 2010

See all articles by Alessandro Previtero

Alessandro Previtero

Indiana University - Kelley School of Business - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 2010


I document a strong negative relationship between stock market returns and annuitization. Using a novel dataset with more than 103,000 actual payout decisions, I find that positive stock market returns decrease the likelihood of employees choosing an annuity over a lump sum, and vice versa. More precisely, only recent market performance drives annuitization with almost no weight assigned to returns two years before the decision date. Investigating two additional datasets, I document that financial education does not mitigate this result and that stock market returns affect individual annuity sales in a similar way. Several explanations can account for these findings: wealth effects generated by movements of the stock market; endogenous timing of retirement; volatility of stock market returns and time varying risk aversion; and expectations about labor income or inflationary periods. After addressing these explanations, I present evidence consistent with employees extrapolating from recent stock market returns.

Keywords: Household Finance, Annuities, Myopic Extrapolation, Wealth Effects

JEL Classification: D14, G11, G22, H55

Suggested Citation

Previtero, Alessandro, Stock Market Returns and Annuitization (February 15, 2010). Available at SSRN: or

Alessandro Previtero (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

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National Bureau of Economic Research (NBER) ( email )

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