Download this Paper Open PDF in Browser

Stock Market Returns and Annutization at Older Ages

62 Pages Posted: 19 Mar 2012 Last revised: 3 Dec 2012

Alessandro Previtero

Indiana University - Kelley School of Business - Department of Finance

Date Written: November 15, 2012

Abstract

Using a novel dataset with over 100,000 actual payout decisions, we investigate the nature of the strong negative relationship between recent stock returns and the annuitization of retirement savings. After controlling for several standard explanations (e.g., wealth effects), we present evidence supporting naive beliefs and extrapolation from past returns. The effect of recent returns on annuitization dramatically increases with age, confirming that the elderly rely most heavily on recent information. Our results provide insights into how beliefs are formed in old age and have implications for the design of public policies seeking to promote annuitization.

Keywords: household finance, retirement Income, annuities, myopic extrapolation, wealth effects

JEL Classification: D14, G11, G22, H55

Suggested Citation

Previtero, Alessandro, Stock Market Returns and Annutization at Older Ages (November 15, 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: https://ssrn.com/abstract=2024125 or http://dx.doi.org/10.2139/ssrn.2024125

Alessandro Previtero (Contact Author)

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

1309 E. 10th St.
Bloomington, IN 47405
United States
+1 (512) 581-5420 (Phone)

HOME PAGE: http://aleprevitero.com

Paper statistics

Downloads
153
Rank
161,864
Abstract Views
960