Coworker influence on annuitization decisions: Evidence from defined benefit plans

Abstract We investigate the role of coworker influence on an individual's annuitization decision. Using rich data on payout options and decisions in defined benefit plans, we find that past payout choices of coworkers significantly affect an employee's decision to annuitize at retirement and that the coworkers’ payout choices have a larger economic effect on annuitization than recent stock market returns. We also find that coworker effects are greater for employees who have a similar level of benefit amounts, those who share geographic proximity (same ZIP code), and those who retire at a norm (modal) retirement age of their workplace. Robustness tests show that estimated coworker effects are unlikely to be driven by unobserved common environments or similar preferences.