As clients manage their assets in retirement, irrational hopes and fears can get in the way of sound financial decision-making. We look at some of the common behavioural biases that can hinder good outcomes, and the strategies to help overcome them.
Read this article to understand:
- Some of the most common behavioural biases that arise in retirement
- How they can impact a client’s investment and life goals
- Strategies that can be used to overcome these behavioural barriers
On average, as of 2026, people in the UK will spend 20 to 22 years in retirement, some of which could be spent in poor health. As advisers well know, that’s a long time to live off your savings. And while more people are working longer, coming out of retirement, or switching to part-time or flexible work as they age, the pension pot is still a vital foundation for a comfortable later life.
This makes managing retirement income and assets a complex issue. And it can be made more difficult by clients’ hopes and fears, and the behavioural biases that can keep them from making the best decisions.
Why this matters for advisers
Understanding behavioural biases is central to the value advisers deliver in retirement.
- Protect outcomes: Prevent costly mistakes like panic selling or overspending
- Demonstrate value: Behavioural coaching shows clear value beyond asset allocation
- Build trust: Guiding clients through uncertainty strengthens long-term relationships
- Support sustainability: Help clients manage sequencing and longevity risks
- Improve retention: Clients who feel supported are more likely to stay invested
Ultimately, managing behaviours is as important as managing money – and it is an area where advisers can have a huge impact.
Goals and concerns
Clients want a lifetime income and to prepare for long-term costs of care. Three-quarters of adults over the age of 65 will face care costs, and for one in seven, those costs will be more than £100,000.1
Clients are also looking to help younger family members, today and in the future. They want to ensure their wealth is preserved and passed on tax-efficiently. Recent changes to inheritance tax mean it might now make sense to consider giving money away while retirees are alive.2
Those goals also match clients’ top concerns (see Figure 1).
Figure 1: Clients’ top concerns about retirement (per cent)
Source: Aviva Investors, NextWealth. Data as of February 2024.
Yet most people wish to enjoy their retirement too, and their spending doesn’t fall sharply once they’ve left work.Three quarters hope to maintain the same standard of living they enjoyed while working.3
The 2015 pension freedoms also changed clients’ approach to drawing an income, as people could suddenly take capital from their pension savings. Annual annuity sales fell from 420,000 in 2012 to under 60,000 in 2021. They have recovered recently, with over 80,000 bought in 2024, but overall, more people are withdrawing unsustainable levels of income.4
With careful planning and good investment advice, many clients could find ways to achieve their goals despite these complexities. The biggest challenge is in fact their behaviour when faced with uncertainty.
Nerves trump numbers
In difficult or emotional situations, the human mind has a strong tendency to resort to the automatic behaviours that have worked well in the past, and to use shortcuts to make decisions. There are many benefits to this behaviour in day-to-day life, and it’s allowed us to survive and thrive over millennia. But when it comes to finance, it can be highly damaging (see “The seven deadly sins of investing”).5
A number of behavioural biases can influence clients’ investment and retirement planning decisions. Here are a few of the most dangerous.
Present-day bias: This is when people prioritise the now over the future. In retirement, it can mean spending too much in the early years, leaving too little for later.
Loss aversion: The pain of losing outweighs the pleasure of winning. The most obvious example of this is when investors panic and sell assets in the middle of a downturn, which can lead to significant losses.
Status quo bias: This is a desire for the current state to continue, however undesirable it is, or even when better options are available. This can stop clients from adopting solutions that would deliver better investment outcomes.
Why biases matter in retirement
Of course, these biases can have negative consequences for investors of all ages. But once clients retire, their portfolio becomes their main – or only – source of income. That means it can be difficult to top it up if things go wrong, or to find complementary income.
Depending on a limited savings pot that needs to last 20 or 30 years ups the stakes. Sequencing risk – making withdrawals at the wrong time that eat into savings and future income – and longevity risk – running out of capital early – become big hazards.
Depending on a limited savings pot that needs to last 20 or 30 years ups the stakes
Managing those risks as well as possible requires careful consideration and rational approaches. Biases stand in the way, and that’s why they matter.
Loss aversion can push people to sell at the wrong time, and we become more risk averse as we age, making it worse. That increases sequencing risk considerably.
Present-day bias can push people to spend too much early on, to maintain their lifestyle. And status quo bias, the desire to keep things as they are, can significantly impact retirement planning and investment decisions. Clients might resist changing anything to their portfolios, for instance, when other solutions could offer better outcomes. Both these biases can compound longevity risk.
Other biases can also cloud clients’ decisions, lead them to dismiss investment strategies that could offer better outcomes, or push them to buy or sell at the wrong time (see ‘other biases in retirement’).
As Morgan Housel, author of “The psychology of money”, puts it: “Your personal experiences make up maybe 0.00000001 per cent of what’s happened in the world but maybe 80 per cent of how you think the world works”.
The good news is, advisers can help their clients overcome biases and make sound decisions.
The value of a trusted adviser
A simple acronym offers a good reminder of how to approach discussions and help clients overcome their biases (see Figure 2).
Figure 2: The AGE of reason
Source: Aviva Investors.
Once clients feel heard and acknowledged, they will be in a better frame of mind to listen to advice. That can also lower their confirmation bias as it builds trust in their adviser and what he or she might explain.
Going over their long-term goals with them can reinforce the partnership but also push back against present-day and status quo biases. It’s a good reminder for clients to keep planning for decades rather than months, and underlines the importance of adapting their investment strategy to their goals.
Finally, taking a logical approach to discuss possible scenarios and decisions can help keep emotions and fear at bay. Here, data can be a powerful tool.
For example, to push back against loss aversion, a chart like Figure 3 can help convince clients to stay invested through downturns and can greatly reduce their sequencing risk. It demonstrates that volatility and drops in value are a normal part of markets and that, although past performance is never a guarantee, the US stock market has often recovered more than it had lost within 12 months of a fall.
Figure 3: S&P 500 index performance in the year following a market fall, 1957–2022 (per cent)
Past performance is not a reliable indicator of future performance.
Source: Aviva Investors, Lipper. Data S&P 500 total return index in USD, as of 31 December 2023.
Where advisers create value in retirement
- Coaching clients through volatility (reducing panic selling)
- Structuring sustainable withdrawal strategies
- Reframing short-term fears into long-term plans
- Helping clients adapt – not just “stay invested”
Staying the course
As advisers help their clients navigate longer retirements, the cost of living, and the vagaries of markets, overcoming the behavioural biases that might drive them to make suboptimal decisions is vital.
Markets will always be uncertain, but client behaviour is often the bigger risk. Advisers who can guide clients through those moments don’t just protect portfolios. They improve outcomes and build lasting trust.
Other biases in retirement
- Anchoring: A tendency to stick to a familiar reference point, even when it is illogical or no longer relevant. Clients can end up making decisions for the wrong reasons, instead of looking at the relevant data.
- Confirmation bias: Seeking out or accepting information that confirms preconceptions, while ignoring or disbelieving information that contradicts them. It can add to other biases and lead investors to reject unfamiliar options.
- Herd mentality: A tendency to replicate others’ decisions, however irrational. Also known as the bandwagon effect, it’s the force behind meme stocks and other bubbles.
- Representative bias: Overestimating the likelihood of events that are more familiar or recent, even if they are less common than unfamiliar or older ones. An example of this is the mistaken belief that stocks that have recently been going up will necessarily continue rising.
- Hindsight bias: The tendency to believe past events were predictable at the time. This can lead to another bias: overconfidence. Some investors might think they can beat the market, when in fact it’s notoriously hard to do, even for professionals.
- Gambler’s fallacy: The belief that someone who has randomly experienced success is more likely to succeed in future attempts. An extremely dangerous notion in finance.
