CPD: Investor Behaviour – Retirement

Understanding your clients’ investment behaviour in retirement to better target your communications, education and insights.

To best understand how and why clients make financial decisions – particularly during retirement – advisers must look beyond technical strategies and consider investor behaviour. Before addressing product selection or income structures, it is crucial to explore the psychological and emotional factors that underpin financial decision-making.

Human behaviour is inherently shaped by a range of cognitive biases, behavioural ‘blinkers which can distort judgement and lead to suboptimal decisions, especially during periods of transition such as retirement. For advisers, the ability to recognise and pre-empt these biases is essential. Doing so not only enhances the advice relationship but also helps clients build confidence, make clearer decisions and achieve greater financial certainty.

This is where behavioural finance becomes an invaluable lens. It examines how real people make financial choices. It acknowledges that many investors are influenced by emotions, limited self-control and subconscious biases. In retirement, these influences can become even more pronounced. Emotion, rather than logic alone, can drive key decisions: when to retire, how to draw down savings, how much to spend and how to react to market volatility. Left unexamined, behavioural tendencies can erode a retiree’s sense of control, affect their spending or investment decisions, and ultimately impact whether they enjoy lasting financial security or risk outliving their savings.

To help clients navigate this, advisers must not only understand behavioural patterns, but they must also frame their advice through the lived experience of retirement. This involves recognising that retirement isn’t a single event, but a multi-phase journey marked by shifting priorities, needs and emotions.

The six stages of retirement

1. Pre-retirement: This stage is marked by a gradual transition away from work and early planning for the future. Individuals begin envisioning their retirement lifestyle and take steps to ensure financial and emotional readiness. Advisers play a central role in assessing financial readiness, exploring income strategies and addressing lifestyle goals.  A personalised retirement plan that incorporates both financial goals and lifestyle preferences, including healthcare, insurance and leisure, lays the foundation for a successful retirement
2. The big event: Whether planned or unexpected, retirement itself marks a major life transition. Advisers help finalise income streams, manage risks such as inflation and longevity, and provide emotional support — particularly in cases of unplanned retirement due to job loss or health issues.
3. The Honeymoon Period: In the early years of retirement, many clients enjoy newfound freedom. This “honeymoon” phase can last months or years, varying greatly among individuals. While retirees indulge in travel and hobbies, advisers help them create sustainable spending plans and ensure essential expenses are covered. Guidance on managing investments during this time is crucial, especially to protect against early market downturns that could jeopardise long-term financial health.
4. Disenchantment: For some, initial excitement fades and is replaced by uncertainty or dissatisfaction, often related to identity, purpose or finances. Advisers can help by revisiting financial and lifestyle plans, realigning goals, and exploring new avenues for engagement such as part-time work or volunteering. This stage is about helping clients rediscover purpose and adapt to the realities of retired life.
5. Reorientation: This is a time for self-reflection and adjustment and clients begin to redefine what retirement means to them. Advisers assist with recalibrating lifestyle and financial plans to reflect evolving values and aspirations, ensuring alignment with long-term objectives. Regular check-ins ensure plans remain relevant and meaningful as priorities shift.
6. Retirement Routine: Clients settle into a lasting rhythm. This phase, which may last many years, still requires active financial oversight. Advisers continue to review financial strategies, manage health-related needs, and help clients adapt to emerging opportunities or challenges. Adjustments might include changing living arrangements or reallocating funds to match new goals or circumstances.

Behavioural insights

A study by Professor Shlomo Benartzi of UCLA^[1], sponsored by Allianz of America, highlighted key behavioural insights for retirees. Knowing these can help you guide clients past common biases for better outcomes, whatever their stage of retirement.

Behavioural insight one: Framing

Framing refers to the way people interpret information based on how it’s presented, rather than on the objective facts alone. In retirement, as clients shift from growing their wealth to generating income, it becomes essential to reframe financial conversations accordingly.

For example, asking a retiree to calculate the investment return they need to meet annual expenses may feel abstract or disconnected. In contrast, asking how much income they need each month to cover their bills is more tangible and relatable. In this context, how the conversation is framed can significantly influence the client’s understanding, mindset, and decision-making. The right framing can help clients focus on what truly matters: financial stability and confidence in retirement.

Behavioural insight two: Vividness

Imagining life 20 years into the future can be difficult — yet that’s exactly the mindset clients need when making financial decisions about retirement.

A study by Professor Daniel G. Goldstein and the London Business School explored this concept by using virtual reality. Participants viewed an age-morphed version of themselves in a mirror and were then asked to allocate funds between current expenses and a retirement account. Those who saw their future selves were more than twice as likely to contribute to retirement savings than those who saw their present-day reflection.

While advisers don’t need VR technology to create impact, similar outcomes can be achieved through practical tools, scenario-based case studies and real-life comparisons. These methods help clients connect emotionally with their future selves, making it easier to understand how today’s financial choices can directly shape their future lifestyle and sense of security.

Behavioural insight three: Hyper loss aversion

Hyper loss aversion describes the heightened sensitivity to financial loss that often increases with age. While individuals in the accumulation phase typically fear losses about twice as much as they value gains, retirees may fear losses up to ten times more. This amplified fear can significantly distort decision-making, particularly when faced with market volatility or the prospect of negative returns.

For retirees, the emotional weight of potential loss can lead to overly conservative or reactive investment choices, which may jeopardise long-term outcomes. That’s why maintaining a sense of control and flexibility is critical. A well-constructed retirement portfolio should include solutions that offer income with a high degree of certainty, helping clients feel more secure and in control of their financial future.

Importantly, retirement strategies must be designed with behavioural realities in mind. Addressing loss aversion, especially in clients who are hyper-sensitive, requires balancing emotional comfort with protection against retirement-specific risks such as longevity and sequencing risk. By doing so, advisers can help clients make more confident, resilient financial decisions in retirement.

Behavioural insight four: Cognitive impairment

While ageing brings valuable experience and insight, it can also affect cognitive function and decision-making abilities. Research has shown that older adults often experience a decline in analytical cognitive functioning; the capacity to learn, reason, remember and solve problems. The same study also revealed a significant drop in financial literacy, including difficulties with numeracy and interpreting visual data like charts and tables.

For retirees, this decline can make it especially challenging to grasp complex financial concepts such as sequencing risk and its potential impact on their retirement savings. When cognitive ability diminishes, even well-informed individuals may struggle to make sound decisions about managing and protecting their income.

To support clients in maintaining financial security and confidence in retirement, it’s important to encourage early and proactive planning. This can include:

1. Locking in a retirement strategy as early as possible to reduce the need for complex decisions later in life.
2. Considering capital protection measures to safeguard retirement savings from significant losses.
3. Securing a regular income stream, ideally through solutions that offer guaranteed lifetime income.
4. Maintaining access to capital to provide flexibility for unexpected expenses or changing needs.

By taking these steps, advisers can help clients protect their financial wellbeing and reduce the cognitive burden of managing complex decisions later in retirement.

Behavioural insight five: Tangible mental accounts

The fear of outliving retirement savings and experiencing investment losses is very real for retirees who rely on their existing assets to generate regular income. At the same time, they may also require access to capital; for example, for unexpected medical expenses or lifestyle goals such as travel.

A practical way to help clients manage these competing needs is by identifying their specific goals and dividing them into separate ‘buckets’. This mental accounting approach allows clients to clearly see how their money is allocated, making it easier to control spending and tailor investment strategies to match each purpose.

For instance, a bucket designated for essential expenses – such as utilities, medications, and groceries – can be invested conservatively to prioritise stability and security. In contrast, a bucket for discretionary spending – such as holidays or luxury purchases – may be invested with a higher risk tolerance to seek growth.

This can be taken a step further by labelling these buckets with meaningful names (e.g. “Everyday Living,” “Health and Care,” “Travel Dreams”) – this adds a personal and emotional connection. It makes the strategy more relatable, helps reinforce spending discipline and provides a clear framework for ongoing conversations about needs, lifestyle goals, and how to best align investments with both.

Behavioural insight six: Inertia

In behavioural finance, inertia refers to the tendency to stick with the status quo, often driven by fear of making the wrong decision, a sense of being overwhelmed, or simply a preference for the familiar. This resistance to change can lead to inaction or a reluctance to revisit past choices, even when circumstances suggest a different course would be more beneficial.

Inertia can be particularly problematic in retirement planning. It may cause clients to delay important financial decisions, avoid necessary portfolio adjustments or remain in underperforming investments.

However, inertia isn’t always negative. In some cases, it can work in a retiree’s favour. For example, by preventing them from reacting emotionally to short-term market fluctuations and abandoning a sound long-term strategy.

Understanding what’s driving inertia – whether fear, decision fatigue, or a desire for comfort – is key to helping clients move forward. Dislodging these behaviours often requires more than logic; it requires tapping into emotional motivation.

Advisers can turn inertia into a tool by setting up default strategies that support good outcomes. Additionally, breaking major changes into smaller, more manageable steps can reduce resistance. Clients are more likely to accept a series of small adjustments than a single large shift. This approach provides a sense of control and reduces decision anxiety, making it easier for retirees to act, even if that action is simply staying the course on a well-constructed plan.

Behavioural insight seven: Evaluability

Evaluability refers to our natural tendency to prefer making decisions based on simple, like-for-like comparisons. When faced with two options, one easier to understand than the other, people often choose the simpler option, even if it’s not the most suitable for their needs. This bias can lead to decisions based on ease of evaluation rather than actual value or effectiveness.

Professor John Payne of Duke University^[2] highlights that to counter evaluability bias in retirement income planning, advisers should adopt a new approach to communication – one that frames product features and outcomes in measurable, relatable terms. This means avoiding unnecessary complexity or industry jargon and instead presenting clear, quantifiable comparisons that are relevant to each client’s personal circumstances.

Using an “apples-with-apples” comparison approach can help clients better assess options, but it’s equally important to contextualise those options within the client’s broader retirement goals. Without this context, there’s a risk that more complex, yet potentially more suitable, solutions are dismissed simply because they’re harder to evaluate.

In retirement planning, this bias can lead to missed opportunities. To keep things simple, clients may reject sophisticated products that offer better protection, income certainty, or longevity management. As retirement income products continue to evolve, advisers need to help clients see beyond surface-level simplicity.

It is important that you and your clients remain open-minded. Many modern retirement solutions come with inherent complexity, but when evaluated through a structured lens, considering likely benefits, consequences and costs, their value becomes clearer. Interactive tools, scenario simulators or case studies can help translate complex options into relatable, real-world outcomes. This makes it easier for clients to understand and engage with the best strategy for their retirement.

Behavioural insight eight: Money illusion

Most people underestimate the long-term impact of inflation on their retirement savings. They tend to think in nominal dollars – focusing on current prices – rather than adjusting for how inflation erodes purchasing power over time. This can have serious consequences for a retiree’s standard of living and overall quality of life.

The value of a dollar today won’t be the same in 10, 15 or 20 years. Even modest inflation rates can significantly diminish purchasing power. For example, a three percent inflation rate compounded over 10 years reduces purchasing power by around 25 percent. Over 20 years, that same rate can cut it by nearly half. For retirees on a fixed income or drawing from a set pool of savings, this erosion can mean falling short of covering essential expenses like healthcare, housing or everyday living costs.

This disconnect is known as the money illusion – the tendency to focus on nominal dollar amounts rather than real (inflation-adjusted) values. Research has shown that people often base decisions on the face value of money, overlooking how inflation affects its actual worth. For instance, preferences between inflation-indexed and non-indexed income streams can shift dramatically depending on how the risk is framed.

Fortunately, the money illusion can be mitigated. The same study found that when the effects of inflation on real dollars were clearly demonstrated, people were more likely to make informed, rational choices. This highlights the importance of how information is presented.

For advisers, helping clients understand the true, inflation-adjusted value of their future income is essential. Using simple tools or visual aids to show how inflation impacts long-term purchasing power can lead to better decisions – and help ensure clients are financially prepared not just for retirement, but for the decades that follow.

Behavioural finance checklist

Behavioural finance has the potential to reshape the financial lives of retirees and can help add a human dimension to the design of a client’s retirement income strategy. The following checklist^[3] has been designed to provide a practical framework of questions to explore with clients to help overcome these common bias and cognitive behaviours.

The checklist provides a question derived from each of the above insights.

1. Is the retirement income strategy framed in terms of the monthly income a retiree will receive?
2. Are the implications of today’s financial decisions vividly presented so clients see how their future life will be affected?
3. Is the strategy appropriate for retirees who are hyper-sensitive to losses?
4. Are the number and complexity of choices manageable for older individuals?
5. Can retirement income decisions be made before the onset of cognitive impairment?
6. Do your clients’ retirement income strategies offer flexibility for multiple accounts to facilitate different goals, such as paying the rent or spending money on holidays?
7. Are retiree investors, carried by inertia, assigning themselves to the most appropriate investment options?
8. Does the language and context used to describe the retirement income strategy make it easy to evaluate its features as they relate to the client?
9. Does the retirement income strategy provide some inflation protection?

The transformative power of behavioural finance goes far beyond theory – it has real, lasting implications for the financial wellbeing of your clients. By weaving behavioural insights into the advice process, you can strengthen retirement income strategies while addressing the human factors that so often drive decision-making.

Retirement is not a single event, but a dynamic and evolving journey made up of distinct stages, each bringing its own challenges, emotions and financial considerations. Recognising the behavioural biases that can shape your clients’ choices is key to helping them avoid common pitfalls and stay aligned with their long-term goals.

By combining a deep understanding of investor behaviour with a structured approach to the six stages of retirement, advisers can offer more personalised, empathetic and effective guidance. This empowers clients to face both the emotional and financial complexities of retirement with greater clarity and confidence and ultimately support a retirement that is not only financially secure, but personally fulfilling.

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References:
[1] Behavioural Finance and the Post-Retirement Crisis, Shlomo Benartzi, UCLA, 29 April 2010
[2] Simonson, I., Bettman, J. R., Kramer, T., & Payne, J. W. (2013). Comparison selection: An approach to the study of consumer judgment and choice. Journal of Consumer Psychology
[3] Behavioural Finance and the Post-Retirement Crisis. Prepared by Shlomo Benartzi, UCLA. Sponsored and submitted by Allianz of America, 29 April 2010; A Behavioural Finance Checklist for Retirement Income Strategies

This material is issued by Allianz Australia Life Insurance Limited, ABN 27 076 033 782, AFSL 296559 (Allianz Retire+). Allianz Retire+ is a registered business name of Allianz Australia Life Insurance Limited. This information is current as at August 2025 unless otherwise specified and is for general information purposes only. It is not comprehensive or intended to give financial product advice. Any advice provided in this material does not take into account your objectives, financial situation or needs. Before acting on anything contained in this material, you should speak to your financial adviser and consider the appropriateness of the information received, having regard to your objectives, financial situation, and needs. No person should rely on the content of this material or act on the basis of anything stated in this material. Allianz Retire+ and its related entities, agents or employees do not accept any liability for any loss arising whether directly or indirectly from any use of this material.