Many retirees can afford a comfortable retirement – yet hesitate to spend, delay decisions or default to caution.
New research from Allianz Retire+ has identified decision inertia, driven by a powerful fear of commitments perceived as irreversible, as an emerging risk to retirement outcomes for otherwise well-prepared Australians.
Many retirees can afford a comfortable retirement – yet hesitate to spend, delay decisions or default to caution, according to a new white paper released by Allianz Retire+.
The behavioural cost of this inaction is clear across the Australian retirement system. Around 700,000 retirees leave their superannuation in accumulation after retiring, costing individuals up to $136,000, while around half of account-based pension holders withdraw only the minimum required, leading many to live more cautiously than their savings actually demand.
While many financial risks can be managed through diversification and portfolio construction, longevity risk remains fundamentally different. It cannot be diversified away within an individual retirement portfolio.
When retirees lack protection against the risk of outliving their savings, advisers are forced to manage longevity as a probability rather than a certainty, a reality that often drives underspending, heightened caution and lower confidence in retirement.
David Kane, Chief Executive Officer, Allianz Retire+, said advisers face a unique challenge when it comes to longevity risk.
“Longevity is the one major retirement risk advisers can’t meaningfully diversify away. While markets can be modelled and managed over time, traditional asset allocation strategies can’t insure against the risk of outliving your savings.
“Guaranteed lifetime income is not a product preference, it is a structural planning tool that helps advisers discharge their duty of care by securing essential income for life, and in doing so, gives clients the confidence to enjoy the years they can without fearing the years they can’t.”
The paper ‘The two-chapter retirement’ brings together a wide body of evidence spanning behavioural research, Australian and global retirement studies, economic data and adviser practice insights to explain this persistent disconnect. The paper synthesises this evidence into a single, coherent framework that reflects, generally, how retirees may actually think, feel and make decisions.
The ‘Two-Chapter Retirement’ framework highlights how many people experience their retirement journey as two psychologically distinct phases:
- an active, aspirational early chapter they can clearly imagine; and
- a later, more uncertain chapter associated with caution, fear and complexity.
Mr Kane added: “What we see is not the result of financial illiteracy or inadequate savings. These are clients who are well resourced and understand their position and yet are still reluctant to act.
“The constraint is behavioural, and no amount of additional information or projections are likely to help. Instead, advisers need a fresh approach which reframes levels of commitment and stresses the exit ramps in any retirement income strategy.
“The retirement system is getting more complicated, and many people aren’t aware of products that can give them guaranteed income. Combined with natural hesitation about large financial decisions, this is leaving many retirees unclear on their spending capacity and holding them back from plans that could help them enjoy the retirement they’ve worked hard for.”
These same patterns have played out consistently across decades of experience for Allianz in the United States at greater scale. In a 2024 survey by the Allianz Centre for the Future of Retirement, 85% of respondents said they find it easier to spend when they know their basic needs are covered, with 68% saying that the fear of unexpected expenses prevents them from wanting to spend money.
The white paper outlines the benefits of guaranteed income solutions, and the positive impacts for retirees when their advisers include these products as an option in their planning discussions.
“New-era retirement income solutions offer flexible access to capital and growth with downside protection not seen in older-style annuities.” Mr Kane said.
“Advisers who can help their clients distinguish between what is genuinely irreversible and what merely feels that way will materially shift their clients’ willingness to act, and will ultimately improve both their clients’ financial and emotional security.”
The ‘Two-Chapter Retirement’ framework represents a new paradigm for retirement planning. Recognising this two-chapter mindset is essential because it shapes how clients respond to advice, perceive risk and evaluate strategies from the outset. Viewing retirement planning through this lens allows advisers to better support their clients as they balance the desire to live well today with the need to secure tomorrow.