The Two-Chapter Retirement framework highlights how behavioural biases can shape retirement planning and decision-making.
Introduction
Why do financially secure retirees still hesitate to spend, or commit to strategies that would clearly improve their outcomes?
This article sets out the Two-Chapter Retirement framework, a new way of understanding retirement not as one continuous journey, but as two psychologically distinct phases which clients experience very differently.
Chapter One is the near-term future clients can easily picture: the active years when they’re most open to advice about lifestyle and access to capital. Chapter Two is the distant, harder-to-imagine future, where fear and uncertainty tend to drive overly cautious, defensive decisions.
Drawing on recent Australian research into retiree behaviour, the article explores why this two-chapter mindset produces predictable patterns – declining spending over time, a bias toward minimum drawdowns, and a reluctance to commit to strategies perceived as hard to unwind – and what this means for how advice should be delivered. It examines the practical implications for advisers, including how income layering can help clients achieve both certainty and flexibility, rather than being forced into a choice between the two.
Decision paralysis: The emerging risk to retirement outcomes
For many Australians, the greatest emerging threat to retirement outcomes is no longer market volatility or inadequate savings, but a hesitancy to make the decisions retirement requires. Increasing system complexity and behavioural biases are leaving many otherwise well-resourced retirees reluctant to spend, commit capital or implement strategies that could improve both their financial and emotional security.
Recent Australian research[1] has reinforced how this persistent decision paralysis among retirees is creating a gap between the retirement they have the financial capacity to achieve, and the retirement they feel confident to live.
While traditional retirement income planning focuses on sustaining target income levels, processes alone cannot resolve the deeply held concerns that lead many retirees to live an overly cautious and constrained retirement. To build genuine confidence, advisers must recognise the underlying tension clients experience between enjoying the present and managing the uncertainty of the future.
In practice, this tension manifests as a ‘two-chapter’ view of retirement: an initial 10–15-year period of active, healthy, ‘golden years’ that clients can readily envision and plan for, followed by a later, more uncertain period characterised by anxiety about health, longevity and financial needs.
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 clients as they balance the desire to live well today with the need to remain secure tomorrow.
How retirees actually think about the future
Many advisers will be familiar with the often-quoted work by Michael Stein – author of The Prosperous Retirement[2] – which envisaged retirement spending in three phases: ‘Go-go’ (the early active years when health, energy and independence are at their peak), ‘Slow-go’ (when declining health and shifting priorities see a less active life), and ‘No-go’ (when activity related spending stops but healthcare spending goes up).
While this work may be useful in understanding the typical shape of retirement spending, it is less valuable as a way of understanding client decision processes, because this is not the way clients think. Rather, they tend to think about the future in just two parts – the near-term future which they can vividly imagine, and the distant future which they are largely incapable of picturing, and which is therefore associated with fear and uncertainty.
A recent Australian qualitative study[3] brought this two-chapter mindset to life.
Surveying a wide cross section of pre-retirees and retirees, Accenture researchers observed:
“Whatever the journey towards retirement, almost all see their retirement in two distinct chapters”.
Those chapters were described as:
- Chapter One – ‘Maximising enjoyment of retirement’; and
- Chapter Two – ‘Slowing down and getting by’.
The two-chapter mindset is also grounded in a wider body of research[4] – including work by the Conexus Institute – into the effect of behavioural and decision biases on retirement planning. These include myopia, present bias, and hyperbolic discounting, which limit our ability to effectively plan for the long term, and see us apply an irrationally large discount to the value of future benefits.
Some researchers[5] have even suggested we think in terms of two selves – our present self and our future self– going as far as to suggest our distant future self ‘feels like a stranger’, and saving is like a choice between spending money today or ‘giving it to a stranger, years from now’. This separation between our two selves makes future planning decisions difficult, which often sees another decision bias – procrastination (decision inertia) – come to the fore.
Chapter One: The retirement clients can see
Ages 60 – 75
When clients first sit down to plan retirement, the part of the future they engage with most readily is the near-term period immediately following the end of full-time work. In this chapter, they can vividly imagine how they will spend their time, the lifestyle they want to maintain and the experiences they hope to enjoy while health and independence are intact.
Because this chapter feels tangible and controllable, decision-making is driven by aspirations rather than constraints. Clients think in terms of possibilities: the trips they will take, that new car or home renovation, the time they will spend with family. Financial discussions are framed around enabling this lifestyle, with clients likely to be receptive to strategies that support spending, flexibility and access to capital.
However, even at this early stage, opposing forces are at work.
The pressure to ‘do it all now’ while still healthy and active conflicts with the knowledge that the future is uncertain, and unforeseen events could derail plans. Paradoxically, many will hold back from experiences they aspire to, struggling to confidently enjoy this part of their retirement.
In this chapter, confidence becomes a critical facilitator of decision making, action, and commitment. When clients feel assured that their long-term needs have been considered, they are more willing to spend and commit to experiences. Without that assurance, even financially well-prepared clients may hesitate, preferring to preserve options rather than fully embrace the golden years they envisaged.
Chapter Two: The retirement clients cannot see
Ages 75 to 90 and beyond
In contrast to Chapter One, the later period of retirement exists largely as an abstraction at the planning stage. Clients know it will occur, but struggle to picture what it will look like, or what their resource needs will be.
Clients worry about longevity, medical costs, market downturns and loss of independence, but cannot specify the magnitude or timing of these risks. Accenture’s research found that clients may be reluctant to discuss these issues in depth and may even avoid thinking about them altogether.
Because this chapter is distant and uncertain, it is processed primarily through fear-based heuristics rather than detailed planning. This leads many to defer decisions about the future, or to make highly defensive decisions, such as preserving capital, avoiding irreversible commitments and favouring flexibility even when it comes at the expense of tangibly better financial outcomes.
Confidence plays a different – but equally critical role – in chapter two planning. Rather than being an enabler of action, it provides reassurance. Clients seek strategies that reduce uncertainty and ensure that essential needs will be met regardless of how circumstances unfold. When this reassurance is absent, reluctance to spend or commit resources in the first chapter intensifies, because the future feels unsecured.
Behavioural outcomes of the two-chapter mindset
The mental framing of each chapter is not just conceptual, it translates into consistent behavioural patterns observed across spending, decision inertia, and product preferences.
Retirement spending is not steady or smooth
Analysis of data from Australia’s HILDA survey[6] and the ABS has shown that total household expenditure typically declines across retirement rather than remaining stable, likely reflecting a combination of reduced physical capability, increasing risk aversion and precautionary behaviour in the face of uncertain future needs
Various experts have sought to quantify the extent of this ‘front loading’ of spending.
One researcher[7] estimated that the median retired couple’s expenditure falls by more than one-third (36.7%) as they move from their peak spending years in early retirement (65 to 69 years of age) and into older age (85 years and beyond). The decline in expenditure for couples was found to be relatively stable in the early years of retirement at about 6% to 8% across each four-year age band, but then rapidly accelerates once retirees pass 80 years of age.
Decision inertia and default bias contribute to frugality and loss
2025 research by the Grattan Institute[8] linked the cognitively overwhelming complexity of retirement with decision inertia and default bias. In their ‘Simpler Super’ study, 80% of respondents said they found retirement planning complicated, with half (40%) of those saying it was very or extremely complicated.
That same study also found around half of all retirees with account-based pensions draw only the legislated minimum, of whom around one in five falsely believe this figure to be what the government has recommended. A clear reluctance to spend was observed, driven by uncertainty about the future, health concerns, and fear of outliving savings, ultimately resulting in more than 40% of pensioners being net savers.
A Super Members Council (SMC) study[9] from 2025 similarly observed ‘decision paralysis’ across various stages of the retirement journey. One example they cited was the prevalence of people leaving their superannuation in accumulation accounts even after retirement. While noting that for some this may have been an active decision, their conclusion was that for the estimated 700,000 retirees in such accounts, this was likely explained by complexity-driven decision inertia. They estimated the cost of this inertia to be up to $136,000 per retiree[10].
Flexibility and liquidity preference
Both the Grattan and SMC studies also highlight a consistent behavioural preference for flexibility over commitment in retirement decision-making.
Grattan notes that strategies designed to mitigate longevity risk often require retirees to surrender liquidity and control, creating trade-offs many are reluctant to accept, while SMC similarly identifies low understanding and concerns about locking away capital as key barriers to lifetime income products. Together, these findings reinforce the idea that a reluctance to commit is not merely caution, but a deep emotional preference for optionality.
The irreversibility barrier
Decisions about the distant future become especially difficult when they are perceived as hard to reverse. Retirement planning often involves multiple commitments of this nature, from housing and capital allocation to income structuring and family support.
Within the two-chapter context, enabling clients to enjoy the early years of retirement requires making them confident that the uncertain later years are secured. Yet the strategies advisers typically use to provide that security – such as establishing a layer of guaranteed future income – can often require a degree of commitment that clients fear may lead to regret or loss of control.
Research[11] into long-term financial decision-making shows that when a strategy requires retirees to lock in arrangements they perceive as not easily unwound, they effectively apply an ‘irrevocability aversion discount’ to the benefits of that strategy.
The regret aversion bias amplifies this effect. Retirees anticipate the possibility that a decision made today could prove wrong in hindsight, particularly in the face of uncertain longevity, health costs or family circumstance, and therefore delay or dilute commitments that feel permanent.
To the extent that such decisions result in sub-optimal long-term outcomes, irreversibility fears become a risk in their own right, a risk that – along with sequencing, longevity, and other retirement risks – advisers must seek to mitigate.
From insight to action: advice implications
1. Prioritise early decisions while capacity is highest
Research[12] has shown that our fluid intelligence – our capacity to learn new things – peaks at age 40. Given the complexity of retirement, the window for high impact decisions is therefore at the start of retirement, not later.
This of course creates a challenge for advisers: the strategies that will most influence long-term outcomes are often those clients feel least comfortable committing to early.
However, difficult this may be, establishing a durable foundation for later life, particularly in terms of income security and longevity protection, will allow clients to approach the first chapter of retirement with greater confidence, knowing that essential needs in the second chapter have already been addressed.
2. Treat confidence as the primary behavioural lever
Across both chapters, confidence emerges as the variable that determines whether clients act on advice or retreat into caution. In the early years, confidence enables spending, experiences and lifestyle decisions. In later years, it provides reassurance that essential needs will be met.
Importantly, confidence is not created by comparing income projections against some target level. It arises when clients feel that uncertainty has been managed in a way that preserves both security and control. Strategies that appear financially optimal but psychologically challenging are unlikely to be adopted, regardless of modelling outcomes.
For advisers, this reframes retirement planning from a purely financial optimisation exercise into a human confidence-building process.
3. Income layering as ‘commitment diversification’
The central challenge revealed by the two-chapter mindset is that clients seek certainty and flexibility simultaneously. They want assurance that their future needs will be met, but without feeling that they have surrendered control of their capital made irreversible decisions.
Income layering provides a structural solution to this dilemma. Advisers can construct a plan of diversified income sources, each with different characteristics of certainty, liquidity and reversibility. Layers might include an account-based pension, a lifetime income stream, the age pension, along with other income sources.
In this framework, the client doesn’t risk regret by committing to a single strategy. A guaranteed income layer (comprising the age pension and a lifetime income solution) can secure the foundation of later-life needs, while more flexible components preserve access to capital and adaptability as circumstances evolve. In effect, as well as diversifying income streams, the client is also diversifying commitment levels.
By ensuring that long-term financial security does not depend on committing all capital to arrangements perceived as hard-to-unwind, income layering reduces the psychological barrier to early action. Rather than forcing a choice between certainty and control, it allows advisers to establish a durable income floor while retaining optionality for the years ahead. In doing so, it directly addresses the behavioural constraints identified throughout this paper, enabling clients to act with confidence at the outset of retirement while preserving flexibility across both chapters.
A new paradigm for retirement planning
Viewed through the two-chapter lens, retirement planning is not about choosing between certainty and flexibility, but about structuring both in a way that aligns with how clients actually think about the future. Strategies that address only one dimension will struggle to overcome decision paralysis.
The most effective retirement frameworks will therefore be those that:
- Secure essential lifetime needs early
- Preserve flexibility for evolving priorities
- Build confidence across both chapters simultaneously
When these conditions are met, clients are better able to enjoy the retirement they can see without fearing the one they cannot.
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References
[1] https://smcaustralia.com/app/uploads/2025/10/251028-SMC-Retirement-Report-2_Final-.pdf
[2] https://www.morganstanley.com/cs/pdf/10078209-Retirement-Spending-Reality.pdf
[3] Allianz Retire + research: retiree insights, November 2024, conducted by fiftyfive5, part of the Accenture Song group.
[4] https://theconexusinstitute.org.au/wp-content/uploads/2025/02/Retirement-explainer-11-Behavioural-influences-on-retirement-decisions.pdf
[5] https://pmc.ncbi.nlm.nih.gov/articles/PMC3949005/pdf/nihms550109.pdf
[6] https://www.legacy.challenger.com.au/-/media/shared/challenger/document/research/crir-spending_patterns_in_retirement.pdf
[7] https://au.milliman.com/en/insight/analysis-retirees-spending-falls-faster-than-expected-into-old-age
[8] https://grattan.edu.au/wp-content/uploads/2025/01/Simpler-Super-Grattan-Institute-Report.pdf
[9] https://smcaustralia.com/wp-content/uploads/2025/10/251028-SMC-Retirement-Report-2_Final-.pdf
[10] https://smcaustralia.com/media/complexity-in-the-super-system-could-cost-new-retirees-up-to-136000-in-retirement-new-report/
[11] https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID4555546_code3520657.pdf?abstractid=4555546&mirid=1
[12] https://www.netwealth.com.au/web/media/378487/2020-05_netwealth_retirement-advice.pdf
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The following CPD quiz is accredited by the FAAA at 0.5 hour.
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