In this guide
Have you ever wished you could do better with your super but don’t know where to turn? As the saying goes, it’s not what you know but who you know.
But what if that who is you?
It turns out self-knowledge is as powerful as financial knowledge when it comes to important decisions around superannuation and retirement.
That’s where the field of behavioural finance can help us understand some of the unconscious cognitive biases, or mental mistakes we tend to make when faced with complex information, and the regrettable actions that follow. Things like panic selling, overconfidence in our financial smarts and living below our means out of fear we’ll run out of money.
Decisions, decisions
One of the challenges of superannuation is that decisions about which fund or investment option to pick need to be made before most people understand or care about such things. And retirement plans take a back seat to more immediate concerns such as buying a home and raising children.
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As retirement approaches, more big decisions need to be made. How should we invest our nest egg? Pension or lump sum? Will we outlive our savings?
Thanks to the complexity of super and our retirement system, not to mention the uncertainty around investment markets and our own mortality, these are not easy decisions and mistakes can be costly.
Associate professor Andrew Grant, a behavioural finance researcher at the University of Sydney, says that unlike buying a car or choosing a mobile plan, retiring is something we generally only do once. We don’t get to learn from our mistakes and do better next time.
Cognitive overload
While low financial literacy and/or a lack of engagement limit people’s ability to make decisions that are in their own financial interest, information alone is not enough to get people to act, says Dr Di Johnson, senior lecturer at Griffith Business School.
This is highlighted by the relatively low number of people who switch funds after the annual Australian Prudential Regulation Authority (APRA) performance tests. For example, fewer than one-fifth of members of funds that failed the test in 2021 switched to new funds.
Johnson suspects cognitive overload may be partly to blame. “People tend to become overwhelmed by large amounts of information, leading to delay or not taking action. Inertia kicks in hard, particularly with complex, high-stakes choices,” she says.
“Status quo bias – our tendency to favour the status quo particularly if change takes some effort or has an unknown pathway – is probably at play with people who aren’t switching from underperforming funds,” she says.
It’s also possible that the size of your super balance will influence your decision-making. If your balance is relatively low, Johnson says the opportunity cost of not acting on information – such as your fund failing APRA’s performance test – is lower than it would be if your balance were substantial.
Balance size was likely a factor in recent research by Core Data that found 24% of members change funds when retiring and super balances peak. Financial advice was also found to be a trigger for switching funds.
Common cognitive biases
There are far too many behavioural influences impacting retirement decisions to go into here, but a 2025 report for The Conexus Institute by Hazel Bateman, David Bell and Geoff Warren attempted to wrangle them into three main categories.
- Bounded rationality – A category focused on a lack of skills or knowledge such as low financial literacy, lack of knowledge and poor longevity awareness.
- Poor self-control or willpower – Classic effects include inaction, procrastination and focusing too heavily on the short term.
- Decision biases – Relying on defaults/recommendations, anchors, framing, rules of thumb, money illusion and trust.
Different behaviours and cognitive biases tend to come to the fore at certain points in the economic and investment cycle. These days, investors are grappling with the high cost of living, high interest rates, market volatility and possible recession. That’s enough to make anyone anxious, and anxiety can lead to poor decision-making.
The following are some common cognitive biases to guard against.
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Money illusion/price illusion
Money illusion, or price illusion, is the cognitive bias where people tend to view their wealth and income in nominal dollar terms, rather than recognise their real value, adjusted for inflation.
So, even if the balance of your super account has gone up, it’s important to know whether the increase has kept pace with inflation. If not, the buying power of your super dollars may have fallen, and you may not be able to afford the retirement lifestyle you hoped for.
“You may have a fixed retirement balance goal, but (after a period of high inflation) you may need to adjust that savings goal accordingly,” says Grant.
Salience bias
At a time when the cost of living is rising and interest rates are still high, Johnson says it’s understandable that many people are paying more attention to how they will manage their mortgage payments than saving a little extra in super for their retirement.
That’s especially the case now that the Reserve Bank’s monthly interest rate statement is more closely watched than the Melbourne Cup. It’s difficult not to be caught up in the noise of the crowd.
“But for some, it may be that they’ve fallen into a trap of ruminating on the immediate concerns of the 24/7 news cycle and not left space to think about longer-term plans,” says Johnson.
This is an example of salience bias, or our tendency to focus on information that is more prominent while ignoring information that doesn’t grab our immediate attention. While the rising cost of living is an immediate concern for many, where possible it’s still important to keep future goals front of mind when making current spending choices.
Anchoring
This refers to our tendency to rely too heavily on one piece of information and then anchor our behaviour to it.
Where super is concerned, one particularly weighty anchor is the minimum drawdown rate in retirement phase. Under the super rules, retirees must withdraw a minimum amount from their super pension each year, depending on their age.
The Retirement Income Review noted that many retirees wrongly assume that the minimum drawdown is the maximum amount recommended. As a result, it found retirees were often living more frugally than necessary and dying with a small fortune left in their super.
Other common anchors are suggested amounts to be saved, such as ‘$1 million needed to retire’, or spent in retirement, such as ASFA’s retirement standard.
According to the Conexus report, “Anchors can also be two-edged swords. They can be beneficial where they nudge members towards good decisions, but detrimental if they suggest actions that are unsuitable given a member’s circumstances.”
Loss aversion
Countless psychological studies have shown that we tend to feel the pain of a financial loss more intensely than the joy of a similar-sized gain. So the pain of watching your super balance fall by $1,000 is felt more acutely than the pleasure of seeing it go up by $1,000.
This helps explain the tendency to hold onto poorly performing investments or super funds for too long.
Grant says there’s often a conscious choice to hold off and see what happens. “They think if I switch funds and the fund I switch to does badly, that’s going to make me feel worse than if I stay where I am.”
So rather than suffer a potential loss, they sit tight in the hope that their existing fund might come good. Or they wait for a particular investment to return to what they paid for it, or to reach a previous high, before selling.
Framing
Another mental hurdle faced by retirees is the way super is explained or ‘framed’. While you are still working, your super is typically referred to as savings or a ‘nest egg’. So it’s hardly surprising people are reluctant to crack open their nest egg and gobble it up when they retire.
This leads to a common misconception by retirees, also picked up by the Retirement Income Review, that they should live solely on the income from their investments and preserve their capital.
Yet our super system is designed with the expectation that you should gradually draw down capital as well as income to fund your retirement.
Grant says there is also some loss aversion at play when people focus on their retirement balance and consider any drop in that balance once they retire as a loss, even if the money was spent on living expenses.
“A sensible approach to retirement is that your ultimate goal is to spend what you’ve got,” he says.
Present bias
This refers to our tendency to overvalue the present and undervalue the future. “People place excessive weight on current consumption relative to future consumption,” says Grant.
This was likely a factor in the large numbers of people who took advantage of the government’s superannuation early access scheme. Under the scheme, individuals suffering financial hardship due to COVID could withdraw up to $20,000 of their super, resulting in 4.6 million payments totalling $35 billion.
For younger members, it can be difficult to envision what life will look like in 20–30 years when they can access their retirement savings. Instead, they reason it makes more sense to use that money today towards a home deposit or to pay off credit card debt.
While taking advantage of early access may have been a sensible decision for some people, for others who didn’t need the cash it ignored the value of compounding interest and growth over time. “If your super fund makes a return of 8% a year, that dollar not spent today will double in nine years and quadruple in 18 years,” says Grant.
How to improve your decision-making
While it’s important to acknowledge you’re fallible, don’t beat yourself up about it.
Johnson says regulators and the super industry could do more to help us make complex decisions, with affordable support and more personalised digital tools, areas that funds are currently working on. “Advice is particularly important where there are extra layers of choice such as life insurance or multiple funds.”
Even so, there are ways you can reduce the risk of making poor decisions involving your super and retirement planning. If you are already a SuperGuide subscriber you are on the right track, but in case you missed it:
- Give super the attention it deserves. Many of us spend more time planning our next holiday than we do on our super, yet super is likely to be our biggest asset outside the family home. Make sure you get the simple things right, such as comparing and selecting the right fund, investments and insurance for your circumstances. Then review on a regular basis, paying attention to long-term performance after fees and tax.
- Sit tight. At times of high market volatility, you might look at your super balance declining and in a state of high anxiety decide to reduce risk assets by switching funds or investment options. But doing so risks missing out on future returns. “Super is designed to be a long-term investment; looking at short-term returns is not overly relevant – don’t try to day-trade your super,” says Grant.
- Consider getting financial advice. It may seem expensive at first glance, but it could be well worth it in the end. Your super fund may also offer free or low-cost advice. An adviser can help you clarify and set goals, devise a strategy to help you achieve them and act as a sounding board and money coach to keep you on track.
- Explore free online resources. If you’re not planning to seek advice, or even if you are, take advantage of the many self-advice tools available. Online retirement calculators can help with questions like: Am I going to have enough to live the retirement lifestyle I want? If not, how can I get there? Your super fund’s website may be a good place to start.
- Make use of retirement planning rules of thumb. While nothing beats developing a personal financial plan, sometimes it helps to kick off the process with simple estimates that have stood the test of time. For example, the 70% target replacement rate for retirement income, ASFA’s Retirement Standard and the 10/30/60 Rule.
The bottom line
Learning more about super is a good way to inform your decision-making but learning to recognise when common behaviours or cognitive biases are holding you back can be just as helpful as you navigate the complexities and uncertainties of retirement planning.
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