Mind over matter: The psychology of retirement planning

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.

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.