​When it comes to retirement planning, one of the most critical aspects isn't just the numbers, charts, and strategies—it’s the mental and emotional challenges that come with managing money during a time when financial decisions take on heightened significance.

As people approach or enter retirement, they often find themselves grappling with internal roadblocks that prevent them from making sound decisions or taking meaningful action. These mental and emotional obstacles can prevent retirees from transitioning smoothly from the accumulation phase to the income/preservation phase of life, leaving them vulnerable to poor financial outcomes.
 

Despite the wealth of information available about the importance of a diversified portfolio, the need to plan for longevity risk, or how to structure a tax-efficient retirement strategy, many retirees still fail to act on this knowledge due to subconscious biases and emotional hurdles.

These biases often result in analysis paralysis, poor decision-making, or a failure to adjust to the realities of life in retirement.
 

In this article, we’ll discuss the top psychological roadblocks that can derail retirees from taking the right actions with their money and offer solutions to help overcome these biases, all while emphasizing the importance of transitioning from the accumulation phase to the income/preservation phase of life.

 

The Top Mental and Emotional Roadblocks to Smart Retirement Decisions
 

Managing money, especially in retirement, isn’t just a technical challenge; it’s also a psychological one. Understanding the emotional roadblocks that keep retirees from making sound financial decisions is crucial for overcoming them.

Below are some of the most common biases and emotions that influence retirees' decision-making:
 

1. Normalcy Bias: "It’s Always Worked Before"
 

The normalcy bias occurs when retirees, particularly those who have been accustomed to a certain lifestyle or investment approach for decades, resist changing course. This bias leads people to believe that "everything will turn out okay"even when there are clear warning signs of financial trouble or necessary adjustments.
 

• How it works: After years of accumulating wealth in a growth-focused portfolio, retirees may not recognize the need to redesign their investment strategy for income generation. The idea that "the market will always recover" or that past strategies will continue to work creates a sense of false security.
   

• The result: Retirees might stick with high-risk assets or fail to create income-producing streams, relying too heavily on capital gains or dividends without realizing these strategies may not be sustainable for long-term income needs.
   

• Solution: We encourage a mindset shift from accumulation to the income/preservation phase. We emphasize that the strategies that worked for wealth-building aren’t the same strategies that work for sustainable retirement income. Retirees need to take a step back and evaluate how their portfolios should be structured to ensure they have enough to meet their income needs in retirement.
   

2. Anchor Bias: "I Paid X for This Investment, So I’ll Keep It"
 

Anchor bias refers to the tendency to rely too heavily on the first piece of information encountered (the "anchor") when making decisions. For retirees, this often manifests in emotional attachment to investments, such as a stock or mutual fund that has performed well in the past.
 

• How it works: A retiree might hold onto a stock or bond simply because they bought it at a low price or have an emotional connection to the asset. This often happens when the original investment was made during the accumulation phase, when the goal was growth rather than stable income.
   

• Negative bias toward annuities: Similarly, negative perceptions about annuities—often shaped by outdated information or misconceptions about high fees and limited flexibility in older annuity products—can create an anchor bias.
  
  Retirees may resist considering modern annuities that offer far more favorable terms, because they mistakenly equate them with the "antique" annuities they’ve heard about in the past. These older products were often criticized for having high commissions, inflexible payout schedules, or lack of transparency, leading retirees to dismiss all annuities without considering newer, more flexible products.
   

• The result: Retirees might miss out on innovative annuity solutions like lifetime income riders, indexed annuities, and variable annuities with better options for growth, flexibility, and tax-deferral. As a result, they could fail to secure a reliable income stream that would benefit them throughout retirement.
   

• Solution: We encourage retirees to look beyond outdated stereotypes about annuities. We take the time to educate them about modern annuity products, which have been updated to offer more flexibility, lower fees, and higher income potential; highlighting that annuitizing a portion of their portfolio—through products like lifetime income riders—can provide guaranteed income without sacrificing the ability to access funds or benefit from market growth.
   

3. Status Quo Bias: "It’s Too Complicated to Change"
 

The status quo bias is the tendency to prefer things to stay the same and avoid making changes, even when it’s clear that doing so may improve their situation. This bias often makes retirees resistant to making changes to their portfolios or taking steps to secure their future.
 

• How it works: Many retirees are hesitant to make significant changes to their financial plans because they’re comfortable with the way things are—even if it’s not ideal for their new circumstances. The complexity of transitioning from accumulation to income-focused strategies can overwhelm them, especially if they’re unfamiliar with annuities, tax-advantaged income, or new asset allocation strategies.
   

• The result: By avoiding necessary adjustments, retirees might continue to depend on traditional, growth-oriented strategies or keep income-destroying assets like high-fee mutual funds, rather than focusing on tax-efficient income generation for their future needs.
   

• Solution: We break down the changes into manageable steps; highlighting that small adjustments can have a significant impact on long-term financial security. We provide education on income-focused planning concepts and help them understand how these strategies can provide stability and predictability.
  
   

4. Analysis Paralysis: "I Don’t Know What to Do, So I’ll Do Nothing"
 

Retirees often experience analysis paralysis—the overwhelming feeling that there are too many options and decisions to make, leading to inaction. They may spend so much time researching various strategies, worrying about making the wrong choice, or fearing that they’ll miss out on the "best" strategy, that they end up doing nothing at all.
 

• How it works: With the sheer volume of information available on retirement planning, it’s easy to become overwhelmed by options—stocks, bonds, annuities, real estate, and more—each with their own pros and cons. Instead of moving forward, retirees become stuck in the decision-making process, paralyzed by fear of making a mistake.
   

• The result: Inaction can result in missed opportunities, such as delaying critical portfolio rebalancing or failing to lock in guaranteed income with annuities, leaving retirees at risk of outliving their savings or not optimizing their income.
   

• Solution: Simplify the decision-making process by focusing on one step at a time. For example, we help them focus on securing their income for retirement, then address longer-term concerns later. We encourage the use of planning tools to create a step-by-step action plan.
   

5. Fear of Change: "What If I Make the Wrong Decision?"
 

Fear plays a massive role in retirement decision-making. Retirees may fear that any change—whether it’s selling a stock, changing an asset allocation, or purchasing an annuity—could result in losing money or making the wrong decision. This fear often stems from uncertainty about the future and a lack of control over the financial markets.
 

• How it works: The fear of losing money or making mistakes often leads retirees to cling to familiar (but outdated) strategies, rather than considering alternatives that could provide more stability and security in retirement.
   

• The result: By holding onto outdated beliefs or delaying decisions, retirees miss opportunities to optimize their retirement income and risk making choices that are not in their best interest.
   

• Solution: We help retirees embrace progressive thinking by framing the decision as a learning experience. We educate them about the trade-offs involved with different options and emphasize that many of the risks they fear (such as market downturns) can be mitigated through safe income strategies like annuities or bond ladders.
   

6. Fear of Missing Out (FOMO): "What If I Miss the Next Big Boom?"
 

Fear of Missing Out (FOMO) is a powerful emotion, especially when it comes to investing. Retirees often worry that by shifting their portfolios to more conservative income-focused assets, they might miss out on the next big market boom.

This fear drives them to stay in greed mode, seeking high-risk, high-reward investments that could expose them to catastrophic losses, especially given the riskier nature of their portfolios as they approach or enter retirement.
 

• How it works: Retirees may continue to chase big returns by holding on to volatile stocks, speculative real estate, or other high-risk investments, hoping for rapid gains. This is particularly dangerous in the income/preservation phase, as the priority should be capital preservation and stable, reliable income.
   

• The result: By trying to chase after returns that are unsuitable for their stage of life, retirees risk outliving their savings or exposing themselves to devastating losses in the event of a market downturn. These risks are often much greater than they realize.
   

• Solution: Reframe FOMO by focusing on long-term financial goals. Sometimes, retirees need help seeing that the stability provided by income-generating investments, like annuities and bonds, is far more valuable in the long run than the short-term thrill of chasing risky growth.
  
  We remind them they’re not missing out by choosing conservative, secure strategies for their income/preservation phase—they’re simply playing the right game for their season of life.
   

7. Irrational Expectations: "I Can Keep Earning 16% Every Year"
 

Many retirees develop irrational expectations about the future performance of their investments, particularly when they’ve experienced a period of artificially propped-up market gains. These gains can lead to unrealistic assumptions about the market’s ongoing potential, such as believing that the 16% returns they achieved during a couple of exceptional years will continue indefinitely.

This often leads retirees to make overly aggressive decisions that are not in line with long-term sustainability or realistic risk levels.
 

• How it works: During periods of artificially inflated markets, often driven by government stimulus or market bubbles, retirees may see their portfolios experience unsustainable growth. Encouraged by these short-term returns, they may develop an inflated sense of confidence, leading them to believe that such returns are repeatable, year over year.
  
  As a result, some retirees make the dangerous assumption that they can maintain a high 8% or more withdrawal rate from their portfolios, even though financial experts recommend a more conservative 4% withdrawal rate to preserve the longevity of retirement savings.
   

• The result: This overconfidence can result in significant financial risk. By planning for unrealistic returns and withdrawing at unsustainable rates, retirees might find themselves depleting their savings far quicker than expected, potentially running out of money during their retirement years.
  
  This is particularly dangerous in the income/preservation phase, where capital preservation and steady income generation should be the priorities, not chasing outsize returns.
   

• Solution: Retirees need to ground their expectations in realistic assumptions about long-term investment returns. While past performance can be a helpful guide, it’s crucial to adjust expectations to align with historical averages and market realities.
  
  We help clients understand the difference between short-term market gains and long-term sustainable growth, and educate them on how factors like inflation, taxation, and longevity risk can impact the actual purchasing power of their income over time.
  
  A 4% withdrawal rate (or lower, depending on the portfolio's risk level) is a generally accepted guideline for ensuring that retirees don’t outlive their savings.
   

Retirees should focus on developing a diversified, income-generating strategy that provides reliable cash flow and ensures the longevity of their portfolio. Rather than relying on risky bets for high returns, they should consider strategies like annuities, laddered bonds, or low-volatility dividend stocks to stabilize their income streams and reduce the risk of dramatic portfolio swings.

 

Overcoming the Emotional Roadblocks: A Path Forward
 

In order to make sound financial decisions in retirement, retirees must confront and address these psychological roadblocks head-on. Each of these biases, fears, and irrational expectations has the potential to derail a well-thought-out financial plan, often leading to outcomes that are not in their best interest.
 

The first step in overcoming these obstacles is education—understanding that their emotions and biases may cloud their judgment.

Second, retirees should engage with financial professionals who can provide objective advice and help recalibrate expectations in line with their income/preservation phase goals.

Finally, taking small, manageable actions towards redesigning their portfolios can help them move away from emotional decision-making and toward more strategic, well-informed choices.
 

It’s important to note that we encounter consumers all the time who are making decisions in their portfolios that, if an advisor were to recommend the same strategies, they would likely face legal consequences. In fact, such advice could lead to a loss of licensing and even legal action for the advisor, as the strategies are inappropriate and overly risky for the current phase of life.  Yet, consumers to this to themselves frequently.

This underscores just how dangerous the irrational expectations of some retirees can be—especially when they’re willing to chase unrealistic returns or overestimate the sustainability of their portfolios. These approaches are not suitable for the income/preservation phase, where capital protection and steady income should be the priority.
 

The key takeaway here is that retirees need to make decisions based on reality, not on past performance or wishful thinking. Unrealistic withdrawal rates, overexposure to high-risk investments, and the belief that past performance will repeat indefinitely can jeopardize the security of their retirement.
 

By managing the emotions of money—acknowledging biases like normalcy bias, anchor bias, status quo bias, FOMO, and irrational expectations—retirees can take control of their financial futures and create a retirement plan that will provide them with both security and peace of mind.

The key is to recognize that retirement is not about continuing the strategies of the past, but about adapting to the new realities of income generation, capital preservation, and risk management.
 

When retirees manage their emotions and expectations, they can ensure that their financial strategies are aligned with their true needs for retirement security. This thoughtful approach allows them to achieve a stable, worry-free retirement—one that is sustainable and focused on long-term goals rather than short-term volatility.