4 Biases to Watch Out for When Retirement Planning

How did you choose your spouse? Your college? Your retirement savings rate? These are all decisions that can have a big impact on your future.

Over the course of our lives we have to make thousands of decisions about our money. So, I think it’s extremely valuable to understand how and why we make the choices that we do.


Because we have to make so many decisions every day, we often rely on heuristics. These are mental shortcuts that allow you “to solve problems and make judgments quickly and efficiently.” 

Heuristics are necessary because you simply don’t have the time to actively make every decision you need to. The dark side of heuristics, though, is that your brain may be making decisions for you that are not optimized. Heuristics are fast, but not necessarily thorough.

Cognitive Effects and Biases

I have written about other topics related to thinking and behavior, but today I want to focus on concepts that may be affecting your quick decisions — even when the decisions are going to have a large impact on your future.


One major effect on your decision-making is priming — when “the introduction of one stimulus influences how [you] respond to a subsequent stimulus.” 

Studies have shown that priming can affect how you process words, concepts, and even cultural understanding. You respond slightly faster to “nurse” after “doctor” or “banana” after “yellow” compared to seeing either word after “television.”

Mere Exposure Effect

A related concept, mere exposure effect, shows that “the more you see or hear something, you more you like it.” Basically, you tend to like things that feel more familiar.

Again, sometimes this can be helpful, in a way. You can’t date every person, interview for every job, or visit every college, yet you still have to choose which paths to go down. 

I ended up choosing to go to college where my father went — a campus I had visited several times growing up. There were other factors I considered, like cost and reputation, but did I also like the college just because I was more familiar? Almost certainly.


Anchoring is a particular form of priming effect whereby initial exposure to a number serves as a reference point and influences subsequent judgments. The process usually occurs without our awareness.”

Anchoring affects many of your purchase and negotiation choices, especially if you have incomplete information (which is almost always). 

This Harvard negotiation blog post gives an example.

“Try to imagine that you are about to enter a job interview hoping for a salary of $75,000, based on your past experience and industry standards. If you are only offered a salary of $45,000, you may find yourself making a counteroffer of $55,000—which is far less than you think that you are worth. Due to the other party’s first offer, the possibilities for an agreement have narrowed in your mind.”

I know that the SR Wife and I have gone through this experience in all of our salary negotiations too. As a result, I accepted a salary in my previous job that was significantly lower than my original expectations. This is anchoring bias in action.

Status Quo Bias

One final concept that plays a large role in our financial lives is status quo bias. “Status quo bias refers to the phenomenon of preferring that one’s environment and situation remain as they already are… When we make decisions, we tend to prefer the more familiar choice over the less familiar, but potentially more beneficial, options.”

A nearly interchangeable term in psychology inertia — the “tendency to repeat previous choices.” This can result in suboptimal outcomes. 

There’s a large library of research on these concepts, specifically in relation to retirement savings. Researchers have shown that if they “nudge” the default savings rates by increasing them, it doesn’t decrease how often employees still keep that default option. 

Studies show that “plan participation doesn’t change much if the default savings rate is 3 percent versus 6 percent.” A Harvard study showed that employees just tend to take the “path of least resistance” when making these retirement savings rate decisions. 

Turn your brain off of auto-pilot 

A hot topic in the personal finance world is automating your finances. In many respects, this is valuable. Go ahead and set up monthly transfers to meet your savings goals.

But, you need to turn your brain off of auto-pilot when it comes to making big decisions in your financial life. 

I’m excited that researchers are interested in helping people save more for retirement by changing the default savings rates, but it’s upsetting that so many people are just using the default option in the first place.

Don’t take the path of least resistance for your financial decisions. Your financial decisions now will have ripple effects for several decades of your future. Don’t let heuristics manage your retirement planning!

Your decision-making should be firmly routed in your goals for your future. Similarly, your retirement savings should be based on your planned lifestyle and expenses in retirement.

Don’t choose investments, where you live, or where you work based on familiarity alone. It’s worth taking the time to make sure you are getting your money’s worth.

What are some areas in your life where, in hindsight, these biases have affected your decisions? How can you be more intentional about actively making these decisions in the future?