Research published by MoneyAge suggests that financial worries are preventing over-55s from buying the things they need.
The recent study by Oxford Risk, a leading provider of behaviour finance software, believes that blame lies with the underlying complexity of our attitudes to money and our relationship with it.
Financial status is an emotive issue, and emotions can be particularly overwhelming at stressful times, like Christmas, or in the approach to important life milestones, like retirement.
Emotional decision-making – and even subconscious money biases – can have a significant detrimental effect on the choices you make. Thankfully, advice can help.
Keep reading to find out how.
A study has found that financial anxiety is affecting the decision-making of pre-retirees
Oxford Risk’s survey of more than 1,000 over-55s found that 30% feel anxious when spending money. That equates to around 6.4 million people. For 31% of responders, this anxiety prevented them from spending money on the things they actually need.
More than a quarter (26%), meanwhile, admitted to allowing emotions to influence their financial decision-making.
While keeping emotion out of your finances is important, it isn’t always easy. Attitudes to money are formed in childhood and you might not even be aware of some of the biases you hold.
Some are simply human nature. For example, human beings tend to feel the pain of a loss more strongly than they feel the joy of a gain. This is loss aversion bias, and it can lead to bad investment decisions. You might hold on to badly performing stock to avoid facing the reality of a loss or be too cautious and risk-averse.
Other emotional biases include herd mentality that could see you chase trends, even when they don’t align with your goals. And familiarity bias could mean you place more importance and weight on areas of your finances that you’re familiar with, while neglecting those that you don’t know or understand.
Emotional decisions when it comes to spending can be just as damaging.
Failing to buy the things you need could end up costing you more in the long run. A simple boiler repair could turn into a full boiler replacement, say, or holding off essential purchases could see you miss out on the best deal.
Not paying your future self through contributions into savings, a pension, or any other investment, meanwhile, could see you with a shortfall in later life.
This is why long-term planning and short- and medium-term budgeting are key.
Understanding the emotions behind your decision-making can lead to more successful budgeting
Greg Davies, head of behavioural finance at Oxford Risk, confirms that “people in the run-up to retirement need to maximise their retirement savings… Understanding how emotions affect their money decisions is an important part of achieving those goals.”
As professional advisers, the team here at Fingerprint Financial Planning can help you build a long-term plan based on what your dream retirement might look like and how much that might cost. Only with this information can you be confident that you won’t reach your desired retirement date with a shortfall.
But life can throw obstacles our way and you might reach your 50s with changed priorities or increased outgoings. As part of the sandwich generation, you might find that you’re looking after adult children and elderly parents, while the cost of living crisis could’ve further eaten into your household budget.
This is why we conduct regular reviews. We can provide reassurance that your plans are still on track and offer advice for changes you can carry out if you need to make adjustments.
Some simple budgeting tips, perfect for the years before your retirement (and the months, or weeks, before Christmas) might be to:
- Make a list of your household income and expenditure to look for areas where you can cut back
- Break your expenditure down into “needs”, “wants”, and your future self
- Adopt the “50/30/20” rule, allocating 50% of your monthly income to “needs”, 30% to “wants”, with 20% diverted into pensions and savings.
Paying your future self first could relieve the pressure you feel when it comes to balancing your needs now against your needs in retirement.
Making these changes as early as possible gives you the best chance of avoiding more drastic measures – like compromising your retirement lifestyle or working for longer.
If you want to discuss any aspect of your retirement plans, get in touch now.
Get in touch
If you have any questions about your long-term retirement plans, speak to us now. Get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
