You’re only going to retire once. Don’t mess it up!

The average retirement age is 55.4 years. Yet the life expectancy in Australia is 82.9 years. 

You need to save up a lot of money, starting right now. But you need to be conscious of the obstacles in your way. One big obstacle is the psychology of retirement planning. 

Why do people fail to make good plans for retirement? What is a retirement plan like? How can you learn how to plan for retirement? 

Answer these questions and you can create a comfortable retirement for yourself in no time. Here is your comprehensive guide.

Cognitive Overload

In August 2021, the Australian Prudential Regulation Authority (APRA) released a report on the performance of 76 MySuper funds. It found that 13 funds underperformed over a five year period. 

More than one million Aussies had their money invested in these funds. But few of them have decided to reinvest their money. One reason why is cognitive overload.  

Cognitive overload occurs when a person becomes overwhelmed by information. The APRA tested MySuper funds on several important criteria. They looked out how many assets the funds had, how transparent the funds were, and how accountable they were. 

These are difficult metrics for people to understand. As such, many Aussies may refuse to change their investments because they feel confused and overwhelmed. 

The government and superannuation industry tend to make the overload problem worse. They assume that consumers are uninformed, so they supply more information. They produce spreadsheets and lengthy reports about financial activities. 

In reality, Aussies do not need more information. They need information that is clearly conveyed to them. 

Attribution Bias

Attribution bias provides another reason for inaction. Someone may blame themselves for the failure of their super fund, not the fund.

A 2019 study from the University of Melbourne found that 77% of Australians had regrets about their finances. They expressed regret for not saving enough and not learning more about their finances. 

When someone blames themselves, they are less likely to take action to change their finances. They are unwilling to trust themselves and make decisions that will improve their situation.


Anchoring occurs when someone relies too heavily on one piece of information. The minimum drawdown rate is one figure that many people focus on. 

Retirees must draw a minimum amount from their pension every year. This lets them pay their bills and review their account. 

But many retirees get confused. They think that the minimum drawdown rate is the maximum amount of money they can withdraw. This deters them from buying products and taking care of themselves. 

Loss Aversion 

Financial loss can be devastating. Someone can experience anxiety and depression if they lose a large amount of money.

Many people try to limit their financial losses. This can help them conserve money through time. Yet it can also cause them to hang onto poorly performing investments for years. 

Someone may rationalize their loss aversion. They may think that if they switch funds and their new fund goes wrong, that will make them feel worse.

They might as well stay where they are and not take the risk. This rationale can make the loss aversion worse.

Someone may also say that they are waiting for an investment to return to the amount they paid for it. Once they get to that point, they will sell it. This means that they are missing out on an opportunity to make money. 


You may have heard a lot of terms for your savings. “Nest egg” is one of the most popular ones. 

The term makes your savings seem fragile. If you tap into your savings, your “egg” will crack and you will lose all of your money. This perception can encourage people to hang onto their money. 

“The golden years” refers to the years when someone retires. It creates the frame of an illustrious and comfortable age. 

Yet the term can make someone feel insecure about themselves if they do not have a lot of money. If they do have money, they may want to keep it so they don’t “tarnish their gold.” 

Some retirees will go out of their way to avoid spending any money from their retirement savings. They may live solely off of the income from their investments.

But the super system is designed so retirees can draw capital and income to fund their retirement. A retiree may not have all the money they need if they don’t tap into their capital. 

Present Bias

During the COVID-19 pandemic, the government started an early access scheme. Aussies could withdraw up to $20,000 of their super to endure their financial hardship. 

This program undeniably helped people during the pandemic. But some people experienced a present bias that encouraged them to withdraw money. They overvalued the present and undervalued the future. 

You don’t know what your life will be like in 20 or 30 years. You may have some debt now, but you may have even more debt in the future. 

If your super fund has a return of 8% per year, the money in it will double in nine years. This may be enough to pay off all of your debts and provide for your retirement.

This is not to say that you should not pay off your debt now. But you should be conscious of how your present actions will affect your future. Don’t take out money unless you know it will help your finances for years to come.


Overconfidence is just as dangerous as underconfidence. Someone may overestimate their ability to beat the market. They may make risky decisions with their investments that cause them to lose retirement savings. 

Someone may also ignore other people’s advice. They may “go with their gut” and stick with an investment that does not provide for them. 

How to Improve Your Retirement Decision-Making

Retirement planning steps are not difficult. You can take a few steps today to increase your savings and develop your knowledge of finances. 

Pay Attention to Your Super

Your super is one of your biggest assets. You should think about how you will cover your expenses and plan for things like vacations. But you should also spend a lot of time on your super. 

Do some simple tasks to build the best super fund possible. Compare your different options for super investments and examine fees for each fund. See if you get insurance for yourself in case you incur losses. 

Review your super fund at least once a year. You should sit down with a fund manager and go through how your investments are doing.

Pay close attention to your long-term performance. Your investments will go through periods where they do not perform well. Yet you should keep them if they are working well over the years.

Get Financial Advice

Many super funds offer free or low-cost advice. You can give your fund a call and ask them questions you have.

You can also ask them for educational resources so you can understand financial principles. It is very important that you understand how super is taxed in Australia so you can pay your taxes on time when you retire. 

Whenever you feel uncomfortable about your finances, you should schedule an appointment with an advisor. You can go to someone who does not work for your super fund. 

Try to work with your advisor on setting financial goals for yourself. You can decide to save a certain amount of money over the next year. Once you pick a goal, you can come up with strategies to reach that goal. 

Pursue Online Resources

You can find dozens of financial resources on the internet for free. Start with the ones on your super fund’s website.

Many funds provide calculators that let you determine if you have enough money saved for retirement. You can then calculate how much money you need to save so you can live comfortably. 

Funds also offer free guides that explain financial principles and investment strategies. Read guides on the websites of a few different funds. If one fund has very good guides, you should consider working with them. 

Strategize With Rules of Thumb

You should develop your own plan that meets your specific needs. But if you are new to investment strategies, you can rely on some rules of thumb.

The 70% replacement rule lets you determine how much money you need. Your total retirement income should replace roughly 70% of your preretirement earnings. If you earned $50,000 before retirement, your retirement income should equal $35,000. 

You may need to have a higher retirement income to cover medical and travel costs. Yet living off of 70% of your preretirement income will provide a comfortable life for you. 

The 10/30/60 rule helps you make money during retirement. 10% of your retirement income should stem from your savings. 30% should come from pre-retirement investment returns, while 60% should come from post-retirement returns. 

The Essentials of Retirement Planning

Retirement planning is tricky. You may experience cognitive overload or attribution bias that impacts your judgment. You may become afraid of losses, reducing your opportunities to make money. 

But you can take steps today to secure your super fund. Look at your options for super investments and find the right fund for you. 

Talk to a financial advisor about your next steps. Go online and use a few tools to inform your decisions. Spend time studying finances and investment strategies. 

Don’t plan for retirement alone. Crescent Wealth provides great Islamic super funds. Contact us today.

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Ethical Finance and Innovation

Dr. Sayd Farook is the Executive Director of Crescent Foundation. He is Group Chief Operating Officer of Crescent Wealth and Managing Director of Crescent Finance. He previously served as Advisor to the Executive Office of the Vice President and Prime Minister of the UAE and Ruler of Dubai. In this capacity, he envisioned and executed strategic / transformation initiatives for Dubai and the UAE. Prior to that, he was the Global Head Islamic Capital Markets at Thomson Reuters, where he advised and served large corporates, multilaterals and governments in the Middle East, North Africa and South East Asia.

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