There are a lot of natural human behaviours that helped us survive over the years, like using the observed decisions of others to shorten the evaluation process for ourselves. But if you don’t watch out, they could set you up for a retirement disaster. From tempting you to live only for today, to tricking your brain into thinking your home will be worth enough to cover a considerable portion of your retirement income, it’s easy for your brain to keep you from planning for your future. 

There are many reasons our brains developed these tricks over time, most of which kept us safe or alive during various stages of the development of our civilization. But that doesn’t mean they serve us well when it comes to making financial decisions that will affect us in the long run. 

Here are some typical behavioural tendencies that could be interfering with your financial success, especially when it comes to long-term goals, like retirement. 

1. Present bias

We tend to value things we can have right away more than things we’ll have to wait for.

Example: Most people would prefer to receive $100 today rather than wait a year to receive $120. 

Reading the example above, you may think, “Of course they would. I can do so much more with $100 if I can put it to use today rather than wait to get just $20 more.” But most financial professionals would tell you that a 20% rate of return over one year is excellent, and a guaranteed rate of that size is practically unheard of. When you take the $100, you're turning down a 20% guaranteed rate of return. It doesn't sound quite tempting when it's explained that way, does it? But I bet you're still having an internal argument with yourself, even as you read this, listing off all the reasons it's better not to wait.

That instinct telling you to take the money and run is present bias, or hyperbolic discounting. It comes in handy when it keeps you alive. If it's telling you to pick those berries now or hunt that rabbit now, just in case there isn't more to be found later, that could be lifesaving. But that same tendency that has sometimes kept us alive almost always tempts us not to prioritize long-term goals. 

Unfortunately, just trying to override your present bias tendencies probably won't work consciously. Even if it does, it will likely be temporary as you'll grow tired of trying to resist the temptation. Hoping you're one of those lucky folks who aren't susceptible to this unconscious behaviour? Think again. Morningstar's report, The Financial Impact of Behavioral Biases, found that 97% of their participants showed signs of present bias. Sadly, most of us won't be in that 3%. Still convinced you must be among the 3%? Be sure to read #4 below.

There is a silver lining here. You can use present bias to your advantage by linking long- and short-term goals to each other. Put some of your free cash flow to short-term goals and make it contingent on sticking to healthy spending habits.

Not sure you have any free cash flow? Check out our on-demand session from the Financial Capabilities Series on spending and cash flow

2. Endowment effect

We tend to overvalue things that we own. Somehow, the mere act of ownership increases our perceived value of an item. 

Example: People who bought a lottery ticket for $1.28 won’t sell that same ticket for less than $5.18.

It’s not just second-hand lottery tickets that we tend to overvalue. Many people expect home equity to play some role in creating their retirement income. The endowment effect can get us in trouble when we expect the equity in our homes to carry more of our retirement needs than is reasonable. Unfortunately, this same tendency works in reverse. We frequently undervalue things other people own, so we expect to pay a lot less for our downsized home than the market may reflect. 

You don’t need to watch HGTV for more than about 10 minutes to see this endowment effect in full living colour. The seller thinks their home is worth $1 million, and the buyer thinks it’s a total gut job and wouldn’t spend a penny over $450,000, and that’s for just the land. Try to catch yourself having a giggle at these silly folks on the screen, because chances are we’re all likely to be that silly, at least to some degree. 

Try thinking about your retirement without any home equity at all. What does it look like? How reliant are you on that perceived value of your home? Now, try reducing how much you think your home will be worth by 40%. How does that affect your vision of your future?

3. Herding

We tend to reduce the cognitive effort of some decision-making by using what we observe others doing to inform our actions.

Example: The most popular mortgage term in Canada is five years, but there is no evidence that this is better for borrowers.

Our brains wrestle with way more decisions in a day, financial or otherwise, than we realize. All of the things we have to think about in a single day are battling a million other distractions. We use herding to shortcut some of our decisions to manage our day-to-day lives. While this behaviour can save you some money when it draws you over to a display of strawberries priced at 20% of their regular cost, you can accidentally use it for far more significant decisions, and that’s where it gets tricky. 

Your mortgage is a significant financial decision, but it’s rare to find anyone who spends just as much time inspecting their home financing as we do finding a home. Too often, people shop for mortgage products based on rate alone, and the interest rate is only one factor. People tend to select a mortgage based on how popular it seems to be, assuming that it must be best for them if it’s good enough for everyone else. But it looks as if everyone makes their decision that way. So we have many people with 5-year fixed-rate mortgages, most of whom probably couldn’t give you a logical reason as to why. 

If you’re already retired and still carrying a mortgage payment, you need to be very careful about interest rates. You might be better off figuring out the maximum mortgage payment you can handle on your retirement income, and finance your mortgage for a term where it would be paid off at the end, if possible. Let’s say you can afford $700/mo and, at that rate, you could pay your whole mortgage off in seven years. Then, a 7-year fixed-rate mortgage would ensure you paid your full mortgage without any additional interest-rate risk to your cash flow. 

4. Illusory superiority 

Humans tend to be overconfident in their own abilities.

Example: 90% of the faculty of University of Nebraska – Lincoln rate themselves above average for teaching ability. 

If you’re sure you make sound financial decisions regarding managing your debts, you’re not alone. In fact, 81% of Canadians think they can successfully manage their debts, according to CPA Canada. But over the last several years, we’ve experienced the highest levels of personal debt ever seen in Canada. 

It’s common for humans to think, “I got this,” even when it’s evident that we don’t. How do we combat this? Stop asking yourself if you feel you have enough for retirement. Too many of us will say, “Yes.” Instead, learn to estimate your retirement income needs, which is the only way to know if you have enough. Don’t tell yourself you’re doing fine managing your debt. Calculate your personal debt-to-income ratio once per year. If it’s not going down after you buy your first home, you may not “got this,” at least not yet. 

How much do you really need for retirement?

Considering the tendencies shared earlier, be careful of dangerous mental shortcuts, the pull of immediate gratification, the exaggerated valuing of things you own, and overconfidence. If you can keep these types of behaviours out of your way, you’ll be more successful at assessing where you actually are right now.

Dig into your potential retirement expenses before anything else. Write down all of your monthly bills now, and honestly think about whether those expenses will go up, down, away, or stay the same. Or will you have a new related expense? For example, your property taxes will probably go up throughout your retirement, but travel expenses could be higher or even a new expense. Perhaps your office expenses may end. But as you start to review those expenses that will stick around, or even get higher through retirement, you can see how important it is to think about your retirement cash flow needs to determine how much you really need for retirement. Work through our retirement income exercise by reviewing the retirement episode of our Financial Capability Series.

Are there areas of your financial capability you’d like to improve? Check out our on-demand Financial Capability Series. Topics include: 

About CacheFlo

CacheFlo is a financial education company that builds eLearning and tools to help financial professionals and individuals make behaviour-based changes, which allow them to get more life from their money. We want to make it easier for people to predict the impact of their financial choices before they make them.


Das, S., Kaur, S., Wendel, S., (2021, May 25). The Financial Impact of Behavioral Biases [PDF]. Morningstar

David, J., (2021). A guide to mortgage terms in Canada [URL].

Dionne, M. (2020, Nov 12). Many Canadians feel confident in their ability to manage their personal finances: survey. [URL]