A fear of running out of money is stopping over-55s from buying things they actually need, underlining the role of emotions and the troubled relationship many have with money, new research from behavioural finance experts Oxford Risk shows.
The study with more than 1,000 over-55s found around a third (30%) – equivalent to 6.4 million people** – agree that spending money makes them anxious while 31% agree they often do not spend money on things they actually need. This is often linked to FORO, a fear of running out of money, especially when approaching or in retirement.
Oxford Risk’s research highlights the need for behavioural profiling to help people in the run-up to retirement to learn about their own attitudes, emotions, and biases. Around a quarter (26%) of those questioned agreed that emotions influence their financial decision-making, so there’s a real opportunity for financial advisers and pension platforms to better support retirees by mitigating anxiety around their finances to improve outcomes.
Dr Greg Davies, Head of Behavioural Finance at Oxford Risk said: “People in the run-up to retirement need to maximise their retirement savings and ultimately their income when they stop work. Understanding how emotions affect their money decisions is an important part of achieving those goals.”
“Advisers and wealth managers can play a significant role in helping clients to recognise the effect of emotions on investing and spending when approaching retirement, while providing them with personalised plans which can address the anxiety they feel.”
“For example, having some guaranteed income in retirement reduces the risks of running out of money because the investor is protected against having to withdraw money from their portfolio when markets are down. Therefore, over time, guaranteed income can significantly reduce the percentage of possible future paths in which they run out of money.”
Guides available on Oxford Risk’s website for financial advisers and wealth managers outline how using technology and behavioural science enables firms to tailor services more efficiently whilst communicating with clients more effectively.
The company, which builds software to help wealth managers and other financial services companies assist their clients in making the best financial decisions in the face of complexity, uncertainty, and behavioural biases, has developed proprietary algorithms which rank products, communications, and interventions for their suitability for each client at a particular time.
