You are now leaving the PIMCO website.

Skip to Main Content
Economic and Market Commentary

The Well-Tempered Retiree: Rational Choice in an Uncertain Retirement

Encouraging goal-oriented investing and better-balanced decisions in retirement.
  • Behavioral science has helped investors accumulate savings for retirement through interventions such as auto-enrollment to a 401(k), auto-escalation, and other nudges. But less progress has been made helping those entering the decumulation stage of retirement.
  • To address this gap, PIMCO collaborated with the Harris Poll on proprietary research looking to apply behavioral insights to the “decumulation dilemma.” We analyzed responses from more than 750 U.S. adults age 55 and older.
  • The study found that retirement decisions are linked to behavioral factors related to overconfidence, loss aversion bias, nonmarket risks, and bequest considerations. Addressing these behavioral biases is key to goals-based retirement planning.

Behavioral science has helped investors who are accumulating savings for retirement through well-known interventions such as auto-enrollment to a 401(k), auto-escalation, and other nudges. For those entering the decumulation stage of retirement, there has been less progress. There is little regulatory guidance, no single-product solution, and even practitioner rules of thumb are relatively scarce.

To address this gap, PIMCO conducted a proprietary research study last December in collaboration with The Harris Poll, looking to apply behavioral insights to this “decumulation dilemma.” Responses were collected and analyzed from 758 U.S. adults age 55 and older with over $500,000 in investable assets. Here we summarize the study’s results and what they mean for PIMCO’s approach to decumulation.

Confidence and overconfidence

Just over half of respondents (55%) either had no plan or planned to ignore their assets completely in their retirement. Despite this lack of planning, this group is equally, if not more confident than others. In fact, 83% of our respondents were highly confident about their ability to meet their retirement spending needs. Particularly concerning is that the investors who are both very confident and have no plan expect their assets to last the longest.

Investors may feel such confidence because they have successfully grown their investment portfolios as accumulators. But successful accumulation does not guarantee a successful decumulation. Regardless of one’s investing skill, in a portfolio that is being spent down, as in retirement, the assets are far more vulnerable: They are now exposed to the impact of both market shocks and spending. The portfolio is governed by new laws of gravity and exposed to greater levels of uncertainty, so it’s crucial to have “calibrated” confidence in one’s decumulation plan.

Loss aversion bias

Loss aversion is the powerful emotional response evoked when losses loom larger than gains. Loss averse investors perceive wealth and financial market movements with strong emotions (such as optimism, fear, hope, regret). This can result in impulsive and suboptimal decisions, such as the classic behavioral mistake in the face of steep market declines – a reflexive capitulation to market volatility and a shift to a lower-risk allocation. This reactivity can have devastating effects on one’s success in retirement: It can crystallize losses and forestall potential future gains, even risking an outcome where the portfolio runs out before the retiree does.

Overall, one in three affluent investors in our study was particularly susceptible to loss aversion bias. The study also suggests there are effective “nudges” to counter these behavioral tendencies. The presence of steady, reliable income may help retirees feel better equipped to weather temporary market disruptions. Among respondents entering retirement, those with an outside source of cash flows were 1.9 times less likely to be loss averse compared to the other groups of respondents.

Reliable income may also help investors avoid making rash financial decisions with lifelong consequences.

Risks and spending

Investors’ anxieties peak as they transition to retirement. While market risk and longevity are heavily emphasized by advisors, it was uncertainty and risk around one’s health – the risk that onset of disease would spur associated costs and family consequences – that ranked persistently high across retirement status and wealth levels. Retirees’ concerns about these potential costs contribute to increased precautionary saving, slower spend down rates in mid-late retirement, and an otherwise irrational fear of annuities.

One way to alleviate these broad nonmarket anxieties is planning for flexibility, such as adjusting spending up or down to meet unanticipated expenditures. This seemed to be palatable: In our sample, 60% were willing to cut back their retirement spending budget to cope with a difficult period in the markets. This kind of flexibility is very effective, and the increased resilience it affords retirees may help them comfortably spend, rather than hoard, their assets, and indulge more in the joys of retirement.

Bequest motives

Most of our respondents (80%) said they plan to leave assets either to spouses, future generations, or charities, and they’re willing to reduce their own spending and alter their risk profile to fund these bequests. Notably, there was a strong link between anticipated spending and the desire to leave wealth to future generations: Those who prioritize bequests the least expect to spend down 67% of their wealth in retirement, while those who prioritize it the most expect to spend down only 35% of their assets.

Retirees who wish to grow their legacy wealth in retirement have to weigh important trade-offs, as assets for future generations merit a different investment profile than those intended for nearer-term retirement spending.

Investors’ behavioral biases are akin to a finely strung musical instrument: One string out of tune affects all strings. As with Bach’s “Well-Tempered Clavier,” it’s critical to understand and seek to fine-tune an investor’s underlying “heartstrings.” Achieving harmony of intent and outcome is central to goals-based retirement planning. Indeed, client peace of mind may be the highest goal of any retirement advisor.

For a detailed analysis of PIMCO’s research on how behavioral biases affect retirement decisions, read “Managing Misbehavior: Rational Choice in an Uncertain Retirement.

Featured Participants



PIMCO designed the study, which The Harris Poll conducted online in December 2020. The study polled 758 U.S. adults 55 and older, including 255 individuals with $500,000–$999,999 in assets and 503 with over $1 million in assets. Refer to Managing Misbehavior: Rational Choice in an Uncertain Retirement by Rene Martel, Jennifer Gongola, Sean Klein and Avi Sharon published 4 August 2021 for additional detail on study design and procedure.

These survey results contain the opinions of the respondents and are not necessarily those of PIMCO. The data contained within may not be related to any PIMCO product or strategy and should not be relied upon for any investment decision.

Investment products contain risk and may lose value. There is no guarantee that an investment product will be successful in producing income. Investors should consult their investment professional prior to making an investment decision.

PIMCO does not offer insurance guaranteed products or products that offer investments containing both securities and insurance features.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world. ©2023, PIMCO.

Tell us a little about you to help us personalize the site to your needs.

Terms and Conditions

Please read and acknowledge the following terms and conditions:
{{!-- Populated by JSON --}}
Select Your Location


Europe, Middle East & Africa