Behavioral Bias in Retirement Planning: A Literature Review

A decent and good life is generally always desired by every individual because it can guarantee the future. Because every individual in old age will experience a decrease in income, investing is necessary to get a decent life. Increasing life expectancy makes retirement an essential element in human life. Many individuals desire a retirement in which they receive various profitable and sustainable benefits. However, this can only be done in a country with a good retirement system. In this case, Indonesia is in the 92nd position among 150 countries surveyed for the global retirement ranking. Compared to other ASEAN countries, Indonesia’s ranking is still far below, especially when compared to countries with good retirement systems. The purpose of this study was to determine the retirement planning of each working individual from his behavioural biases, namely cognitive bias (overconfidence bias, representativeness bias) and emotional bias (self-control and regret aversion bias). This study uses the SLR (Systematic Literature Review) method. The findings also showed that the Indonesian people’s awareness of making investment decisions is still low. In order to meet the needs of retirement, some individuals invest in the present, sacrificing consumption in the present to obtain income in the future. Therefore, individuals must carry out financial planning from a young age, namely setting aside around 30%-40% of monthly income for investment. Based on the literature review, some research showed that because of market fluctuations, retirees still felt they did not have enough money. In contrast, other studies showed that making good decisions could become more challenging with age. This could be influenced by someone’s irrational attitude, expressed in behavioural biases.