The Effect of Behavioral Biases on Retirement Planning

Abstract

The purpose of the study is to examine the effect of self-control bias and perceived knowledge on retirement planning behavior of individuals of New Delhi, India. To generate adequate retirement savings, self-control is indispensable. The study indicates individuals lack self-control and self-discipline that adversely affects the savings ratio. Financial literacy is another very important aspect to study the effectiveness of retirement planning among individuals. Individuals have an unrealistic belief about their perceived knowledge of financial aspects. The paper suggests that individuals get influenced by their behavior that has an effect on retirement planning. With a five-point Likert scale questionnaire, a survey was conducted on 405 individuals to examine the effects of both self-control bias and perceived knowledge of individuals on their retirement planning behavior. Regression analysis was applied to study the causal relationship between the variables. The results provide evidence that individuals fail in effective retirement planning due to a lack of self-control on expenditures. Individuals overestimate their financial knowledge and potential in investment decision-making that leads to errors and lower returns.