The Psychology of Saving – How Present Bias Can Derail Your Retirement Planning

Present bias is our natural tendency to value something we can have now over future gains, even when the future benefit is better. It shows up as instant gratification. For example, many people will take $100 today instead of $110 tomorrow simply because the reward is immediate.

Yet those same people are often willing to wait when both rewards are in the future. Ask whether they would prefer $100 in 30 days or $110 in 31 days, and most will choose to wait the extra day for the larger amount. When a decision affects us right now, we act impulsively, but when the choice feels distant, we become more patient.

This pattern is explained by hyperbolic discounting, which describes how we discount the value of future rewards much more steeply in the short term than we do further out. Present bias is the behavioural outcome of this discounting.

This inconsistency shapes many financial decisions. It helps explain why people recognise the importance of saving yet often delay it, and why long-term goals can feel remote even when they matter deeply.

Present bias is particularly influential in financial planning, where the benefits of disciplined behaviour often unfold over many years.

When we are young, retirement feels remote, so the motivation to save can be weak. Spending on something enjoyable today feels more meaningful than contributing to a pension or investment plan.

However, by the time people reach their 40s or 50s, those long-term goals suddenly become urgent, creating pressure and a sense of having to catch up. Our financial advisers see this middle age panic time and time again.

The pattern is common and completely human. Our instincts were shaped in a hunter-gatherer world where immediate needs were critical to survival and long-term planning was irrelevant.

Modern financial life, however, demands the opposite. Building wealth and protecting your future requires consistency, patience, and an ability to look beyond the present moment, even before the panic sets in.

According to the UK’s 2024 Scottish Widows Retirement Report, ‘39% of people are now on track for living standards in retirement below the minimum level set out by the Pensions and Lifetime Savings Association’.

While it’s by no means the only reason why workers are not saving enough for retirement, present bias does explain why saving can feel harder than it theoretically should. It also highlights the value of working with a financial adviser. Whatever your age and however far off retirement is, a good one will help you:

• Set clear and achievable financial goals
• Build structured saving and investment plans
• Create accountability, so intentions translate into action
• Put in place systems that reduce the impact of impulse decisions

 With the right support, saving becomes less reliant on willpower and more dependent on practical structure.

Delaying saving for retirement is one of the most common outcomes of present bias. When retirement feels distant, it is easy to prioritise current spending, which means people often start saving later than they intended. This reduces the time available for compound growth and can limit future options.

Conversely, starting early helps your wealth grow with far less effort. When contributions have decades to compound, even modest monthly savings can produce significant results. The challenge is simply beginning and staying consistent.

By acknowledging present bias, you can guard against the tendency to put saving off until later and instead build habits that support long-term financial wellbeing.

Although present bias is hard-wired, it can be managed with the right tools and behaviours. These steps can help:

1. Automate your savings
   Setting up automatic transfers to investment or retirement accounts removes the need to decide each month. Once the system is in place, saving happens without conscious effort.
2. Create spending rules
   Simple rules, such as waiting 24 hours before buying non-essential items, can reduce impulse purchases and improve decision making.
3. Break long-term goals into shorter milestones
   Seeing progress every few months helps maintain motivation and keeps future goals feeling relevant.
4. Ringfence money for long-term needs
   Using separate accounts for emergency funds, investments, and daily spending reduces the temptation to dip into money meant for the future.
5. Work with a financial planner
   Regular reviews, clear targets, and professional guidance help ensure your long-term objectives stay at the forefront of your mind.

If you lack discipline around savings, it’s not your fault. However, it’s important to recognise the fact and take action to fight your natural human instincts if you want to retire comfortably. We recommend starting to save for retirement as early in your career as possible and investing your savings wisely in order to maximise return.

Our advisers can help you put in place a savings and investment strategy that is based on your situation and tolerance to risk. They will support you in building lasting habits that will guarantee you a bright financial future over the course of your career and beyond.

Get in touch if you’d like to set up a free, no-obligation appointment to discuss your situation with one of our global financial planning experts.