Mental accounting
‘Tendency to separate money based on its source or the intention’
The source of the money is relevant in retirement planning because it can increase aversion to risk. A lottery win may be viewed as ‘easy money’ and frittered away, but people are likely to be much more circumspect with pension savings they’ve built up steadily over many years.
action
Attitude to risk questionnaires should identify the impact of this behaviour overall, but it’s worth being aware of this bias when discussing risk with clients.
Questions like ‘How would you feel if the value of your pension fund dropped X%?’ will assess the importance of this. Perhaps contrast this with the same question about money in an ISA or inherited wealth to indicate the relative significance of this.