COVID-19 lessons for retirement saving

The reasons why most people, from the average Joe, to experts and politicians, initially did not take the coronavirus COVID-19 seriously are largely the same, as the reasons why most still do not take climate change seriously, exercise regularly or save for retirement. We can look for the culprits in an intertwined web of behavioral biases that affect our behavior, from the most trivial things, like why we buy that overpriced cinnamon dolce latte at Starbucks, to the most serious, as is the pandemic we are just living in.

Let’s be honest, no one imagined back in February that we would ever experience the closure of schools and kindergartens, that all bars and restaurants would be shut down, and we would not be able to hang out with friends or relatives even in our homes. Even the most pessimistic of us did not imagine the eerie scenes of empty streets and city squares, since the threat of the coronavirus COVID-19 was far away in a Chinese city of Wuhan, which most of us had never even heard of before. This great distance in a way calmed us down and gave us psychological comfort, as we all privately thought – this is far away, with all the preventive measures the virus will for sure never reach us. We will not go on vacation to Asia for a while and everything will be OK. Then, we pushed our worries into the subconscious and went back to our daily routine. Soon it all came crashing down and on March 4, the first case of coronavirus infection was confirmed in Slovenia, my home country, and on March 16 life as we know it was shut down. Even those of us who are more optimistic began to worry, when empty shelves were waiting for us at the supermarket.

Intangible threats

Why did we not worry about the first cases of coronavirus in China, and why did we suddenly run to the shops and start accumulating toilet paper, when the virus came to our countries? The threat of the coronavirus, or any other virus, is completely intangible to us and it also does not help, if the epidemic is happening on the other side of the world. An old proverb nicely puts it, out of sight, out of mind.

The coronavirus threat was hard to imagine and we could not grasp it, both physically and mentally. Unlike some other natural disasters, for example an earthquake in a neighbouring city. We see footage of damaged buildings, many also have acquaintances or relatives there and immediately we have a stronger emotional reaction to such a natural disaster. In our minds, we can quickly picture our own house being damaged by an earthquake and questions like, what would happen to my house, would my family survive, start stirring our imagination and fears.

Gretchen Chapman and George Loewenstein, both professors at Carnegie Mellon University, point out in their recent article the challenges of intangibility in relation to keeping up preventive measures against the epidemic, such as maintaining physical distance and hand-washing “as you can’t touch, taste, feel or see the benefits of, for example, wiping off your door knob”. They also point out, the benefits of preventive measures seem intangible, because people don’t get useful feedback about the effects of their actions, as the microbes are invisible and we have no idea if we have gotten rid of them by washing our hands or disinfecting our grocery. We also get no feedback about how protective actions have changed our probability of getting infected. Even worse, If our actions work, the outcome is we don’t get sick, but that is already the state in which we were in before we took the measures. This way it seems, the preventive actions cause nothing to happen as we can’t imagine the negative outcome that might happen, if we did not exercise preventive actions in the first place [1].

Photo by Anna Shvets on

On the other side, Kristen Berman highlights how people react strongly to visual threats such as wildfires in San Francisco, where most residents immediately put on protective masks when they see smoke in the air, even though there are other threats besides low air quality, that threaten their long term health much more, or as she puts it “Based on the reaction of Bay Area residents to smoke-filled air, compared to all other risks they face, an alien may logically conclude air quality is a threat we should prioritize above all others” [2]. Unfortunately, the coronavirus is not accompanied by smoke or other visual cues, which makes it more difficult to imagine and the threat is therefore much easily underestimated. The same goes for retirement saving, as workers get no visual or any other warnings, that they have insufficient retirement savings. Also the ones who are saving get in most cases no tangible feedback about their savings and how they will improve their future life quality once retired.

Intangible and distant

In addition to intangibility, our response to the coronavirus was also diminished by myopia or short-sightedness, which is our tendency to focus only on the current state. Myopia is well known in finance as it together with loss aversion makes investors view their investments only short-term. This means that in market down-turns, like we have just experienced, most investors react too strongly to losses and forget about the long-term potential of their investments [3]. This is known as myopic loss aversion.      

Thus, despite the warnings at the beginning of February, we could not imagine the coronavirus would really spread to our countries, since at that time everyone was focused on their current affairs. We face similar challenges with regards to keeping up preventive measures against the spread of the coronavirus, as unlike wearing face masks in the case of forest fires, where the face mask offers immediate relief, as we breath less ashes and other harmful substances [2], we get none of that immediate relief in the case of wearing a face mask in a coronavirus epidemic. Remember the first weeks of the epidemic, when we all adhered to the preventive measures, the number of infected still increased daily and we did not receive any positive feedback. This made it all the more difficult to keep up with the measures and this will present an even bigger challenge for the future, when the epidemic will calm down, but protective measures will still be needed. 

It is similar to eating healthy or exercising regularly, we will not feel any better tomorrow, but the positive effects on our health will come only after years. Similar is with saving for retirement, where we set aside a certain amount of money on a monthly basis, only to receive an additional pension after 30 or 40 years. It is completely different when buying a new car or a house, where in exchange for a monthly instalment of credit, we can drive our dream car out of the salon today. Therefore, it is not necessary to say twice, the majority chooses to buy a new car, instead of saving for retirement.

Optimism bias

Going back to the coronavirus and our ignorance of the possibility of it spreading to our home countries, optimism bias also played a role. It is considered to be one of the most prevalent and robust cognitive biases as research found people of all nationality, age, gender and race, attribute to future positive events a much greater likelihood of realization than negative ones [4]. For the most part, we ignore historical evidence and statistics, because a car accident or Alzheimer’s will for sure never happen to us and public pensions will be enough for a decent living in retirement.

One of the world’s leading neuroscientists, Tali Sharot, interprets optimism bias as a cognitive illusion that humans live with, though without realising its impact on our behaviour. Since humans possess, as one of the few species, a unique ability of conscious foresight (mental time travel), this also means we are aware that somewhere in the future bad things, like death and illnesses, await us. Without developing positive biases during our evolution, we could not function normally [5]. Biologist Ajit Varki points out that without excessive optimism, humans’ greatest evolutionary advantage – our self-awareness, would become our biggest obstacle and ground us to a halt [6].

However positive for us, our overly optimistic outlook of the future hinders our ability to realistically assess future threats, like the coronavirus, or running out of money in retirement, or not being able to afford needed healthcare. Optimism bias is also dangerous in the current stages of the epidemic, as we interpret positive signs too quickly and forget the epidemic may return in the second wave. That is why, when assessing threats, we must be as realistic as possible and rely on numbers and not emotions. If you would like to read more about the threats of optimism bias on your retirement nest egg, and how to avoid them, you can read my article for The Decision Lab.

Coronavirus COVID-19 lessons

If humanity can learn something from the last pandemic, it is that even though certain threats are intangible and distant, that does not mean they are not real, That goes the same for viruses and retirement saving. And even though the consequences of some of our actions will only be visible in the long run, that does not mean we do not make urgently needed changes in our behaviour today and that goes for individuals and societies. As we have witnessed these days, the consequences of procrastination are unfortunately measured in human lives and we have crucial years ahead of us, where we can still do something more in the light of the inevitable climate and demographic crisis, for which we have today more than enough evidence, to make changes.


[1] Chapman, Gretchen & Loewenstein George. Hand-washing and distancing don’t have tangible benefits. The Conversation, 2020. Retrieved from:

[2] Berman, Kristen. Wildfires — the perfect behavioral problem. Medium, 2020. Retrieved from:

[3] Thaler, R. H., Tversky, A., Kahneman, D., & Schwartz, A.. The effect of myopia and loss aversion on risk taking: An experimental test. The Quarterly Journal of Economics, 112(2), 647-661. 1997.

[4] O`Sullivan, P. Owen. The neural basis of always looking on the bright side (Dialogues in philosophy, mental and neuro sciences), 2015.

[5] Sharot, Tali. The optimism Bias – A Tour of the Irrationally Positive Brain. New York, NY, US: Pantheon/Random House, 2012.

[6] Varki, Ajit. Human Uniqueness and the denial of death. Nature 460, No. 7256, 2009.

Published by Ziga Vizintin

Nudging people to save for retirement one nudge at a time.

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