Why clients think they can beat the market

Key takeaways:

• Investors may overestimate their ability to manage retirement portfolios over time, particularly after periods of strong market performance.
• Gen X and millennial investors are more accustomed to self-directed investing and digital financial tools, shaping how they evaluate retirement strategies.
• Behavioral biases such as overconfidence and recency bias can influence retirement planning decisions.
• Research suggests financial decision-making ability changes with age, creating an important planning window for pre-retirees.
• Financial professionals can help clients view annuities as tools for managing retirement risks rather than products designed to outperform the market.

The shift toward self-directed investing has changed how some clients approach retirement planning. Many expect they’ll be able to successfully manage their retirement portfolios themselves.

But behavioral research suggests confidence in self-management may be misplaced. As retirement responsibility continues shifting to individuals, behavioral biases may play an increasingly important role in long-term financial outcomes. Even among financially literate investors, many believe they can outperform the market — though most don’t.

How overconfidence impacts retirement outcomes

Behavioral studies consistently find that individuals overestimate their investment skill.

This tendency can be especially relevant for Gen X and millennial clients, who may have spent more of their financial lives in self-directed retirement savings plans and digital investing environments.

At the same time, research shows these generations may be more open to annuities than commonly assumed — 76% of millennials and 70% of Gen X report being at least somewhat interested in annuities, compared to 61% of boomers, according to an Athene-commissioned survey and white paper from researchers at UCLA Anderson School of Management and Duke University.

Annuities can help address overconfidence, not by changing what investors believe, but by removing decisions that overconfidence may distort. For example, basing investment decisions solely on past performance, when market shifts at the wrong time could significantly decrease a portfolio’s value. On the other hand, annuities can replace uncertain self-management with guaranteed, predictable income.

The challenge for financial professionals is not just explaining annuities — it’s reframing what they are designed to do.

Financial decision ability changes with age

Research shows financial decision-making ability follows a life-cycle pattern. It typically peaks in the mid-50s, when experience and peak cognitive ability combine.

However, financial confidence often remains high even as cognitive ability may decline later in life.¹ That gap can create risk for retirees managing complex portfolios. Annuities mitigate this risk by locking in predictable income early, reducing the need for ongoing complex financial decision-making in later years.

For Gen X clients, the gap between peak experience and cognition creates a key planning window: a period where decisions made today can reduce the need for active portfolio management later in life.

How market performance helps reinforce overconfidence

Investor behavior is also influenced by recent market performance. For Gen X and millennial clients — who are often more engaged with digital financial information and self-directed investing tools — recency bias can reinforce confidence in managing investments independently.

During extended market rallies, that confidence can rise across generations.

Extended periods of strong market performance can increase confidence in self-managing investments, even when returns are influenced in part by broader market conditions. For investors nearing retirement, that confidence can sometimes reduce focus on risks such as sequence-of-returns risk, income stability and long-term portfolio sustainability.

By offering guaranteed income, annuities serve as a hedge against the behavioral tendency to chase recent performance.

This dynamic can create an important opportunity for financial professionals to help clients distinguish between market-driven confidence and long-term retirement preparedness.

As retirement responsibility continues shifting from institutions to individuals, behavioral biases may play an increasingly important role in long-term financial outcomes.

Strategies for financial professionals to help address investor overconfidence

Position annuities within a risk management framework

An overconfident investor may reject annuities because they find benefits like guaranteed income and protection from market loss unnecessary. Financial professionals can help clients better understand the ways annuities can help protect against risk in retirement. Comprehensive risk management often views annuities as a key tool to help hedge against unexpected market downturns and the risk of outliving income.

Annuities help address:

• Longevity risk
• Sequence of returns risk
• Investment risk

For many clients, the more relevant conversation may not be market upside versus annuities, but how to balance growth potential with income stability and a level of downside protection to help manage long-term retirement risks.

This framing is particularly relevant for Gen X and millennial clients, who may be balancing growth goals with increasing awareness of long-term uncertainty.

Address recency bias directly

Clients often extrapolate recent market gains into the future. Financial professionals can acknowledge strong returns while also discussing future uncertainty.

This strategy may be most effective with clients whose expectations could be shaped by recent market performance rather than long-term outcomes.

Connect strategies to generational experiences

Economic events shape client attitudes.

These experiences can influence how clients evaluate risk, control and financial products.

Many Gen X and millennial clients, in particular, are navigating retirement without the safety net of traditional pensions. At the same time, they’re facing greater uncertainty around longevity and future income needs.

Bringing up these topics in retirement planning conversations can help make protection strategies more relevant.

The financial professional opportunity

Many Gen X and millennial clients are facing retirement planning with greater uncertainty around longevity, spending and future decision-making — while also bringing different expectations shaped by their financial experiences.

When financial professionals frame annuities as tools for helping manage risks, the value may become clearer within a broad retirement strategy. As retirement planning becomes increasingly self-directed, helping clients navigate behavioral risk may become just as important as managing market risk.

For more insights on how generational differences shape client behavior — and for practical strategies you can apply to help improve conversations, build trust and position solutions effectively — download our latest white paper, Solving the Annuity Puzzle for New Generations of Consumers.

Insights on Athene Connect. Tips, tools and resources to grow your business by helping clients retire with confidence.