Do you feel ready to retire? It turns out your answer might say more about your future than you think.
A new study published in the Summer 2025 issue of The Journal of Wealth Management reveals that financial confidence, not just financial knowledge, plays a decisive role in retirement preparedness.
According to lead researcher Ramesh Rao of the University of Texas at Austin McCombs School of Business, it’s not only what you know about money, but what you believe you know, that determines how secure you feel about life after work. And that belief, researchers say, could be the hidden engine behind better financial habits and long-term success.
Rao dubs this psychological factor ‘subjective financial knowledge (SFK)’, that is, what people believe they know about money (rather than actual knowledge).
Rao and his research partners, Congrong Ouyang of Texas A&M University and Khurram Naveed of the College for Financial Planning, analysed data from 3,267 working adults and found that financial risk tolerance, SFK, and demographic factors together significantly impacted retirement readiness.
Notably, higher risk tolerance increased perceived retirement adequacy by 0.54 points on a 5-point scale. Moreover, they found that SFK explained nearly 40% of the relationship between the variables of risk tolerance and retirement confidence. Rao said this shows SFK has a “very, very strong effect.”
As pension funds fade, self-funded retirements are becoming the new norm. This puts extra pressure on American workers to save even more than before, especially as life expectancies increase and medical costs continue to rise.
Could confidence be key to turning the financial odds in one’s favor? Considering their work with clients, Wealthtender financial advisors speak on the psychological effects of confidence on retirement readiness.
Confidence Dividend
Financial knowledge may be just the tip of the iceberg – it’s the mindset underneath that makes the difference. The researchers concluded that boosting people’s belief in their ability to manage money may be just as impactful as boosting their actual knowledge, particularly for those with lower incomes or less formal education.
Advisors say they’ve witnessed this firsthand in their consulting work.
“Those who genuinely feel more confident about their financial future adopt better habits,” says Chad Rixse, Wealth Advisor, Forefront Wealth Partners. “It’s almost as if the belief itself fuels the actions needed to achieve their goals.”
“When clients operate from a place of belief that there’s enough, and that they are capable of achieving financial security, they tend to be more proactive, disciplined, and open to opportunities,” he continues. “Their abundant mindset and positive energy attract more positive outcomes.”
Rixse claims that instilling confidence in clients is a cornerstone of his approach.
“It starts with clear, consistent communication and education,” he adds. “I demystify financial concepts, break down complex strategies into manageable steps, and celebrate small wins. Regularly reviewing and highlighting how far they’ve come is also key to bolstering self-assurance.”
Unfortunately, many people are losing confidence in their financial outlook. According to the Allianz Center’s 2025 Annual Retirement Study, Americans’ financial confidence has declined significantly over the past five years, since the pandemic. This year, only 70% of Americans say they feel confident about their ability to financially support everything they want to do in life, down from 83% in 2020.
Unsure of their future, more people are turning toward non-traditional sources of financial advice. Younger people, especially, are taking their cues from self-styled finance gurus on platforms like TikTok and Instagram. These ‘finfluencers’ are fast closing the gap with traditional financial planners. A 2023 Federal Reserve Bank of Philadelphia report revealed that a whopping 30 percent of Americans received their financial advice from social media, making it the third most popular source, after friends and family (47 percent) and financial professionals (35 percent).
“We’re seeing more and more individuals come to us with financial ideas or strategies they’ve picked up from TikTok, Instagram, or YouTube,” Arielle Tucker, founder of Connected Financial Planning. “And while I love that people are engaging with their finances, confidence that’s not grounded in facts can be risky.”
“More often than not, social media oversimplifies nuanced planning, especially for cross-border clients navigating U.S. tax law and multiple systems.”
“My biggest tip: be curious, not reactive. If something sounds too good to be true on Instagram, it probably is,” she adds.
Viral content without context can create unrealistic expectations. This leads some viewers to be over- or underconfident about their financial position.
“When a client’s mindset is out of touch with their reality, it requires a delicate balance of empathy and directness,” says Rixse.
“For those who are overconfident, I gently but firmly present the data,” he adds. “Current savings rate, projected expenses, etc. This isn’t to scare them, but to provide a realistic picture to adjust their expectations and actions.”
“For those who are underconfident… I validate their efforts and showcase their progress. I use financial projections to illustrate their strong position.”
Rixse says both scenarios are quite common, though underconfident clients are often better at correcting their perspective.
Find Your Why
Yet cultivating confidence isn’t about blind optimism; it’s about creating a mindset rooted in purpose. Connecting financial goals to meaningful life outcomes can transform planning from a chore into a source of motivation.
“It is one thing when someone or a calculator is letting you know that you need to accumulate a sum of money to reach your goals and quite the other when you have this financial goal tied to a ‘why’ that is so strong you can envision it,” says Lawrence D. Sprung, Founder of Mitlin Financial.
Sprung explains how to optimize the goal of retiring by 65.
“A better way would be: when I am 65, I want to be able to take my entire family on a trip to Disney, play golf twice per week, volunteer at my favorite charity, and spend as much time as possible with my grandkids.”
Russ Thornton, Founder of Wealthcare for Women, a women-focused Atlanta-based consultancy, says the transition to retirement can be unsettling for clients.
“To suddenly have an extra 8 hours every weekday… and people lose their social connections at work and can easily become unmoored with an abundance of extra time and lack of routine,” he says.
“That’s why I always encourage ‘retiring to’ something rather than simply look at it as an escape from work.”
“Whether it’s family, hobbies, travel, reading, learning, volunteering, or something else entirely, it’s crucial to consider how you’ll spend your time in retirement. Not just your money.”
Retirement readiness is about more than numbers; it’s about mindset. Cultivating belief in one’s ability to manage money is vital. As always, clear goals, emotional grounding, and realistic planning will support. Whether it’s golf trips, grandkids, or giving back, connecting finances to personal purpose helps people approach retirement not with fear, but with clarity, optimism, and the confidence to enjoy their golden years.
