Reports that aging Americans may not be able to make sound financial decisions because of declining cognitive skills may be overstated, said Laura Carstensen,  professor of psychology and  head of Stanford University’s Center on Longevity.

“We may be jumping the gun,” Carstensen said in an interview following her keynote speech this month at NAPFA’s spring conference in Las Vegas. “While there is cognitive decline with normal aging, if we pull out people with brain disease, there’s not enough of a decline for us to worry about older peoples’ ability to make financial decisions.”

In her speech, Carstensen referred to the “Age of Reason” study by Harvard professor David Laibson, which cited macro-economic data to speculate that cognitive performance related to financial decision-making declines after age 53. Laibson’s thesis inspired what Carstensen called a “dangerous scenario” impacting society as baby boomers find themselves dealing with trillions of dollars as they retire or inherit wealth from their parents — or both.

But the vast majority of boomers do not get brain diseases like Alzheimer’s and are able to make financial decisions “thoughtfully and carefully,” Carstensen said. The brain’s processing capacity declines after age 50, she explained, but older people’s expertise remains intact, as does their ability to learn.

Plan sponsors and advisers need to re-think their approach to retirement issues as people live and work longer, Carstensen said. “The notion of the golden years of retirement is becoming obsolete,” she said.

We should anticipate investors will live longer than they expect to, Carstensen cautioned.

By 2030, an estimated 22% of the U.S. population will be over 65, she noted, a 9% increase from current levels. And according to one recent estimate, a majority of children born after 2000 will live to be 100.

Charles Paikert is Senior Editor of Financial Planning, a SourceMedia publication.

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