The New Retirement Risk: Decisionmaking Skills Peak at 53

That's right, it's all downhill after 53 -- at least for your financial decision-making super powers. A new Brookings Papers study (penned by two Fed Reserve guys and two academics) took a look at 10 different financial moves -- from credit card balance transfers to home equity loans and lines of credit -- and how age plays into the decision-making process. The sweet spot for minimizing fees and interest rates was smack dab in the heart of old-school middle age: 53. After that milestone, our financial cognitive skills start to slide.

So much for 63 (or 73) being the new 53. When it comes to making optimal financial decisions, there's no longevity bonus.
The Risk of Older but not Wiser
Dial back 25 or 30 years and older Americans were less likely to be making big-ticket financial decisions. A defined-benefit pension and Social Security often formed the core of their retirement income, and neither required any hands-on management. Fast forward, and retirees now are in charge of a large part of their retirement security; from deciding the proper allocation for 401(k)s and IRAs and setting a sustainable withdrawal rate of those assets, to riding herd over RMDs for all those disparate accounts. Given our anemic savings rates for the past few decades, we're also more likely to need to tap home equity to produce retirement income. While reverse mortgages are a viable retirement income source, it's also an area where costs and confusion can run high. The National Consumer Law Center recently released a study of reverse mortgage lending with the subtle title "Subprime Revisited," and the General Accountability Office has chimed in saying the reverse mortgage lending industry could use better consumer protection oversight. (Check out Marlys Harris' spot-on take that ruffled a few reverse lender feathers.) And let's not forget the later-in-life challenge of deciding whether to purchase Long Term Care Insurance.

The bottom line is that while our cognitive skills may peak at 53, the need to keep making smart financial decisions doesn't recede with age. If anything, it continues to grow. To be sure, full-bore dementia creates the most severe risk for retirees, but there's also concern that even more moderate declines in cognitive skills is creating a mismatch for coming generations of retirees who will be tasked with managing their assets and ensuring their retirement security.

Photo courtesy of Flicker user, LuMaxArt , CC 2.0

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