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How Retirement Plan Sponsors Can Address Cognitive Decline

SSGA contends there are things retirement plan sponsors can do to help participants prepare for retirement before their mental capacity begins to wear away.

By Rebecca Moore editors@strategic-i.com | August 05, 2016
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Financial advisers may have to deal with retired clients’ cognitive decline, but State Street Global Advisors (SSGA) contends there are things retirement plan sponsors can do to help participants prepare for retirement before their mental capacity begins to wear away.

SSGA reached out to Harvard behavioral economist David Laibson, who has done pioneering work on the ways aging affects financial decision-making. Laibson identifies two kinds of intelligence that evolve over a person’s lifetime: Fluid intelligence—the ability to learn and adapt, which declines rapidly over time; and Crystallized intelligence—wisdom learned from experience, which increases over time.

Cognitive performance, which draws on both fluid and crystallized intelligence, peaks when people are in their 50s. Laibson explored the connection between people’s age and the interest rates they paid for loans, and his research suggests people are better at making financial decisions in middle age then get worse at it.

SSGA offers an article, “The Challenge Every Participant Faces,” which goes into more detail about Laibson’s findings.

Fredrik Axsater, global head of defined contribution at SSGA, who is based in San Francisco, tells PLANSPONSOR, “Anything that we do within our business focuses on making retirement work. Taking into account the aging brain to help people make the right decisions at the right time is important.”

NEXT: What can plan sponsors do?