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