Fears of Aging Clients Overstated

LAS VEGAS - Reports that aging clients 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 Thursday afternoon at NAPFA’s spring conference. “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.

Advisors also 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.

Advisors should anticipate clients 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 nine percent increase from current levels. And according to one recent estimate, a majority of children born after 2000 will live to be 100.

Advisors should also move beyond just focusing on health issues with older clients, she said.  “Ask them about activities they want to do and goals they want to accomplish, like helping to send someone to college,” Carstensen said.

And aging advisors and clients alike should consider doing something outside their usual routine to stay mentally sharp, like learning a new language or how to play a musical instrument. “Anything that forces the brain to create new neural pathways,” she said.