The Peak Age of Financial Reason

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My latest column on Money & Your Mind over at SmartMoney.com:

When it comes to handling your money, do you get smarter every year? Do you get smarter for a while and then level off? Or do you get smarter for a while, hit your peak, and then get less smart every year after that?

It may be depressing to think about, but a soon-to-be published paper on money and aging argues that while our experience and accumulated wisdom make us smarter for a while, this effect is ultimately swamped as our minds begin to decline with age. The tension between these two forces means that the sharpness of our financial decision making rises and then falls over the course of a lifetime, like an upside-down U. The authors of the paper even put a number on the peak of that upside down U: 53.

That’s the age, on average, where people’s increasing experience begins to be outweighed by the inexorable deterioration of all parts of the human body — including, of course, the brain. As the baby boom generation heads toward retirement, there will never have been so many people with so much accumulated wealth heading into such an extended period of cognitive decline.

What does it mean for society? And what does it mean for individuals hoping to make sure that they and their families are taken care of?

We discussed this before, here. The column looks at the generational trends that have suddenly made this problem more acute. It also offers various ways you can manage inevitable cognitive decline entirely independent of whether the government decides to act.