The Biggest Retirement Risk No One Talks About
Turns out, our aging brains put us at a disadvantage
I know this is something most of us don’t want to think about. But there are steps you can take earlier — probably in your 60s — to protect yourself, your wealth and your family.
The roadmap of decline in investing ability is rooted deep in human biology, and here I need to make a brief and, I hope, painless foray into the physiology of the human brain.
“A lot of the cognitive functions or processes involved in financial decision making are located in the frontal cortex,” said Dr. Joe Verghese, a professor of neurology at Albert Einstein College of Medicine and chief of geriatrics at Einstein and Montefiore Medical Center in New York.
Because of the cortex’s predominance throughout much of adulthood, we get better and better at investing until we hit our mid-50s, when we begin a slow, inexorable decline.
Why? As we age, the limbic system, one of the oldest structures in the human brain and the seat of primal emotions like fear and greed, becomes more and more powerful.
“As we get older, our prefrontal cortex has a more difficult time tamping down emotions, and it may have more difficulty putting complex information into context,” Michael S. Finke of Texas Tech University told me.
Around 70, wrote Alok Kumar of the University of Miami, investment skill “deteriorates sharply” and investors’ “ability to handle risk declines.”
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That can lead to panic selling, such as the kind we saw in 2008-2009. With hindsight, buy and hold was the way to go. But try telling that to a 75-year-old widow who watched a third of her retirement savings go up in smoke.