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Why our financial abilities peak at age 53

I happened upon an interesting book about how our financial abilities start to decline quite early in age and what we should do about it. The book is called What to do when I get stupid and it's by a US economist, Lewis Mandell. Here is an overview of Mandell's findings with my thoughts interspersed.

Mandell cites a plethora of scientific studies which suggest our capacity to make financial decisions peaks around the age of 53.

He first distinguishes between 'fluid intelligence' and 'crystallised intelligence'.

Fluid intelligence is the ability to think abstractly and deal with complex information. Psychologists have long known that fluid intelligence peaks about age 20 and declines by 1% each year thereafter. It's why great mathematical discoveries tend to be made by younger scholars, for instance.

As we age, however, we also gain experience to help us make better decisions. This is called crystallised intelligence. Thus, while fluid intelligence decreases with age, crystallised intelligence increases:

"Since fluid intelligence declines at a slow but steady rate, overall intelligence will tend to increase at first, boosted by the relatively quick increase in crystallised intelligence, but then begins to slow down in middle age. The constant loss of fluid intelligence begins to match the smaller and smaller increases in crystallised intelligence, until the increases and decreases are equal, at which point our overall intelligence peaks."

When you combine the two types of intelligences and apply them to financial decisions, research indicates that we peak around age 53 and decline thereafter at a rapid rate. The age for peak performance varies according to different financial products, from a low of 45.8 years old to a high of 61.8 years.

Decisions related to borrowing and debt peak at around age 53 while investment skills peak around age 70. The difference is likely due to the varying ages at which we get experience in borrowing and investment. When we're young, we don't have much money and therefore will rely on debt to fund a house, for example. When older, and perhaps thinking about retirement, we're more likely to have accumulated assets and are more open to learning about investment.

Get prepared now

Only a small number of us will reach 80 years of age without some kind of mental impairment that will cloud our financial decision-making. But our self confidence in our financial decision-making increases with age. Older investors are more prone to use new investment information from television and newspapers, yet they're less skillful in using the information and are more likely to increase the risk profile of their investments as a consequence.

Mandell believes it's wise for us to take financial decision-making out of our hands while we still have the mental capacity to do so. He thinks planning is critical to guarantee we'll have enough income coming in each month for the rest of our lives to maintain our desired standard of living.

He advocates a guaranteed income that should be regular, virtually impossible to lose and should increase as our expenses increase with inflation. And it should last no matter how long we live.

Threats to this planning include low interest rates, stock market volatility, rising inflation and ourselves if we rely on our own decision-making as our faculties age.

The best strategy

The goal is to have enough money coming in each year to cover our core retirement expenses. Beyond that, any additional income is discretionary. They are surplus assets which can be used to increase our standard of living.

If the income coming in each year isn't enough to cover retirement expenses, there are two choices: 1) reduce our standard of living, or 2) gamble on risky assets to make up the shortfall. Many people opt for 2).

Mandell goes into how to calculate core retirement expenses, including identifying which ones will increase with inflation.

Much of his solutions to the problem are US-centric. Broadly though, he suggests a mix of fixed annuities and Treasury Inflation-Protected Securities (TIPS).

First, he likes fixed annuities where you pay in a sum of money and get a fixed monthly payment for life. By doing this you: 1) eliminate market risk 2) since these annuities pay for the rest of our lives, they eliminate longevity risk and 3) since they can't be cashed in, they eliminate judgment risk.

He thinks TIPs are a useful hedge against inflation. An additional strategy to reduce the impact of inflation is to try to retire debt and rent free. And owning a low-cost maintenance home and car are also important.

The book examines ways to protect assets against irrational judgments that you might make. This includes such things at joint accounts, splitting assets etc.

If you manage your own investments, there is little legal protection against irrational decisions that one might make in future.


The statistics on declining financial abilities may have surprised you as they did me. Of course, in Australia, we have a generous pension and superannuation system, which both help in funding our retirements. Nonetheless, it's useful to at least consider Mandell's point of automating much of our financial decision making before our cognitive abilities start to wane.


James Gruber is an Assistant Editor at Firstlinks and Morningstar.


December 19, 2022

Statistical averages are just averages. Some may peak at 49, others at 59 or older

Max Lewis
November 20, 2022

Well now, ! I am rapidly approaching 83, so I will have to have someone explain to me the nuances of this article.

Meanwhile, I train each day compete not unsuccesfully in the major Masters Swimming events and spend my work time each day being involved in the finacial advice process and remaining committed to the interests of clients.

I now feel such a fraud!!!

Paul Lange
November 23, 2022

Indignant you may be, however, the article also said older people are prone to over confidence and hence poor decision making. Could you be in this camp Sir ?

December 19, 2022

Congratulations Max ignore the noise and keep at it. I’m retired also and do daily gym and financial markets research every day.

November 19, 2022

If financial ability peaks at 53 then what hope is there for all those cryptocurrency obsessed millennials? FTX financial record keeping and spectacular spiral into bankruptcy does not inspire confidence in youthful 30 year old spruikers. It's either one giant stuff up or the whole crypto bitcoin investing in nothing thing is the latest and probably greatest financial scam and swindle since the South Sea Bubble of the 1700s.

November 18, 2022

The premise is wrong. If you think that financial abilities peak at 53 then you would also have to argue and prove that other logical and conceptual abilities also peak at that age. Maths and engineering abilities, language abilities, political decision making abilities, musical abilities etc.

December 07, 2022

Think they are just wanting us to sign up for a financial planner.
Lots of dollars involved in managing the finances of the elderly.

Bill Keech
November 17, 2022

Just a lesson in ageism! Mostly the experts say what suits them.
When I was 21 I had no money. If there was enough for a beer then I spent it.
I haven't worked for 30 years now and I earn more than 50 physical workers each day.
Money (capital) talks.
Of course I have my bad days but the money is never going to run out.
Some people never learn, but don.t blame old age.

Richard de Crespigny
November 17, 2022

By studying brain volume (grey matter - data) and (white matter - information) versus age, I came to a similar conclusion. The only difference is that I use the terms "creativity/recklessness" and "wisdom".

It's important that we employ young people (< 35) for their creativity and older people for their wisdom. Together, its a very powerful union.

James Gruber
November 17, 2022

Well put, Richard.

November 16, 2022

I wonder how many fund managers or financial advisors are aged over 53? Just sayn!!

James Gruber
November 16, 2022

Hi Lyn, yes a gender data split would be fascinating however this book did not have it. If I find anything on this, I will get back to you.

November 16, 2022

I managed a SMSF for 20 odd years. Still active 82-year-old. My experience very similar to Kevin's.

November 16, 2022

I strongly disagree with stock market volatility.That hasn't made the slightest bit of difference to my dividend income.The price of the company changing on a daily basis means nothing. The last sentence is the key.Automate the decision making.The plan remained the same since day one.Buy,use the DRP,the dividends will then replace earned income in retirement.The plan was a spectacular success.Retirement meant the highest earnings in my life,and the highest amount of tax paid on an annual basis.The plan now is exactly the same,dividends and super provide a very good income,excess income goes back into buying more shares.Made up numbers would be where 100% of dividends went into the DRP over the decades,now 70% would be taken as income and 30% would go to the DRP. The share registry runs everything for me.They pay the dividends into the bank.They send me a statement saying this is the increase in the number of shares you own. The bank transfers money on a monthly basis from 1 account to the other account for the sleep at night money.All I have to do is fill in the tax forms at the end of the year,and pay off the credit card in full at the end of the month. I picked up a slight mental decline on the credit card side .Now the card gets paid on the first of every month,a set amount IE if spending is $60K on the card annually then $5K is paid in on the first of each month no matter how much is owed on the card.When rates and insurance are due then twice a year that may increase to $7K.I don't recall ever paying interest on a credit card balance.

David Owen
November 16, 2022

A wonderful, indirect response to my comment below. Thanks Kevin.

November 19, 2022

Couldn't have put it much better myself, Kevin.

Peter Thornhill
November 19, 2022

With you 100% Kevin.
Volatility is NOT risk; It is merely a function of the liquidity associated with shares which enable every man, dog, hedge fund, day trader, short seller etc to treat the market like a casino. At age 75 we have more income now than at any time in our lives.

David Owen
November 16, 2022

It would be interesting to see what income an investor would have received from a set and forget Australian ASX 200 or ASX 300 shares index fund.

Peter Thornhill
November 19, 2022

David, I have a UK LIT that has increased its dividend every year for the last 55 years. It has only been around for 162 years. Gives one some comfort.

November 16, 2022

Someone should council Charlie Munger. He has exceeded the limit.

November 16, 2022

By a considerable margin I might add :)

November 16, 2022

I was thinking the same about Warren!

November 16, 2022

In same light vein, was there any gender data split available James? Over 3 generations mainly female, only 3 male in over 100yrs, all 11 females worked, some in times when women 'didn't', 8 died 80 - 90+ , all still with "marbles", managed affairs, 3 alive. 1 died at 99, sight and hearing in tact, still doing affairs. Paternal predominately male, all died 'early', only 2 females, died 80+, ditto above. A gender data split, from 70 - 90yrs, would be interesting in tables above to see any change to result other than longer female life expectation.

November 18, 2022

Similar to smokers that never develop lung cancer, there will be exceptions. Although we may have been aware of this, only when presented in articles like this do we really pay attention. The decline is not always linear. Sometimes a health issue brings it very much suddenly, as experienced by some with Covid. As someone who is past 53, it is a good reminder that we need to plan ahead.

Fortunately, as I have learnt more about finance, I feel more comfortable not trying to be too smart or look for novelty investments.

Bob Backer
December 08, 2022

Don’t confuse averages with individuals. The article is not a comment on any individual, nor does it attempt to imply that the average can’t be beaten by any given individual. Personally, I think it wise to consider my own risk of cognitive decline when determining the structures within which I hold my assets, and how that will be managed over time. For Peter Thornhill, who was a significant influence early in my financial planning career (and for the avoidance of doubt, positively so), getting it right in the past (while our cognitive capacities are growing) does not guarantee the continuation of that trend. Nor does it guarantee the opposite. But the risk of our cognitive decline is real, and like all risks, failure to develop a strategy to deal with it is likely to cause grief in time.


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