Cognitive Ability and Post-Retirement Asset Decumulation

Abstract

Post-retirement asset decumulation decisions are complex and may be affected by cognitive abilities. Estimating uncertainties such as life expectancy and medical costs, and incorporating them effectively into decumulation decisions may be especially difficult as retirees face age-related changes in cognition. This may result in rates of decumulation that are contradictory to the goals that motivated accumulation, leading to potentially large utility losses. We investigated the relevance of cognitive ability to asset decumulation decisions within our sample. We found that cognitive ability was a significant predictor of the rate of asset decumulation, and that those with lower levels of cognitive ability were decumulating at a significantly lower rate. We also showed that the level of cognitive ability influenced the effects of expected longevity, market returns, and medical costs. While the estimates for these factors were consistent between those with high and low cognitive ability, there were significant differences in how the estimates were incorporated into the asset decumulation decisions of the two groups.