Author Topic: Retirement's biggest risk: declining cognition  (Read 7964 times)

Nords

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Retirement's biggest risk: declining cognition
« on: June 09, 2014, 11:04:13 PM »
According to this article, my 53 years of age means I'm approaching the peak of my investing cognition.  It's all downhill from here.

http://www.marketwatch.com/story/the-biggest-retirement-risk-no-one-talks-about-2014-05-08/print?guid=7D48508C-D615-11E3-9095-00212803FAD6

Quote
“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.”

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.

I retired in June 2002, just as the tech-wreck recession started to get really interesting, and my spouse and I went through another huge portfolio drop (on paper) in 2008-09.  The key to avoiding panic selling during both of those recessions was having a large dose of annuity income (my military pension).  I can only imagine how those in their 60s or 70s, even with Social Security, would have handled a 50% drop in the paper value of their portfolio.

Those of you who cheerfully talk about "dry powder" for the next recession should get it done while you're younger.

arebelspy

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Re: Retirement's biggest risk: declining cognition
« Reply #1 on: June 09, 2014, 11:07:54 PM »
Indeed. I know Clif has mentioned that as (I believe) his biggest worry for his portfolio.

I view inflation as the biggest enemy, but I also am lucky enough to not yet have the experiences with parents having those issues, so I may be underestimating them.

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geekette

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Re: Retirement's biggest risk: declining cognition
« Reply #2 on: June 09, 2014, 11:46:31 PM »
Interesting, but it certainly doesn't hold for all.  My mom (who was 74 at the time) held during 2008, whereas some good friends of ours (late 40's) bailed and still haven't returned to the market. 

Never thought I'd say this, but I wanna be my mom when I grow up...

wtjbatman

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Re: Retirement's biggest risk: declining cognition
« Reply #3 on: June 09, 2014, 11:59:50 PM »
Warren Buffet is 83 and recommends people maintain a 90/10 AA with 90% in a low cost S&P 500 index fund, and the remaining 10% in government bonds.

Crazy old coot!

deborah

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Re: Retirement's biggest risk: declining cognition
« Reply #4 on: June 10, 2014, 02:44:48 AM »
They do differentiate between a number of cognitive skills - some of which don't peak until the 70s (I forget what they are). It depends who you are, and how much you practice the skill you what to keep.

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Re: Retirement's biggest risk: declining cognition
« Reply #5 on: June 10, 2014, 04:30:19 AM »
A mustachian life (exercise, healthy eating, an engaged mind and interesting things to do) is the best way to stave off declining cognition for as long as possible, and medical advances might help in the future.  But sometimes there is just nothing to be done, except be glad that enough people pay taxes to cover care for those most in need and enough government employees set and check standards to see off the worst of the possible ways in which people needing care can be abused.

tl:dr sometimes life is brutal, nasty and not short enough and we just have to do the best we can.

clifp

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Re: Retirement's biggest risk: declining cognition
« Reply #6 on: June 10, 2014, 05:32:52 AM »
Indeed. I know Clif has mentioned that as (I believe) his biggest worry for his portfolio.

I view inflation as the biggest enemy, but I also am lucky enough to not yet have the experiences with parents having those issues, so I may be underestimating them.

The last dozen years have been eye opening as far as the possibility (actually probability) of losing of muchf my mental facilities as I age.

My grandfather spent a lot of time and money minimizing estate taxes and simplifying his portfolio of rental properties and financial assets which I one point I think was worth nearly 3 million.
He died at age 96 and was still  quite sharp up (able to do his taxes) until the last 6-12 months of his life.  Unfortunately my grandmother suffered from Alzheimer's/dementia which we didn't pay much attention cause we were focused on my grandfather.  She quite literally fell in love with the good looking trust officer that church (which benefited from a charitable trust ) had assigned to look after her financial affairs. During the subsequent lawsuit, we found she bought him a boat, spent $10,000 of dollars on donations to his families "charity", paid his property tax, and ultimately paid of his mortgage. The estate which we thought was was worth $2 million+ was less than $1 million and distributed to 20 odd heirs.

My 89 year old mom, is generally pretty with it and at times quite sharp.  "Clif I just read this article do you know Oregon has one of the highest state estate taxes it goes up to 15%"  Sure enough she was right and the threshold was above $1 million, changed my estate planning for her.  On the other hand she keeps insisting that she needs cash in order to pay her home health care worker.  (Everyone agrees that she should only be paid by check).  Is completely unable to balance her checkbook etc.   I allow her a modest amount in her checking account $10K, keep careful track of the Schwab account for large gifts.  The bulk of her money is with Vanguard and I'm the only one who has access to it.

I have no wife and no kids.  I have a bright and honest niece, and smart, self-centered and manipulative nephew. Who is more likely to take a trip out to Hawaii to check on old Uncle Clif I'm not sure. Realistically, if some Anne Nicole Smith type befriends my at age 80, she is likely to get spoiled.  That doesn't bother me too much, what does scares me is she'll empty the account in a couple of years and leave me dependent on social security. I think I am immune to annuity salesman, but as Nords, and Arebelspy can attest I'm game to invest in all types of risky ventures.

I plan on enjoying the next 15 years while I'm pretty sure I'll be reasonable sharp.  Simplify between ages 70-80 and go on pure autopilot beyond that.

deborah

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Re: Retirement's biggest risk: declining cognition
« Reply #7 on: June 10, 2014, 03:31:26 PM »
The problem is that declining cognition sneaks up on us without us being aware of it. My great aunt who died at 106 thought clearly and was quite mentally alert right to the end. My grandmother had dementia from her 70's (died at 96), and some people get it much earlier - even though they have "done all the right things" as my mother says.

So, my problem is, when should I simplify my affairs? If it sneaks up, I won't know.

Nords

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Re: Retirement's biggest risk: declining cognition
« Reply #8 on: June 11, 2014, 12:24:52 AM »
They do differentiate between a number of cognitive skills - some of which don't peak until the 70s (I forget what they are).
Ruh-roh. 

I think the bigger issue is that emotional fear trumps even a Vulcan-logic cognitive skill, no matter how cerebral it may be. 

If Clif is befriended by Anna Nicole types in his 80s then I'll check up on him.  Frequently.  Even daily...

dragoncar

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Re: Retirement's biggest risk: declining cognition
« Reply #9 on: June 11, 2014, 10:30:00 AM »
The problem is that declining cognition sneaks up on us without us being aware of it. My great aunt who died at 106 thought clearly and was quite mentally alert right to the end. My grandmother had dementia from her 70's (died at 96), and some people get it much earlier - even though they have "done all the right things" as my mother says.

So, my problem is, when should I simplify my affairs? If it sneaks up, I won't know.

I am not an estate lawyer so I don't really know, but there could be mechanisms.  Besides setting up a trust NOW, what if you give irrevocable power of attorney to a trusted person, conditioned on the approval of 5 other trusted people (or 4/5 or whatever)?  Like I said, maybe this isn't possible, but it's an attempt to avoid your trusted person from having to get a court order saying you are incompetent.

They do differentiate between a number of cognitive skills - some of which don't peak until the 70s (I forget what they are).
Ruh-roh. 

I think the bigger issue is that emotional fear trumps even a Vulcan-logic cognitive skill, no matter how cerebral it may be. 

If Clif is befriended by Anna Nicole types in his 80s then I'll check up on him.  Frequently.  Even daily...

Don't worry, I will also check up on Clif daily.  He can buy me a boat, forget he did, and buy it for me again the next day.

clifp

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Re: Retirement's biggest risk: declining cognition
« Reply #10 on: June 12, 2014, 02:01:43 AM »
Gentleman you seem to forget that Anna Nicole Smith is in the picture here..  I am pretty positive that no matter how bad I've deteriorated, I won't mistake either you for Anna.  More importantly,  you don't want to get between a gold digger and her prey. 

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Re: Retirement's biggest risk: declining cognition
« Reply #11 on: June 12, 2014, 04:42:38 AM »
It's a complicated issue. Here is my MIL story.

My MIL is very sharp at almost 90. She calls and says some guys stopped by, they were sealing driveways in the neighborhood and could they give her a quote. She proceeds to get the quote, which is $129 for x square feet. I tell her I think it is high, after telling her for the hundredth time she should not open her door or get quotes from strangers, but when DH gets home he will call her.  I hang up the phone, and as I am thinking about it, she has nowhere near the square footage they quoted.   So I call her back, and she goes out with a measuring tape and sure enough, they quoted her a square footage 2.5 times what she had.
She starts talking to neighbors, most of whom are elderly, and sure enough, they all got these inflated quotes, but no one had measured themselves. They called the police who tracked the guys down, they were not licensed to door to door solicit. 

So in her case, it was not lack of cognition but being trusting and for all her years naive about modern ways of the world.

But the best you can do is keep active (she still swims a mile four or five times a week and walks the dog twice a day), keep mentally active, maintain social ties and in her case, she calls DH before doing anything. Hopefully that will continue

arebelspy

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Re: Retirement's biggest risk: declining cognition
« Reply #12 on: June 12, 2014, 06:50:20 PM »
Gentleman you seem to forget that Anna Nicole Smith is in the picture here..  I am pretty positive that no matter how bad I've deteriorated, I won't mistake either you for Anna.  More importantly,  you don't want to get between a gold digger and her prey.

I think Nords is just happy to be hanging around checking on heryou, even if she's getting all the financial benefit.  ;)
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brewer12345

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Re: Retirement's biggest risk: declining cognition
« Reply #13 on: June 13, 2014, 09:21:46 AM »
I can see it happening with my Dad already.  He will be  in December and over the last 5 years demonstrated an amazing lack of capacity to make non-emotional decisions about money, which worsened after a concussion in Mexico (on vacation) that landed him in intensive care for a few days and in the hospital for almost 2 weeks total.  Fortunately, I manage their money and was able to talk him off the ledge when he wanted to sell everything after watching CNBC.  It got to be a running joke among me and my 4 person team that whenever Dad called in a panic it was a buy signal.  After watching what happened after he called in ensuing weeks, some of us actually started to trade this strategy with lunch money and did quite well.

I can see the handwriting on the wall.  DD#1 wants to learn about investing this summer at the ripe old age of 10, so next week her lessons on financial accounting will start so she can understand corporate financial statements.

foobar

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Re: Retirement's biggest risk: declining cognition
« Reply #14 on: June 13, 2014, 09:29:37 AM »
As long as the gold digger is doing her job, she is more than welcome to the money. At least she has to work for it unlike the children:)

Buffet goes 90/10 because 10% of his asset basis is enough to live on for the next 500 years.:) I have always though what people want in retirment is not so much an AA but a number of years in safe assets.  You want 10-20 years in pretty safe assets depending on your risk tolerance. After that stick the rest in stocks. That might make you 25/75 or it might make you 90/10.

Gentleman you seem to forget that Anna Nicole Smith is in the picture here..  I am pretty positive that no matter how bad I've deteriorated, I won't mistake either you for Anna.  More importantly,  you don't want to get between a gold digger and her prey.

arebelspy

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Re: Retirement's biggest risk: declining cognition
« Reply #15 on: June 13, 2014, 09:50:15 AM »
I have always though what people want in retirment is not so much an AA but a number of years in safe assets.  You want 10-20 years in pretty safe assets depending on your risk tolerance. After that stick the rest in stocks. That might make you 25/75 or it might make you 90/10.

(Emphasis added.)

Not sure I agree with that.. but I'm giving you the benefits of the doubt and assuming I'm interpreting it wrong.  :)

So let me get some clarification first so I'm not arguing against something you don't even mean.  :)

What do you mean by a "number of years"?  By "safe assets" (based on the ratios you gave right afterwards) I assume you mean bonds, correct?
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hodedofome

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Re: Retirement's biggest risk: declining cognition
« Reply #16 on: June 13, 2014, 10:07:10 AM »
A mustachian life (exercise, healthy eating, an engaged mind and interesting things to do) is the best way to stave off declining cognition for as long as possible, and medical advances might help in the future. 

I believe this is more important than most realize. Though my sample size is small, older folks I know that have kept their mind engaged are still clicking away in their 80s. For example, my pappaw, who is now in his 90s, didn't start deteriorating until my mammaw died  and he basically gave up at that point. But before that he was inventing new drilling technologies right up to her death. My other grandpa reads the WSJ and watches CNBC every day (I wouldn't recommend a news diet like that but he's made it work) and keeps his mind sharp with his individual stock investments and land investments.

I think of others like Buffett and Munger, William O'Neil, Harry Markowitz and George Soros who are still engaged and their mind is as good as it's ever been. Continuous research and learning is key. Having something you love to do which is challenging all the same time, is crucial IMO.

foobar

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Re: Retirement's biggest risk: declining cognition
« Reply #17 on: June 13, 2014, 05:10:29 PM »
I mean you need 10-15  years of expenses in safe assets. Safe is a combo of cash, ibonds, CDs, bonds, stable value, and so on.  10 years is enough to ride out market volatility in most cases. 15 might let you sleep better at night. In theory you could be rebalancing back into stocks but I doubt most people have the stomach for that when retired.  For most people that is going to work out to about 60/40 or so stocks to bonds.  As they spend down the account the bond portion will rise.   For most people this doesn't matter. They are going to end up in the 30-50% range. For a someone like like Warren Buffets wife who would have something like a .1% SWR (Assume she inherits 10 billion and wants to spend 10 million a year) going 5% bonds 95% stocks is very conservative.

I have always though what people want in retirment is not so much an AA but a number of years in safe assets.  You want 10-20 years in pretty safe assets depending on your risk tolerance. After that stick the rest in stocks. That might make you 25/75 or it might make you 90/10.

(Emphasis added.)

Not sure I agree with that.. but I'm giving you the benefits of the doubt and assuming I'm interpreting it wrong.  :)

So let me get some clarification first so I'm not arguing against something you don't even mean.  :)

What do you mean by a "number of years"?  By "safe assets" (based on the ratios you gave right afterwards) I assume you mean bonds, correct?

foobar

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Re: Retirement's biggest risk: declining cognition
« Reply #18 on: June 13, 2014, 05:12:51 PM »
You have to be very careful about sample bias. Are the guys who are active in their 80s healthy because they are active or active because they are healthy.


A mustachian life (exercise, healthy eating, an engaged mind and interesting things to do) is the best way to stave off declining cognition for as long as possible, and medical advances might help in the future. 

I believe this is more important than most realize. Though my sample size is small, older folks I know that have kept their mind engaged are still clicking away in their 80s. For example, my pappaw, who is now in his 90s, didn't start deteriorating until my mammaw died  and he basically gave up at that point. But before that he was inventing new drilling technologies right up to her death. My other grandpa reads the WSJ and watches CNBC every day (I wouldn't recommend a news diet like that but he's made it work) and keeps his mind sharp with his individual stock investments and land investments.

I think of others like Buffett and Munger, William O'Neil, Harry Markowitz and George Soros who are still engaged and their mind is as good as it's ever been. Continuous research and learning is key. Having something you love to do which is challenging all the same time, is crucial IMO.

hodedofome

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Re: Retirement's biggest risk: declining cognition
« Reply #19 on: June 13, 2014, 09:15:05 PM »
Don't know myself but I don't feel like finding out just by luck. I plan on staying engaged in things that are interesting and that I enjoy until the day I'm done.

wtjbatman

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Re: Retirement's biggest risk: declining cognition
« Reply #20 on: June 14, 2014, 05:28:54 AM »
I can't even remember what my fiance told me a few hours after she said it to me. I'm doomed in retirement. Who wants to claim to be a long lost relative of mine?

clifp

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Re: Retirement's biggest risk: declining cognition
« Reply #21 on: June 14, 2014, 03:26:35 PM »
A mustachian life (exercise, healthy eating, an engaged mind and interesting things to do) is the best way to stave off declining cognition for as long as possible, and medical advances might help in the future. 

I believe this is more important than most realize. Though my sample size is small, older folks I know that have kept their mind engaged are still clicking away in their 80s. For example, my pappaw, who is now in his 90s, didn't start deteriorating until my mammaw died  and he basically gave up at that point. But before that he was inventing new drilling technologies right up to her death. My other grandpa reads the WSJ and watches CNBC every day (I wouldn't recommend a news diet like that but he's made it work) and keeps his mind sharp with his individual stock investments and land investments.

I think of others like Buffett and Munger, William O'Neil, Harry Markowitz and George Soros who are still engaged and their mind is as good as it's ever been. Continuous research and learning is key. Having something you love to do which is challenging all the same time, is crucial IMO.

60 Minutes had a great piece earlier this year on the fast growing group of Americans the 90+ year olds.  http://www.cbsnews.com/videos/living-to-90-and-beyond-part-one/ They have been conducting some very good research using medical histories of the early residents of Leisure World (now Laguna Woods) in Southern California.  It is well worth watching, the key takes away was that really outside of moderate exercise,  keeping active and having a drink or two a day there wasn't a lot we can do about Alzheimer's.   Some things we though would matter like diet have little effect, as does cholesterol, blood pressure and lots of other stuff.

We still are NOT able to diagnose conclusively even after death much less when you are alive.
« Last Edit: June 14, 2014, 04:30:37 PM by clifp »

deborah

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Re: Retirement's biggest risk: declining cognition
« Reply #22 on: June 14, 2014, 04:15:19 PM »
A mustachian life (exercise, healthy eating, an engaged mind and interesting things to do) is the best way to stave off declining cognition for as long as possible, and medical advances might help in the future. 

I believe this is more important than most realize. Though my sample size is small, older folks I know that have kept their mind engaged are still clicking away in their 80s. For example, my pappaw, who is now in his 90s, didn't start deteriorating until my mammaw died  and he basically gave up at that point. But before that he was inventing new drilling technologies right up to her death. My other grandpa reads the WSJ and watches CNBC every day (I wouldn't recommend a news diet like that but he's made it work) and keeps his mind sharp with his individual stock investments and land investments.

I think of others like Buffett and Munger, William O'Neil, Harry Markowitz and George Soros who are still engaged and their mind is as good as it's ever been. Continuous research and learning is key. Having something you love to do which is challenging all the same time, is crucial IMO.

60 Minutes had a great piece earlier this year on the fast growing group of Americans the 90+ year olds.  http://www.cbsnews.com/videos/living-to-90-and-beyond-part-one/ They have been conducting some very good research using medical histories of the early residents of Leisure World (now Laguna Woods) in Southern California.  It is well worth watching, the key takes away was that really outside of moderate exercise,  keeping active and having a drink or two a day there wasn't a lot we can do about Alzheimer's.   Some things we though would matter like diet have little effect, as does cholesterol, blood pressure and lots of other stuff.

We still are able to diagnose conclusively even after death much less when you are alive.
I was listening to something on the radio a few days ago. The speaker said that we increasingly see illness and age as a battle, and that the war analogy for growing old and dealing with long term illness wasn't appropriate - he lost his battle with cancer, he fought the illness... We have a mentality that if people just tried hard enough they would "win". The speaker said that this contributed to people being depressed as their illness progresses, and not getting the support they need from people around them who think they have "given up".

When you think about it, in the long term we can't "win". Maybe I am morbid today. I've just been to the funeral of an aunt who had dementia, and her cousin couldn't make it - he had a stroke two weeks ago leaving him physically OK but significantly mentally impared, and his wife has since been diagnosed with dementia.

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Re: Retirement's biggest risk: declining cognition
« Reply #23 on: June 14, 2014, 08:12:47 PM »
You have to be very careful about sample bias.
Screw the sample bias-- I'm more concerned about survivor bias!

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Re: Retirement's biggest risk: declining cognition
« Reply #24 on: June 15, 2014, 04:32:08 AM »
This hits close to home for me. I see this with my grandparents on so many different levels, ranging from investment decisions to personal choices. I've been around and around this with my family and with them, but it boils down to the fact that they are not legally incapacitated and so they can continue to make bad decisions and be taken advantage of by unscrupulous people. Cases in point-letting a stockbroker churn a modest brokerage account for commissions of $499 a trade (on trades valued around 20k each) because "He is such a nice young man". Investing in an annuity with a 7% surrender charge, paying 1.5% interest a year (1.5% is not a typo) with the money locked up for 7 years. Buying a CD at .79% interest, and then refusing to break the term for a higher rate because "We'll lose 6 months of interest". They refuse to let me handle their investments, despite knowing that I have nothing but their best interests at heart, would respect their desires to be ultra-conservative in investments, and that  I have the ability and desire to do so for them.
The list could go on and on, but the decline in cognition is real and it happens to everyone if they live long enough, granted at different ages. In their case, since retirement almost 25 years ago, they have done nothing stimulating. They go to the grocery story, church to sit through a sermon, watch tv, and that's all. If nothing else, they have been a wonderful lesson for me to never allow myself to sit around and decay mentally, as well as how important it is to make investment choices that are good now and then trust the people who love me and have my best interests at heart when I will need to be taken care of. 

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Re: Retirement's biggest risk: declining cognition
« Reply #25 on: June 15, 2014, 07:13:03 AM »
You have to be very careful about sample bias. Are the guys who are active in their 80s healthy because they are active or active because they are healthy.

Though my sample size is small, older folks I know that have kept their mind engaged are still clicking away in their 80s.

Correlation vs causality is always tricky with these types of things. A high percentage of retirees die within a few years of retirement. Is that because retirement causes a decline or because more people retire when they've started their decline?

At the end of the day it boils down to actionable items. It makes sense to me that living a healthy life and continuing to challenge yourself mentally will increase the probability of maximizing your cognitive functions, so I'll probably go this route regardless of hard evidence.

I can't even remember what my fiance told me a few hours after she said it to me. I'm doomed in retirement. Who wants to claim to be a long lost relative of mine?

I'm the exact same way. I have the same senior moments as my parents and all their friends. I read an article (fitting that I don't remember when or where) that basically said this is quite common in younger people as well due to our increasingly complex lives. Our brains are overloaded with data and triage information storage very rapidly. My wife complains that I don't listen to her sometimes and I feel bad that my brain's "importance" function just scored it too low to retain.
« Last Edit: June 15, 2014, 07:22:30 AM by VarsityFinances »