Decline in cognitive ability leads to fear of upfront costs

New York: As this generation continues to age, dialogue will increase on how to manage concerns associated with ageing, such as the decline in cognitive ability and retirement decisions, researchers aver.

A recent study at University of Missouri found that older individuals with lower cognitive abilities are susceptible to behavioural biases, such as being adverse to upfront costs.

The risk of aversion, along with lower cognitive ability among older Americans, might explain the lack of demand for certain retirement savings products, said Michael Guillemette, assistant professor.

"With a pure-life annuity, an individual will pay an upfront cost that is typically $50,000 or higher and in exchange will receive monthly payments for life."

"The risk associated with annuities comes from the uncertainty of death. If the full amount of the annuity is not paid out prior to the death of the recipient, the money is lost," Guillemette added.

The analysis considered two hypothetical risky financial prospects, both with equivalent expected returns, one situation included an upfront cost and the other had no upfront cost.