Retirement-aged people make poorer financial decisions and more inconsistent choices than younger individuals with the same IQ, according to a new study from Australia and the US.

Researchers from the University of Sydney, New York University and Yale’s School of Medicine asked 135 healthy participants aged from 12 to 90 to make a series of financial decisions, choosing between options that carried different levels of risk and reward.

Each participant was faced with 320 decisions: for example, choosing between gaining $5 and the chance to win $20 in a lottery.

On average, over-65s earned 39% less than young adults, defined as those aged 21-25, and 37% less than mid-life adults, aged between 30 and 50.

From the report, published in the Proceedings of the National Academy of Sciences today:

Researchers studied participants’ choice consistency, rationality and individuals’ preferences for known and unknown risks.

Compared to other age groups, older adults tended to prefer to lock in guaranteed earnings over gambling on a bigger win. But when it came to gambling on a loss (where you can choose between say, a $5 loss or a chance to lose either $0 or $8), older adults took significantly more risks.

Older adults also tended to make more inconsistent decisions “despite clear evidence that they understand the task well”, researchers found.

“We were surprised by the results,” said University of Sydney economist Dr Agnieszka Tymula. “The fact that older adults were really at their peak of performance in terms of IQ scores and still showed such decline in choice consistency and rationality is really worrying.”

The researchers said their results indicated that decision-making abilities declined with age, alongside other cognitive abilities like motor skills and memory.

The results could also account in part for the high number of elderly people facing problem-gambling or falling victim to online scams, Dr Tymula said, and could be an important consideration for superannuation.

“If we found that older people make less money because their preferences for risk were different, I’d say leave it as it is,” she said.

“But, since we see that they make more mistakes and are more inconsistent, policy intervention that can help older people maintain rationality and consistency would be desirable.”

There’s more on the study in the scientific journal, PNAS.

Now read: DELOITTE: Australian 30-Year-Olds Will Need More Than $1.5 Million To Retire Comfortably

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