This study took advantage of the subsecond temporal resolution of ERPs to investigate mechanisms underlying age- and performance-related differences in working memory. Young and old subjects participated in a verbal n -back task with three levels of difficulty. Each group was divided into high and low performers based on accuracy under the 2-back condition. Both old subjects and low-performing young subjects exhibited impairments in preliminary mismatch/match detection operations (indexed by the anterior N2 component). This may have undermined the quality of information available for the subsequent decision-making process (indexed by the P3 component), necessitating the appropriation of more resources. Additional anterior and right hemisphere activity was recruited by old subjects. Neural efficiency and the capacity to allocate more resources to decision-making differed between high and low performers in both age groups. Under low demand conditions, high performers executed the task utilizing fewer resources than low performers (indexed by the P3 amplitude). As task requirements increased, high-performing young and old subjects were able to appropriate additional resources to decision-making, whereas their low-performing counterparts allocated fewer resources. Higher task demands increased utilization of processing capacity for operations other than decision-making (e.g., sustained attention) that depend upon a shared pool of limited resources. As demands increased, all groups allocated additional resources to the process of sustaining attention (indexed by the posterior slow wave). Demands appeared to have exceeded capacity in low performers, leading to a reduction of resources available to the decision-making process, which likely contributed to a decline in performance.