Many older adults experience declines in auditory and cognitive abilities that negatively affect language comprehension, including spoken word recognition. In the case of auditory function, poor neural responses to sound at the earliest stages of auditory processing may adversely affect phoneme identification, and ultimately, lexical access. Declines in cognitive functions, such as inhibitory control or working memory, may also impede word recognition. Furthermore, complex interactions between auditory and cognitive declines make it difficult to distinguish these possible causes of age differences in speech perception. We review age‐related changes in spoken word recognition, with respect to current models of this process. Then, we invoke frameworks of sensory–cognitive compensation and argue that online, sensitive measures of sensory processing and of comprehension are important in distinguishing between effects of sensory and cognitive decline. We conclude that investigations of spoken word recognition in older listeners must carefully assess listener differences at early levels of auditory processing, in conjunction with cognitive abilities.