Our goal is to understand the neural basis of functional impairment in aging and Alzheimer’s disease (AD) to be able to characterize clinically significant decline and assess therapeutic efficacy. We used frequency-tagged ERPs to word and motion stimuli to study the effects of stimulus conditions and selective attention. ERPs to word or motion increase when a task-irrelevant 2nd stimulus is added, but decrease when the task is moved to that 2nd stimulus. Spectral analyses show task effects on response power without 2nd stimulus effects. However, phase coherence shows both 2nd stimulus and task effects. Thus, power and coherence are dissociably modulated by stimulus and task effects. Task-dependent phase coherence successively declines in aging and AD. In contrast, task-dependent spectral power increases in aging, only to decrease in AD. We hypothesize that age-related declines in signal coherence, associated with increased power generation, stresses neurons and contributes to the loss of response power and the development of functional impairment in AD.