Older adults often display impaired memory for associations, relative to memory for individual items. However, it is not clear to what extent this impairment stems from older adults’ inability to encode associations or their inability to strategically use these associations at retrieval. Here we examined this issue by focusing on the effects of context reinstatement, where strategic use of item-to-context associations is not required. To eliminate any strategic use of context, we assessed context reinstatement not only for correct recognition of old items but also for incorrect recognition of perceptually highly similar lures. Experiment 1 demonstrated that impairing encoding of item-to-context associations in young adults eliminated both benefits and costs of context reinstatement. Experiments 2 and 3 showed that promoting encoding of item-to-context associations produced robust benefits and costs of context reinstatement in both young and older adults, even when older adults’ ability to reject similar item lures remained impaired. Experiment 4 revealed that context reinstatement effects are eliminated for older adults, but not young adults, when encoding of items is promoted. This encoding orientation, however, improves older adults’ ability to reject similar item lures. The results suggest that older adults are less efficient in encoding information their attention is not explicitly directed to-be it items or associations.