Processing referring expressions such as pronouns (e.g., he) requires retrieval of the memory representation associated with the entity that the pronoun refers to (namely, the referent; e.g., king). The efficiency of this retrieval operation has been shown to be influenced by the amount of interference caused by other competing items in memory during the retrieval of the target representation. Although semantic similarity of the potential referential candidates has been shown to complicate referential processing (Patil et al., 2016; also see Gordon et al., 2006), with pronouns following semantically more similar referential candidates (e.g., king and prince) being more difficult to process compared to those following semantically less similar items (king and pilot), the potential effect of phonological similarity of referential candidates on the processing of referring expressions has been left unexplored. In the present study, we manipulated the phonological similarity between referential candidates (Similar: Alice and Alison vs. Dissimilar: Alice and Barbara) and measured brain activity on following pronouns (she). Also, since older adults have been shown to experience more difficulty during phonological processing, we conducted the study on both older (age range: 60-80) and younger adults (age range: 18-25). Past research has shown that the ease of processing a pronoun is reflected by a sustained, frontal negativity commonly known as the Nref (negativity for referential processing), such that the more difficult referring expression results in an Nref effect relative to the easier-to-process expression (Van Berkum et al., 1999). Our results revealed an Nref effect for pronouns following dissimilar referential candidates (Alice and Barbara) relative to similar candidates (Alice and Alison) suggesting that, unlike semantic similarity, phonological similarity of potential referents facilitates referential processing. This effect did not reliably interact with Age, although we observed a trend towards a main effect of Age, with larger Nref effects for older than for younger adults. At least two explanations can be conceived of for the phonological similarity effect: 1. Unlike semantic similarity, phonological similarity does not cause interference during retrieval, 2. Phonologically similar items are more difficult to maintain in memory, which in turn might lead to under-specification of the pronoun (the referential dependency is essentially left unresolved). We will discuss how our results might inform the current memory-based theories of language processing as well as theories of how cognitive aging might affect language processing.