How to use — and not use — AI in saving for retirement

What can AI teach the average person about investing for retirement?

If we’re using ChatGPT to compose emails for us, create a new resume, or even get movie recommendations, what about stock tips and investment strategies?

Increasingly, financial professionals are leaning into artificial intelligence to do investment research and run future portfolio scenarios and potential returns in their everyday work. There are clear time hacks to tapping technology to cull vast amounts of financial data into digestible summaries and use that knowledge to help clients build their retirement plans.

But just because financial pros are exploring AI at this level doesn't mean it's ready for you and me… yet.

The notion of amateur investors and regular working people putting actual money behind financial recommendations made by a bot raises lots of flags for me. Generative AI is still in the early stages after all, and its errors are sometimes egregious.

I decided to put ChatGPT to the test myself and get input from experts on how AI can help — or hurt — the average person’s retirement planning.

“AI has the potential to unlock better outcomes and improved access to financial advice for consumers saving for retirement,” David Knox, a senior partner at Mercer, told Yahoo Finance.

Retirement planning: A step-by-step guide

Support vs. investing

When I started noodling around with ChatGPT to learn how it could help us manage our retirement planning and saving, I found it performed best in a supporting role.

Knox agreed.

“It may support educational tools and personalized ‘robo-advice’ that drive better-informed decision making by savers,” he said.

On the plus side, I was surprised by the amount of information it tossed out and how straightforward the answers were.

It correctly answered my three initial queries: how much of my retirement savings should be invested in stocks, what a target-date fund is, and when I should start taking Social Security.

How to start investing: A step-by-step guide

The answers came quickly and had some depth.

For the stock holdings query, for instance, the answer: “The percentage of your portfolio that should be invested in stocks during retirement depends on several factors, including your risk tolerance, retirement goals, and overall financial situation. However, a common rule of thumb is the "Rule of 100," which suggests subtracting your age from 100 to determine the percentage of your portfolio that should be invested in stocks with the remaining in more conservative investments like bonds or cash. However, this is just a general guideline, and your specific situation might warrant a different allocation .”

I personally recommend 110 minus your age, but this is pretty standard feedback and not wrong.

The reply covered what else I need to consider: “ If you're comfortable with market volatility and have a long-term perspective, you might choose to hold more stocks . If you're risk-averse, a more conservative approach might be better. If you rely heavily on your portfolio for income, you might want to be more conservative to avoid having to sell stocks in a downturn.”

“If you have other sources of income such as Social Security, pensions, or rental income, you might be able to take on more risk with your investments ,” it added.

Smartly, it suggested I consider my health and expected lifespan. “ If you expect a longer retirement, having more in stocks could help ensure your savings last.”

Finally, I was pleased to read the final guidance from my ChatGPT pilot. “ Given the importance of this decision, consulting a financial adviser who can tailor advice to your specific situation might be a good idea .”

Definitely.

For me, working with a financial adviser is a confidence-builder. She helps me set goals and envision the kind of life I want to live now and in the future. She’s a backstop to bounce investment ideas off and steady my nerves when the stock market gets shaky . Importantly, she keeps me accountable to continuing to save and invest and helps execute some of my choices, especially when I rebalance my investment portfolio. But I do pay an annual fee for that kind of expert advice and assistance.

This basic information was free, and for someone looking for some guardrails and guidance, it’s a good start. Don’t expect, however, personalized recommendations like specific investments to buy.

'Many limitations to relying on AI'

To get a deeper perspective on AI and retirement planning, I reached out to some experts for their take on the pros and cons right now.

“AI could be good for identifying investor blindspots with respect to some financial knowledge, but not specific asset and fund recommendations,” Mark Johnson, an investments and portfolio management fellow and professor at Wake Forest University, told Yahoo Finance.

“For example, if you use ChatGPT and ask it ‘attributes of a good mutual fund,’ it will provide some good suggestions for items to look out for,” he said. “But there are many limitations to relying on AI for investment management because ‘one size fits all’ fits no one.

Money is emotional and personal, Johnson added, and AI doesn’t understand that.

“AI cannot provide specific advice given all of our unique financial situations, objectives, and constraints. So I would not exclusively rely on AI to manage a retirement account, but as a supplement to gathering information and general high-level investment advice,” he said.

No judgment

Score one for financial literacy.

“AI is excellent at simplicity and directness and at doing initial explorations,” Dan Egan, Betterment’s vice president of behavioral finance and investing, told Yahoo Finance. “For now, it’s a good advice accessory, and it doesn't judge you for asking stupid questions. But you want to have an accountability partner, an actual person, who's going to be a co-pilot for you.”

For example, you might not necessarily want to go over the definition of what catch-up retirement contributions are or the difference between a Roth IRA and a traditional one with your financial adviser. “You want to spend time with her doing the most meaty stuff possible,” he told me.

Even AI makes mistakes

Because AI can analyze huge amounts of data, it can provide input on market dynamics, according to a new report from BlackRock, “potentially leading to more tailored and resilient portfolios capable of adapting to varying conditions.”

That doesn’t mean it is ready to advise you on specific investments for your account.

“If you want to use AI to do something like help you brainstorm ways to budget, then go for it,” LendingTree senior economist Jacob Channel told me. “You probably shouldn't be using it to do much more than that. AI can make a lot of mistakes, and it might lead you down a path that doesn't end where you'd like to go.”

Meanwhile, “AI often sucks at math,” he said. “So if you're trying to use one to figure out how much you need to save in order to retire comfortably, you could easily be led astray.”

I asked ChatGPT to figure out how much a 50-year-old Gen Xer would need to save each year to reach $1 million by the time they turned 65, if they currently have $178,500 saved — that’s the average account balance for a Gen X Fidelity customer per a recent report.

The answer: “To reach $1 million by age 65, given your current savings of $178,500, you would need to save approximately $27,757 each year for the next 15 years, assuming a 5% annual return on your investments.”

And it added a dollop of encouragement: “ This savings goal might be achievable through a combination of consistent contributions and sound investment choices. If you'd like to explore different return rates or strategies, feel free to ask!”

“There's a good chance that what it tells you won't be even close to correct,” said Channel. “We've got a long way to go before a machine will be able to provide you with the same level of nuanced expertise that a competent human can.”

Have a question about

To be fair, there is a disclaimer in pale type at the bottom of the screen page: “ChatGPT can make mistakes. Check important information.”

Accuracy matters when it comes to critical life choices and investments. The last thing you want to do is base your retirement plans on incomplete or inaccurate information.

Good retirement planning goes well beyond generic answers. Interest rates change, markets swoon, and laws change.

Also, there’s no substitute for a relationship between two people when you can dream about your goals, what you might regret if you didn’t do it, what you value, and what kind of retirement lifestyle you envision.

“Artificial intelligence is not designed to be a counselor and partner in retirement,” Bradley Schurman, author of " The Super Age ," told Yahoo Finance. “AI offers a great starting point, but it doesn’t have the emotional intelligence needed to assist individuals in the long run.”

Kerry Hannon is a Senior Columnist at Yahoo Finance. She is a career and retirement strategist, and the author of 14 books, including " In Control at 50+: How to Succeed in The New World of Work" @kerryhannon .

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