From teachers to cybercriminals, everyone seems to be jumping on the artificial intelligence (AI) bandwagon. This is only to be expected if you can answer questions faster than a human can and save yourself the trouble of going through the myriad of Google search results for her to find what you’re looking for. Besides, it’s fun to talk to you sometimes.
Some people worry that AI will take over, but I’ve come to think of AI as my super-smart best friend. Thanks to this, I was able to plan a long trip to Thailand and settle the debate about why I should eat sushi with wasabi.
My experience with ChatGPT so far has been informative and enjoyable, but I wanted to take our relationship to the next level. Can ChatGPT help me plan for retirement?
Why are you looking to ChatGPT for retirement advice?
Years ago, I worked at Fidelity Investments. Seeing clients struggle to save for retirement has taught me how important it is to start planning for their golden years as soon as possible. Unfortunately, I know that many people do not have access to the financial guidance they need or deserve.
ChatGPT could change that by providing people with essential retirement advice in an accessible and non-intimidating way. Imagine if you could get all your financial questions answered for free from the comfort of your own home.
As a former financial industry professional, I wanted to know how ChatGPT’s advice compares to human advisors.
In my experiment, I worked with financial planner, AllStreetWealth.com co-founder, and Wealth.com’s Community Head, Thomas Kopelman, to pit ChatGPT against real financial advisors. Kopelman and he asked ChatGPT the same question to see how they compare.
The answers they gave were very different and they could have spoken different languages.
ChatGPT Human-to-Human Financial Advisor
I provided ChatGPT and Kopelman with a set of hypothetical financial information based on national averages for people my age. I chose to use hypothetical rather than actual financial situations because everyone’s situation is different, which is why financial advisors emphasize the importance of an individualized approach to planning.
Here’s the scenario I gave ChatGPT and Kopelman:
I am 33 years old and live in San Diego. My annual net income is $89,000. I have the following assets and liabilities.
- Federal student loan debt of $37,000
- Credit card debt is $7,951
- A savings account with a balance of $11,250
- 401(k) $37,200
- $2,500 monthly rent (including utilities)
- Auto insurance pays $60/month
We plan to buy our first home in the next 5-7 years and upgrade to a new car in the next 5-10 years.
Based on this information, I asked, “How much will I need to retire by age 67?”
result
If this were a speed test, ChatGPT would win. It only took me a few seconds to explain the calculations for calculating nest eggs. Here’s how ChatGPT handled my numbers:
Step 1: Determine my net worth
First, we calculated our current net worth by subtracting our liabilities from our assets, which is $43,450. I really don’t know why I passed this show and tell part because my net worth is not factored into the rest of the answer.
Step 2: Calculate estimated retirement costs
ChatGPT assumed that, as a general rule of thumb in the financial industry, you will need 80% of your current net income in retirement. Taking into account 3% inflation, your annual retirement expenses would be $197,581.55.
Step 3: Calculate Total Retirement Savings Needed
We then calculated the total amount of retirement savings required using the 4% rule, which states that retirees can safely withdraw 4% from their portfolio each year and still be out of money after 30 years of retirement. did.
Total Retirement Savings Needed = Estimated Annual Retirement Cost Adjusted for Inflation / Safe Withdrawal Rate = $4,939,538.75
How much should you save each year for retirement?
Hunting for giant nest eggs is daunting and wonderful. But it doesn’t really help much. How do you get to that $4.9 million nest egg from where you are now?
So I asked ChatGPT to translate this into an annual savings target. This is where things started to derail for ChatGPT and me.
First, inflation had to be taken into account again, increasing the total required retirement savings to nearly $10.5 million. When I objected to this, it complimented my ego. We made an extra adjustment for inflation when calculating the total required retirement savings, resulting in inaccurate results. ”
Then, without inflating the numbers again, you recalculate your retirement savings needs and determine that you need to save $143,883.80 each year to reach your retirement goals.
At this point, I began to cry in despair for the retirement I would never get. It’s also possible that my efforts to save for retirement were in vain, unless I didn’t believe the math was right.
When I asked ChatGPT how much money they would get in 34 years if they invested $143,883.80 annually with an average annual return of 6%, they answered almost $17.7 million.
Plugging those same numbers into Investor.gov’s compound interest calculator yielded a similar result of $16.1 million. Investor.gov calculates that you actually need to save about $3,650 a month to reach $4.9 million over 34 years.
Dear ChatGPT, I think your math is not very good.
a human approach
Kopelman took a completely different approach to my retirement planning question. “It’s easy to say, how do I get on track for retirement?” he says. “ChatGPT finds the present value and what needs to be stored” (which it did), but what is not considered is the complexity of the situation.
For example, will your $89,000 income stay the same for the rest of your life, or do you expect your income to increase over time? Do you plan to buy a $20,000 car, or a $60,000 car? Do you pay 20% down payment on your home or just put in a 5% down payment and pay for Private Mortgage Insurance (PMI)?
ChatGPT was so focused on the questions I posed that it ignored my home buying and new car goals. I hadn’t even considered considering my future Social Security benefits. Let alone how it will affect my retirement when I choose to claim it.
The problem with using AI for financial guidance is that ChatGPT doesn’t know how to ask all the questions, Kopelman said. And even if you get a big number to save, it won’t tell you whether you should save in a pre-tax or after-tax retirement account, or how to invest it.
Kopelman explores a range of variables, from client goals and values (how you feel about being in debt is just as important as how much you owe) to building and adjusting your financial plan. said he spends 20 hours working with customers to uncover allto suit individual needs
Financial advisors still outperform ChatGPT
Both ChatGPT and human financial advisors have their strengths. ChatGPT taught me a lot about math, even if it was wrong. I believe this helps with the math (although sometimes I double check the math). I also hope they can give some general advice, such as what are the pros and cons of using a Roth IRA versus a traditional IRA. But for a real financial plan that can help me reach all my goals, I’m going to consult a financial advisor.
Ken Lotocki, chief product officer of Conquest Planning, an AI-based financial planning software, says ChatGPT is like WebMD. Enter your symptoms and financial goals and ChatGPT will return recommendations on what to do, but you should still see a doctor.
“ChatGPT offers options, not decisions,” he says. “The emergence of human advisors as well as doctors [giving advice] Something special just for you. ”
Human advisors can also identify factors that were not intended to be incorporated into the ChatGPT equation, but are still important to the question at hand. Mr. Kopelman’s question opened my eyes to how complicated even my basic financial scenario is, and that retirement planning is much more than the egg size you need. opened.
So should ChatGPT be used to plan for retirement?
After this experience, I believe the question is not “ChatGPT vs human advisor” but how to optimize “ChatGPT with human advisor”.
For example, a chat on ChatGPT before meeting with a financial advisor may help you come to the table more prepared. ChatGPT helps increase financial literacy and determine the right questions to ask a human advisor.
ChatGPT can calculate numbers and collect data faster than a human. Performing all the basic data entry can potentially shave hours off the financial planning process. But as a single resource, ChatGPT still has a lot of room for improvement.
Lotocki said it’s important to remember that ChatGPT is algorithmic and dependent on the datasets it has access to. Answering a question puts it on the Internet, which can be terrifying given the sheer amount of information flying around on the World Wide Web.
“Can you really believe it will come back with the right answer? Or will it come back with an overview of the information and datasets you have access to?” Rotocki says.
This is just the beginning of AI. Companies like Conquest Planning are looking for ways to make AI more applicable and trustworthy in the context of financial planning. In the meantime, it’s probably best to just use her ChatGPT for background research and take the big questions to a human financial advisor.
