Everyone from teachers to cybercriminals seems to be jumping on the artificial intelligence (AI) bandwagon. That’s only to be expected if it can answer questions faster than anyone else and save you the trouble of searching through countless Google results to find what you’re looking for. Plus, chatting can be fun sometimes.
Some people worry about AI taking over, but I’m starting to think of it more as my super-smart best friend. It helped me plan a long trip to Thailand and settle arguments about why sushi should be eaten with wasabi.
While my past experiences with ChatGPT have been informative and fun, I want to take our relationship to the next level. Can ChatGPT also help me plan for retirement?
Why do I turn to ChatGPT for retirement advice?
Once upon a time, I worked at Fidelity Investments. Seeing clients struggle to save enough for retirement has taught me how important it is to start planning for their golden years as soon as possible. Unfortunately, I know many people who are not getting the financial guidance they need or deserve.
Chat GPT can change that by providing people with important retirement advice in a way that is easy to understand and not intimidating. Imagine if you could have all your financial questions answered for free from the comfort of your home.
As a former financial industry professional, I wanted to see how ChatGPT’s recommendations compared to human advisors.
In my experiments, I pitted ChatGPT against a real financial advisor, working with Thomas Kopelman, a financial planner, AllStreetWealth.com co-founder and Wealth.com Community Leader. I asked the same questions of Kopelman and ChatGPT to see how they would compare.
The answers everyone gave were so different, they probably spoke different languages.
ChatGPT and Human Financial Advisors
I provided ChatGPT and Kopelman with a hypothetical set of financial information based on national averages for my peers. I choose to use assumptions rather than my actual financial situation because everyone’s situation is different and financial advisors emphasize the importance of an individualized planning approach.
Here’s my scenario for ChatGPT and Kopelman:
I am 33 years old and live in San Diego, CA. My annual net income is $89,000. I have the following assets and liabilities:
- $37,000 in federal student loan debt
- Credit card debt $7,951
- Savings account balance of $11,250
- 401(k) $37,200
- $2,500 monthly rent including utilities
- Car insurance pays $60 per month
I want to buy my first home in the next 5-7 years and plan to replace my car in the next 5-10 years.
With this information, I ask: How much will I need to retire at age 67?
If this was a speed test, ChatGPT would win. It only took me a few seconds to do the math for calculating my savings. Here’s how ChatGPT handles my data:
Step One: Determine My Net Worth
First, I subtract my liabilities from my assets to calculate my current net worth, which is $43,450. I really don’t know why we have to go through this show and tell part because my net worth doesn’t take into account the rest of the answer.
Step 2: Calculate Estimated Retirement Expenses
ChatGPT assumes that I need to spend 80% of my current net income on retirement, which is a common rule of thumb in the financial industry. Taking into account 3% inflation, annual retirement expenses are $197,581.55.
Step 3: Calculate the Total Retirement Savings Needed
It then uses the 4% rule (which states that a retiree can safely withdraw 4% of their portfolio each year without running out of money during 30 years of retirement) to calculate the total retirement savings I need:
Total Retirement Savings Required = Projected Annual Retirement Expenses Adjusted for Inflation / Safe Withdrawal Rate = $4,939,538.75
How much do I need to save each year for retirement?
Having a huge nest egg can be daunting, but it’s great. But it doesn’t help much in practice. How can I get my $4.9 million deposit from where I am now?
So I asked ChatGPT to convert this into an annual savings goal. This is where things started to derail for ChatGPT and me.
First, it wanted to factor in inflation again, increasing my total required retirement savings to nearly $10.5 million. When I question this, it feeds my ego: “You’re absolutely right, and I apologize for the oversight in my previous response. I made a redundant calculation for inflation when calculating the total required retirement savings adjustment, which led to erroneous results.”
It then recalculates how much I need to save for retirement without reinflating my numbers, determining that I need to save $143,883.80 per year to meet my retirement goals.
That’s when I started crying tears of despair over the retirement I would never have. It could also be that my efforts to save for retirement end in vain, unless I refuse to believe the math is right.
When I asked ChatGPT how much I would earn in 34 years if I invested $143,883.80 a year at an average annual return of 6%, it answered closer to $17.7 million.
Entering that same number into Investor.gov’s compound interest calculator yields a similar result, $16.1 million. According to Investor.gov’s calculations, in order to reach $4.9 million over 34 years, I really only need to save about $3,650 per month.
I don’t think your math is very good, ChatGPT.
Kopelman takes a very different approach to my retirement planning problem. “It’s easy to say, how do I get on track to retire?” he said. “ChatGPT will find the present value and how much you need to save” (and it does), but it doesn’t take into account the complexities of your situation.
For example, will your $89,000 income stay the same throughout your life? Or do you expect your income to increase over time? Are you going to buy a $20,000 car or a $60,000 car? Would you put 20% down or just 5% down and pay private mortgage insurance (PMI)?
ChatGPT was so focused on the questions I asked that it ignored my home and new car goals. It doesn’t even take into account my future Social Security benefits, let alone how it will affect my retirement if I choose to collect them.
The problem with using AI for financial coaching is that ChatGPT doesn’t know how to ask all the questions, Kopelman said. Even if it can save you a lot, it can’t tell you whether or how to invest it in a pre-tax or after-tax retirement account.
Kopelman says he will spend 20 hours working with clients to uncover all these different variables, from understanding their goals and values (how you feel about debt is as important as how much debt you have) to developing a financial plan and understanding It is customized to meet your individual needs
Financial advisors still beat ChatGPT
Both ChatGPT and human financial advisors have their own strengths. ChatGPT taught me a lot of math – even if it was wrong. I’m sure it helps me crunch the numbers (although I’ll probably double-check the math), and may offer general advice like what are the pros and cons of using a Roth IRA vs. a traditional IRA. But for a real financial plan that will help me achieve all my goals, I go to a financial advisor.
ChatGPT is like WebMD, says Ken Lotocki, chief product officer at Conquest Planning, an AI-based financial planning software. You can enter your symptoms or financial goals, and ChatGPT will come back with advice on what to do, should you still see a doctor.
“ChatGPT will give you choices, not make decisions for you,” he said. “Similar to a doctor, the involvement of a human advisor is unique to you (to provide advice).”
Human advisors can also identify elements that you don’t think fit into the ChatGPT equation, but are still critical to the problem at hand. Kopelman’s question made me realize how complicated even my basic financial situation is, and that there’s so much more to retirement planning than the amount you need to save.
So, should you use ChatGPT to help plan your retirement?
After this experience, I think the question is not “ChatGPT vs Human Advisor”, but how to optimize “ChatGPT vs Human Advisor”.
For example, having a conversation with ChatGPT before meeting with your financial advisor can help you be better prepared. ChatGPT can help you improve your financial literacy and identify the right questions to ask your human advisor.
ChatGPT can crunch numbers and collect data faster than anyone. It has the potential to reduce the time spent on the financial planning process by having all the basic data entry done. But as a single resource, ChatGPT has many shortcomings.
It’s important to remember that ChatGPT is algorithm-based and dependent on the datasets it has access to, Lotocki said. When the question is answered, it goes out to the internet, which could be a scary prospect given the quality of information disseminated on the World Wide Web.
“Do you really trust that it’s going to return the correct answer, or is it going to return a summary of the information and data sets it has access to?” Lotocki said.
And this is just the beginning of artificial intelligence. Companies like Conquest Planning are finding ways to make AI more applicable and trustworthy in the financial planning space. In the meantime, it’s best to just use ChatGPT for background research and then take the big questions to a human financial advisor.