Growing number of Americans are delaying retirement: “Rising costs are on my mind” 04:26
People today are using artificial intelligence for a variety of tasks, from preparing work presentations and shopping to conducting scientific research. But is AI also useful in dealing with the most consequential and complex calculation an employee may face: can they afford to retire?
Americans are already turning to AI for financial advice, with nearly 20% saying they use chatbots for this purpose, According According to a study conducted in September by AI company Pearl. Half of those who already use AI at work also use it for retirement planning – double the rate among workers who do not use AI, according to MissionSquare Research Institute. found In a separate study.
The need for retirement advice is real: Americans now say they expect to work four more years More than they would like due to rising cost of living and inadequate savings. The average balance for workers with a retirement plan is $40,000much less than $1.5 million He says he needs to retire comfortably.
Meanwhile, Social Security — the financial backstop millions are counting on in retirement — could see monthly benefits cut by as much as 20% in just six years unless lawmakers take action to increase it.
How AI can help with retirement planning
Given those facts, it’s tempting to turn to ChatGate or the cloud and ask, “This is what I’ve saved so far. Will I be able to retire at 65?”
Some experts say AI provides a good starting point for answering basic retirement questions.
“I’d say, ‘Come up with some financial planning ideas or even run a Monte Carlo simulation to see how much I can spend each year,’ and it may not be perfect yet, but it’s starting to be able to get to a place where it’s generating some valuable outputs that I think will be beneficial to people,” says Luke, certified financial planner and director of financial planning at Tableau Wealth in Great Barrington, Massachusetts. Delorme said.
Monte Carlo simulation is a mathematical model that runs through thousands of possible outcomes for an individual retirement portfolio, taking into account best- and worst-case scenarios, such as the impact of a bear market. The model then estimates the probability that a person’s retirement savings will last throughout their life.
“Simulations like this are the perfect thing for a computer program. Eventually, I think those tools will also become quite powerful,” Delorme told CBS News.
Where AI struggles
Yet while generative AI may have value for basic financial planning, experts warn that so-called big language models aren’t ready for prime time when it comes to untangling the complex tangle of retirement issues a typical employee will face, from tax implications to financial planning. longevity risk.
Laurence Kotlikoff, a renowned Boston University economist and retirement expert, told CBS News that AI could do more harm than good in providing retirement advice. He said such apps not only struggle to understand the nuances of Social Security and other retirement issues, but they also provide what he sees as flawed traditional financial planning advice.
“It’s being trained on the guidance of Wall Street, and Wall Street’s guidance is about maintaining and accumulating and expanding your assets under management, so it has nothing to do with proper economic-based advice,” said Kotlikoff, who himself developed a retirement planning tool called Maxify.
For example, the AI program will estimate your retirement savings based on average longevity, as calculated by actuarial tables, a typical framework for financial planners. Yet retirement planning should be based on a person’s maximum life expectancy — not the average — to avoid running out of money, Kotlikoff said.
he is also found AI often provides inaccurate information in presenting Social Security scenarios, which can be overwhelmingly complex given the federal program’s 22,000 pages of rules.
“Then you’ve entered the race of getting yourself analyzed incorrectly,” Kotlikoff said. AI is “like the newest thing — you can’t criticize it because otherwise you don’t look good or you’re defending your job or your company.”
But “I don’t say anything about feeling good – I’m here to make people feel safe,” he said.
What AI told us
Andrew Lo, finance professor at the MIT Sloan School of Management, told An MIT publication in April said AI struggles with tax optimization, doesn’t understand regulatory nuances and – unlike a human financial advisor – is not subject to legal requirements, such as acting in the client’s best interests.
Lo also stressed that it is important to ask important questions when using AI for retirement advice, such as prompting the AI to say where it might go wrong and listing its assumptions and uncertainties.
For example, consider a hypothetical 50-year-old single woman with an annual income of $70,000. The average retirement savings for someone his age is about $185,000, the majority of which is invested in S&P 500 index funds. She’s contributing 12% of her income to retirement, and at her full retirement age of 67, she’ll receive about $2,400 per month in Social Security benefits.
CBS News asked Anthropic’s Cloud Apps, OpenAI’s ChatGPT and Perplexity whether a woman could comfortably retire at 65 and what advice the chatbots would give her.
Claude and ChatGPT’s reactions were similar: She could retire, but it would be hard — and in some circumstances she risks running out of money in retirement. Tangle was more pessimistic, saying that she could not retire comfortably at age 65 without significantly cutting her expenses or increasing her income.
When asked about their assumptions, the AI chatbots explained that they are basing their models on a woman living to age 90, versus a possible maximum lifespan of 100, and they are not modeling the exact tax implications. Notably, the apps also revealed that they were not estimating the potential cost of long-term care, which could be substantial.
The chatbot then went back to some of its original conclusions, with Cloud noting in particular that its original planning horizon was too short. It changed its conclusion from “strict but possible retirement” to “significantly underfunded without course correction”.
a major problem
When it comes to retirement planning, a big issue can be that many people are afraid to invest. Delorme said this can lead to mistakes, such as keeping savings in cash or CDs, whose returns often lag behind inflation. This means their savings will deplete over time, increasing the risk of running out of money in retirement.
Delorme thinks AI could help the nearly two-thirds of Americans who don’t work with financial planners begin to understand these concepts. But he also expressed skepticism that AI alone can address many people’s concerns about financial issues.
“It’s more a practical than a technical lack of knowledge,” Delorme said. “I don’t know if today it will help people overcome the fear of things like investment fear, which is such a big barrier.”