Should You Let AI Manage Your Retirement Plan?

Artificial Intelligence or AI is something that we’re starting to hear a lot about in the News and see a lot more in the financial world. I had an opportunity years ago when I was in college to do an internship with an investment firm out in New York City where my job was building these quantitive models and starting to integrate AI into trading based platforms doing like patterned recognition. So we’re going to spend the next hour talking about nudging numbers and how those plan everything. Not really, but we are going to talk about how AI can impact your retirement. How it’s currently used and if you should be using it. The truth is, you probably already have this integrated in some piece of your life. So it’s important to understand both the pros and also the cons and some of the limitations that come along with it. So AI, what it is, is it’s usually helpful to look at multiple different scenarios and it’s very helpful in analyzing vast amounts of data. So we’re looking at retirement plans, the big challenge for us is of course we don’t have a crystal ball. We can’t predicts the future. Well AI allows us to run something called Monte Carlo simulations where you can run literally thousands of different retirement plan scenarios, changing small things like our rate of return assumptions, maybe changing our inflation rates, maybe changing you know dates of death, long-term care costs. All of these different variables that would be very time consuming to build out ourselves. It can run thousands of scenarios and do it instantly. So it’s fantastic an analyzing just huge amounts of data and can really help us start to gauge and give ourselves a probability of success. From a user standpoint, that’s extremely helpful because it gives us very quick action items. So as an example, if that probability of success is too low, well maybe it’s going to recommend us increasing our savings or changing where we’re saving to help hedge against tax rates. It’s going to give us very quick action ideas that we can go and implement right now. The great thing about AI is that it’s unbiased. It’s looking at purely just the numbers. That’s also the downfall though is it’s losing that human element built into the scenarios. It’s really a garbage in, garbage out type of situation. It’s leaving all of the information on you to input it accurately into the system and then it’s going to spit out a result. You can make an argument that it is somewhat biased based on how the Programmer has built that application. But overall everything falls on you to get an accurate result by what you put into it. Now that might be very helpful as a starting point, but we really sometimes want to think about well what are the “what if” scenarios that also come along with that? So when we look at the AI system it’s really focusing on that quantitative aspect. A huge part of retirement planning is that subjective piece; focusing with you on your values, your beliefs, your concerns. We can’t really build that into a computer based program. But we can have conversations with you and start to use that information in conjunction with AI to come to the right conclusions. So as an example, if I were to want to go on to an AI based financial planning system and focus on college planning. I could put in you know I want Hazel to go to Michigan State as an example. It’s going to automatically calculate what Michigan State’s tuition is going to be in say 10 years based on current tuition data using different inflation assumptions and spit out a result and tell me here’s what I need to be saving today based on certain rate of return assumptions. But then it also goes a step farther and will tell you well based on tax situation, here’s a different tax account you could use. So it’s great. It gave me how much I should be saving and where I should be saving it. However, it didn’t ask me my values, my beliefs, those kind of second level questions. I might have concerns around maybe Hazel decides she doesn’t want to go to college. Or maybe she’s going travel internationally or go to school abroad and those schools don’t qualify under the 529 plans as an example. So when we’re looking at those systems, it’s great it gave us a starting point, but it’s limited because it hasn’t taken into account fully my family’s values or beliefs and some of those other things that we might want to achieve and start to be working towards. So when we think about AI, the question is should we be using it? In my opinion, yes. It should be a part of your overall financial plan. However, you should be using it in conjunction with an experienced financial professional that could help tailor that result and really mold it to what you’re trying to achieve and align with some of those bigger picture items outside of just giving you a savings or an allocation. It’s important to remember AI is a tool. And if you think about if you’re a hammer, everything looks like a nail. And when you’re building a house you want to have multiple tools that you can use for the job to align everything with your big picture plan. So if you have questions on AI or concerns on how it impacts your overall financial plan, please reach out to us. We’d be happy to sit down with you and review the bigger picture and how these different tools can be used to help leverage your goals and put you in the best spot.