Should You Let AI Manage Your Retirement Plan?

Wall Street giants are falling into line to merge artificial intelligence into their data decision-making strategies. That could be a big step toward driving investors toward AI-based financial advice and away from human wealth managers.

Consider these emerging AI and financial advisory realities:

Is AI already rising to the level where it supplants human money managers? The possibility is more realistic than one might think.

“Although narrow AI has been used narrowly in financial services for more than a decade in areas like credit scoring and fraud detection, with the advent of generative AI we are at the beginning of a monumental leap in how people learn about their finances,” says Saeid Hejazi, chief executive officer at Wally, a Dubai-based digital money management platform. “Now, AI technology can make financial plans and help consumers reach their financial goals in a hyper-personalized, conversational format that goes beyond charts and graphs.”

AI could change the retirement saving landscape given investors’ urgent need for individual-oriented financial advice and personalized investment advice. In fact, that’s something AI has already been doing on Wall Street for the past several years.

Where does AI make the biggest difference as a retirement planning tool? Here are seven things to know about AI and your retirement plan:

First and foremost, AI is a reliable companion for individuals mapping out their retirement journey.

“Maybe you’re considering retirement locations like Florida or even Thailand,” Hejazi says. “Or you’re weighing up high-yield savings accounts versus 401(k)s or long-term investments or you’re figuring out how much to save each month to achieve your dream retirement. AI can step in and support you throughout these deliberations and decisions.”

AI’s capabilities go beyond what even the most skilled human advisor can offer in terms of depth and breadth of knowledge, not to mention speed and precision.

“The icing on the cake is it’s all hyper-personalized, offering the advice most relevant to your unique circumstances,” Hejazi notes. “With its endless patience and clarity, AI can answer any questions you might have, offering an unbiased perspective to help you navigate your path to retirement.”

Another equally important role that AI plays in retirement planning is supporting financial advisors working to find clients the most effective retirement planning tools.

“AI empowers money managers with access to information and insights, and the ability to process data, provide dynamic forecasting and consider various strategies quickly and efficiently,” Hejazi says. “This allows the human advisor to provide more value to their clients.”

Retirement planning involves complex calculations, projections and considerations such as life expectancy, inflation and investment returns. In all of those categories, AI can cut to what matters to retirement savers quickly and efficiently.

“Most people don’t realize just how capable AI is,” says Ryan Niddell, a business management and financial services consultant in Columbus, Ohio. “That’s especially the case when it comes to analyzing vast amounts of historical and real-time data to create retirement savings models tailored to an individual’s specific circumstances.”

AI can help individuals determine optimal savings rates, investment allocations and retirement age based on their goals and risk tolerance, Niddell notes. “AI can also assist in monitoring and adjusting retirement plans as circumstances change, providing ongoing guidance and recommendations,” he says.

It’s increasingly apparent AI can be used to help with complex decision-making, pattern recognition and other activities that require a level of objectivity and speed that humans cannot provide. Yet the technology’s reputation for delivering in the short and long term is expanding, too.

“Upfront, AI can be used for portfolio construction, investment recommendations, goal setting and risk management,” says Michael Collins, a business and finance professor at Endicott College in Beverly, Massachusetts. “It can also be used to automate and optimize processes related to the management of retirement funds. AI can be used to identify the optimal mix of investments for an individual’s portfolio as well as to monitor and adjust the portfolio in order to keep it on track with its goals.”

In the long term, AI can be used to “further enhance retirement planning by using advanced analytics and machine learning algorithms to help financial advisors to better understand the needs of their individual clients and create optimized retirement plans for them,” Collins notes.

Retirement planning experts also note some inherent potential downsides to AI, with these three risks topping the list.

A lack of personal nuance. The main risk of using AI in retirement planning is the potential lack of understanding of the end user, which could lead to errors or misinterpretations.

“AI is a tool, and like any tool, its efficacy depends on the skill of the user and the data you give it. It’s the old ‘garbage-in-garbage-out’ situation,” says Andrew Latham, a financial planner and managing editor at SuperMoney.com. “The reward, however, is substantial: increased efficiency, the potential for enhanced returns and a tailored retirement plan that evolves with the investor’s needs.”

Incorrect retirement plan information. One risk that’s emerged from early trials of AI tools like ChatGPT is the occurrence of what OpenAI calls “hallucinations.”

“This is when AI gives information that is confidently asserted but incorrect,” Hejazi says. “That can be a critical issue when dealing with something as important as personal finances.”

To mitigate these risks, it’s essential for people to do their homework on AI-based financial advisory services.

“They should seek out AI tools that are domain-specific – that is, tools that are fine-tuned for financial data,” Hejazi notes. “In addition, for automated services, it’s prudent to ensure there’s a human safety net – a professional who can verify the advice before any actions are taken based on that advice.”

Retirement plan modeling difficulties. One of the main risks is the challenge of developing accurate and reliable retirement planning modeling approaches.

“Current language models, although powerful, may struggle with fully capturing the intricacies of financial markets and retirement planning complexities,” says Alexander Harmsen, CEO and co-founder of Global Predictions, a digital-based economic forecasting company. “Inaccurate or flawed models can lead to incorrect recommendations and decisions, potentially impacting individuals’ retirement outcomes.”

To mitigate risks, a hybrid AI approach that combines the strengths of AI algorithms with proven financial models should be deployed. “Doing so can help address modeling limitations, ensuring more robust and reliable retirement planning outcomes,” Harmsen says.