Advances in artificial intelligence (AI) are impacting most industries. Retirement planning is no exception, but can people trust AI to ensure they have what they need in their golden years? Most individuals already use some tools in their daily tasks. Turning to a machine to plan retirement models makes sense, but there are still some limitations to what it can do. Here is what AI is capable of when it comes to retirement planning.

Benefits of using AI for retirement planning

Concerns over current or future financial instability are at the core of retirement planning. Researchers found that 80 percent of older adults are either struggling financially at the moment or at risk of monetary insolvency upon retirement. For those who feel uncertain about where to turn, tapping into the power of machine learning models can potentially make a difference without endless consultations with financial professionals.

AI is adept at processing and presenting vast amounts of data in a digestible format. Because it sorts through information more quickly than a human brain could, it offers users a number of advantages that help with planning for life after work.

1. Customization

AI models improve constantly, utilizing machine learning to better meet consumers’ needs. For retirement planning, users can input what they’d like to do in retirement and analyze their financial situation.

For example, someone who gets a pension from work will have a guaranteed monthly income. If the person has a paid-off house, they’ll reduce housing expenses. At the same time, they may have goals to complete after their career closes, such as travel or volunteer work.

AI can take all the data and make retirement planning recommendations based on market history and other available data. Someone who is 50 and just starting to save will have different criteria than a 25-year-old.

2. Future cost analysis

The cost of living and some expenses, like health care, may rise over time. Considering daily necessities allows future retirees to set aside enough money to cover rising costs. AI can compare potential retirement fund gains against expenses.

AI models can pull from the latest data, including quarterly portfolio gains, and adjust based on market changes. Thus, market volatility is caught immediately rather than waiting for a human review.

3. Risk assessment

Computers are adept at looking at risks associated with different scenarios. Because AI can pull from data across markets and history, it may spot patterns that individuals do not. It can also look at an individual’s tolerance for risk and make suggestions that an investor will be most comfortable with.

AI can continuously monitor stocks, find anomalies that might indicate serious concerns about losing money, and even identify financial instability now or in the future. For example, if a person needs to set aside more for retirement, AI can assess where they might be overspending and instruct them how to shift funds into an IRA or 401(k) to the maximum allowed.

4. Retirement simulations

Utilize AI to simulate various scenarios and make decisions about spending habits and investment strategies. Users can input different retirement dates and savings strategies to see which results in the best potential outcome.

AI tools project results based on historical factors, where the market is, and through detailed projections. AI looks at income streams, tax structure, and future costs that the person may not have considered.

Where AI is limited in retirement planning

AI still has some limitations when it comes to retirement planning. Experts advise that AI cannot replace long-term planning and human strategy. It should be used as a tool alongside human knowledge. People need to look at five key areas to plan effectively — income, health care, risk, taxes, and estate planning.

Decisions based on experience can effectively increase income and long-term strategies, but AI falters in the judgment and intellectual intuition that humans bring to the table. While AI can assess past experiences, it hasn’t lived them.

AI has no emotions, so it fails to pick up on the nervous energy of an investor and offer reassurance. It is fact-based, acceptable for building knowledge and performing basic, repetitive tasks but not adept at calming nerves.

Another issue with AI arises when one has an unusual situation. Nuances are too complex for a computer’s abilities. For example, a freelancer with irregular income may confuse AI. If part of the planning is to retire abroad for a lower tax burden, a machine may not fully understand the complexities and hidden costs.

Combine AI and financial advisors for the best of both worlds

AI algorithms offer a comprehensive look at strategies to increase retirement income and encourage careful planning. However, a computer fails to hold people accountable for their spending and saving, and it doesn’t understand the complexities of the human experience.

Although a real-life financial advisor is an excellent way to get feedback on reports, using AI alongside a professional’s input may give people a broader perspective on the many things that impact income during the golden years. As with most interactions with AI, utilize the data but always verify it is giving solid advice.

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