ChatGPT is changing the way people live and work.
From teachers to cybercriminals, it seems everyone is jumping on the artificial intelligence (AI) bandwagon. This is only to be expected when it can answer questions faster than any human and save you the trouble of scouring countless Google search results to find what you're after. Plus, it's kind of fun to talk to sometimes.
Some fear A.I. will take over, but I've come to think of it more as my super-smart best friend. It helped me plan a prolonged trip to Thailand and settle an argument about why you should eat your sushi with wasabi.
While my past experiences with ChatGPT have been informative and fun, I wanted to take our relationship to the next level. Could ChatGPT help me plan for retirement too?
Why am I asking ChatGPT for retirement advice?
Once upon a time, I worked for Fidelity Investments. Seeing clients struggle to save enough money for retirement showed me just how important it is to start planning for your golden years as soon as possible. Unfortunately, I know many people don't have access to the financial guidance they need or deserve.
ChatGPT could change this by giving people key retirement advice in an accessible and nonintimidating way. Imagine if you could get every financial question answered for free, all from the comfort of your home.
As a former financial industry professional, I wanted to see how ChatGPT's advice compares to a human advisor.
For my experiment, I pitted ChatGPT against a real financial advisor, working withThomas Kopelman, a financial planner and cofounder of AllStreetWealth.com and head of community at Wealth.com. I asked Kopelman and ChatGPT the same questions to see how they would compare.
The respective answers each gave were so different, they could have been speaking different languages.
ChatGPT vs. a human financial advisor
I gave ChatGPT and Kopelman a set of hypothetical financial information based on national averages for someone around my age. I chose to use hypotheticals rather than my actual financial picture because everyone's situation is different, hence why financial advisors emphasize the importance of an individualized approach to planning.
Here's the scenario I gave ChatGPT and Kopelman:
I'm a 33-year-old living in San Diego. I make an annual net income of $89,000. I have the following assets and liabilities:
- Federal student loans debt of $37,000
- Credit card debt of $7,951
- Savings account with a balance of $11,250
- A 401(k) with $37,200
- Monthly rent of $2,500, including utilities
- Car insurance payment of $60 per month
I would like to buy my first home in the next 5–7 years and plan to replace my car in the next 5–10 years.
Based on this information, I asked: How much money do I need to retire by age 67?
The results
If this were a speed test, ChatGPT would win. It took only a few seconds to walk me through the math for calculating a nest egg. Here's how ChatGPT crunched my numbers:
Step 1: Determine my net worth
It started by calculating my current net worth by subtracting my liabilities from my assets, which came to $43,450. I'm really not sure why we went through this show-and-tell part because my net worth didn't factor into the rest of the answer.
Step 2: Calculate estimated retirement expenses
ChatGPT assumed I'd need 80% of my current net income in retirement, a common rule of thumb in the financial industry. When you factor in inflation of 3%, that comes to $197,581.55 in retirement spending per year.
Step 3: Calculate total retirement savings required
It then used the 4% rule, which states that retirees can safely withdraw 4% from their portfolios each year and not run out of money over a 30-year retirement, to calculate the total retirement savings I'd need:
Total retirement savings required = Estimated 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 massive nest egg to aim for, while daunting, is great. But it’s not so helpful in practice. How do I get to that $4.9 million nest egg from where I am today?
So I asked ChatGPT to translate this into an annual savings goal. This is where things started to derail for ChatGPT and me.
First, it wanted to account for inflation yet again, increasing my total retirement savings required to almost $10.5 million. When I challenged it on this, it flattered my ego: "You are absolutely right, and I apologize for the oversight in my previous response. I made a redundant adjustment for inflation when calculating the total retirement savings required, which led to an incorrect result."
It then recalculated how much I'd need to save for retirement without re-inflating my numbers, determining I'd need to save $143,883.80 each year to reach my retirement goal.
This is the point when I began to cry tears of despair for the retirement I would never have. It could also have been where my efforts to save for retirement ended in the face of futility, except I refused to believe the math was right.
When I asked ChatGPT how much money I would have in 34 years if I invested $143,883.80 each year at an annual average return of 6%, it came up with nearly $17.7 million.
Plugging the same numbers into the compound interest calculator at Investor.gov gave a similar result of $16.1 million. To get to $4.9 million in 34 years, I'd actually only need to save about $3,650 per month, according to my Investor.gov calculations.
Methinks your math is not so good, ChatGPT.
The human approach
Kopelman took a very different approach to my retirement-planning question. "It's easy to say, How do I get on track for retirement?" he says. "ChatGPT will find present value and what you need to save" (which it did), but what it's not factoring in is the intricacies of your situation.
For example, is your $89,000 income going to remain the same throughout your life? Or do you foresee your income increasing over time? Are you planning to buy a $20,000 car or a $60,000 car? Will you make a 20% down payment on your house or put only 5% down and pay the private mortgage insurance (PMI)?
ChatGPT had been so laser-focused on my presenting question that it ignored my homebuying and new-car goal. It didn't even think to factor in my future Social Security benefit, let alone how when I choose to claim it could impact my retirement.
The problem with using A.I. for financial guidance is that ChatGPT doesn't know how to ask all the questions, Kopelman says. And even if it can give you a big number to save, it won't be able to tell you if you should be saving in a pre-tax or after-tax retirement account or how to invest it.
Kopelman says he'll spend 20 hours working with clients to uncover all these different variables, from learning about their goals and values—how you feel about having debt is as important as how much debt you have—to building a financial plan and tailoring it to fit your individual needs
Financial advisors still beat ChatGPT
Both ChatGPT and a human financial advisor have their strengths. ChatGPT taught me a lot about math—even when it was wrong. I trust it to help me crunch numbers (although I may double-check its math) and perhaps give generic advice like, what are the pros and cons to using a Roth IRA versus a traditional IRA. But for a true financial plan that will help me achieve all my goals, I'm going to a financial advisor.
ChatGPT is like WebMD, says Ken Lotocki, Chief Product Officer at Conquest Planning, an A.I.-based financial planning software. You can put in your symptoms—or financial goals—and ChatGPT will come back with recommendations on what to do, but you should still go see a doctor.
"ChatGPT is going to give you options, not make the decision for you," he says. "Where a human advisor comes in, similar to a doctor, is [giving advice] unique to you."
A human advisor can also identify the elements you didn't think to plug into your ChatGPT equation, but that are still crucial to the question at hand. Kopelman's questions opened my eyes to just how complex even my basic financial scenario is, and that there is so much more to retirement planning than the size of the nest egg you need.
So, should you use ChatGPT to help plan your retirement?
After this experience, I think the question is not "ChatGPT versus a human advisor," but rather how to optimize "ChatGPT with a human advisor."
For example, having a conversation with ChatGPT before meeting with your financial advisor could help you come to the table more prepared. ChatGPT can help you ramp up your financial literacy and determine the right questions to ask a human advisor.
ChatGPT can crunch numbers and gather data more quickly than any human. It has the potential to shave hours off of the financial-planning process by doing all the rudimentary data entry. But as a single resource, ChatGPT leaves a lot to be desired.
It's important to remember that ChatGPT is based on algorithms and relies on the data sets it has access to, Lotocki says. When answering questions, it's going to go out to the internet, which can be a scary prospect given the caliber of the information floating around the World Wide Web.
"Can you really trust it's going to come back with the right answer, or will it come back with a summary of the info and data sets it has access to?" Lotocki says.
This is also only the beginning for A.I. Companies like Conquest Planning are finding ways to make A.I. more applicable and trustworthy in a financial-planning context. In the meantime, it's probably best to just use ChatGPT for background research, then bring the big questions to a human financial advisor.
