Is AI Retirement Planning a Good Idea?
Contents
- Promised Benefits of AI in Retirement Planning
- AI and the Key Components of Retirement Planning
- #1: Tax Considerations ("AI Tax Planning")
- #2: Legal Considerations ("AI Legal Advisor")
- #3: Estate Planning ("AI Estate Planning")
- #4: Financial Planning ("AI Financial Planning")
- The Reality Check: Mistakes and Misconceptions
- AI Still Needs Human Oversight
- Data Analysis Oopsies
- Data Privacy and Security Concerns
- Conflating Different Sorts of Related Information
- Applying the Same Information for Different Jurisdictions
- Here's How We Use AI at The Nestmann Group
- Find out if you qualify
AI is changing many parts of our lives, from customer service chatbots to health care to finance, and even retirement planning.
In our own practice, we’ve noticed an uptick in the number of people who ask us to confirm whether planning related answers generated by AI are accurate. (It often isn’t, either partly or completely.)
Hence this article. Because although AI can offer many potential benefits, it comes with risks too. By the time you finish reading, you’ll have a better idea of what those are, and the proper way to use AI to help with your wealth protection planning — for retirement or otherwise.
Promised Benefits of AI in Retirement Planning
While we’re looking at whether to use AI in retirement planning, the following prompted benefits apply to most areas of AI. They include (as generated by the latest version of ChatGPT):
Personalization: AI can analyze your unique financial situation, preferences, and goals to create a customized retirement plan tailored just for you.
Enhanced Decision-Making: By processing vast amounts of data, AI can offer insights and forecasts that help you make better financial decisions.
Efficiency: Automated processes save time by reducing the need for manual calculations and paperwork, making the planning process smoother and faster.
And to a degree, all of these are true. But at its current stage of development, it makes just enough mistakes to be all but worthless when accuracy is critical.
How? Let’s take a step back and look at the components that make up a proper retirement plan.
AI and the Key Components of Retirement Planning
#1: Tax Considerations ("AI Tax Planning")
Most people — and many of our clients — have made most of their money during their working lives. Many have socked a bunch of that away in retirement funds. When they retire, tax issues have to be carefully planned because it’s unlikely those assets will grow much without proper stewardship.
More than that, there are rules around how money can be pulled out, and when. There are strategies that are more useful than others at this stage of life.
We’ve found that these “AI tax planning” tools have a hard time understanding what you should do and when, in anything but the simplest of cases.
It does tend to be okay with clear cut facts (e.g. Contribution limits for Traditional IRAs this year). But it struggles to help you decide what to do with that information.
#2: Legal Considerations ("AI Legal Advisor")
We’re quite excited about the prospects of AI being able to help us review legal documents — the so called “AI Legal Advisor”. But beyond the privacy issues (which is why we don’t use them for client work), we find they make silly mistakes.
If the training data is old or conflicting, it’s hard for the layperson to figure out what is right and what isn’t.
For example, I recently wrote an article entitled, CFC Rules: Controlled Foreign Corporations and Taxes. One reader called it, “the best summary of CFCs I’ve ever read”.
In the section on “Types of Income Affected”, I asked ChatGPT (currently our AI model of choice) to list all the income types that qualify under the regulations. It provided a long list of income options, many of which had been pulled from previous versions of the CFC laws dating back to the 1960s… and many which didn’t apply any more as written.
If you didn’t know what you were looking at, it would have been hard to make sense of it.
#3: Estate Planning ("AI Estate Planning")
Estate planning is a delicate business by its nature. Because by the time the plan needs to play out, the main person who has a say over it is gone. So setting things up right is very important here.
AI Estate Planning tools are supposed to help make this process easier. And for very simple cases, perhaps that’s true. But it has limits.
Trusts are one example. They are a very common estate planning tool. But there are so many different types of trusts, of which few writers on the internet know anything about. Since today’s AI models have been mostly fed by Internet content, that means the training data is flawed.
This is especially true because the content that’s pushed to the top of Google search results is usually designed to rank high in the search results. AI models tend to use search engine rankings when they generate answers, giving more weight to the answers the higher they show up on Google.
Unfortunately, those top results aren’t always right. In fact, our own experience shows that articles written for search engine traffic in industry often contain mistakes.
Flawed training data means flawed outputs. Good luck to those who rely on it for their estate planning needs without first consulting an expert.
Recommended Reading:
What is a Living Trust and How Does It Work?
Is a Bridge Trust Worth It?
#4: Financial Planning ("AI Financial Planning")
Financial technology firms (fintech) have led the charge in harnessing the power of AI to help people invest at lower costs.
For a passive retirement investment strategy, this is a great development. Lower fees mean a retirement pot that can last longer.
But it’s not perfect. These AI Financial Planning tools, by definition, go with the flow. They aren’t likely to outperform the markets. That’s not necessarily a bad thing if they can do so at a low cost. But it introduces risk that they’ll suffer big losses in market crashes. That can be catastrophic in retirement.
Beyond that, AI financial planning suffers from the same issues as AI tax planning, AI estate planning, and AI legal advisor tools. Outside of strict investment calculations, information and advice can be flawed.
Decisions based on flawed information aren’t likely to give you the best outcome.
The Reality Check: Mistakes and Misconceptions
So while AI makes some big promises, it’s still very much in development. Here are some of the larger problems that still need to be dealt with.
AI Still Needs Human Oversight
AI can process vast amounts of data and provide recommendations, but it lacks the human touch needed to understand a person’s specific situation. It can only give general answers applicable to the “average” person.
Data Analysis Oopsies
Despite their advanced algorithms, AI can sometimes misinterpret complex financial data, leading to flawed advice. (Humans can too of course, but at least there’s a legal framework to deal with that, something that doesn’t yet exist for AI.)
Data Privacy and Security Concerns
AI needs a lot of data to be really useful. This poses significant privacy and security risks. Until that problem is properly addressed, use of this technology will be limited in privacy-critical applications.
Conflating Different Sorts of Related Information
AI confuses different but related concepts. We’ve seen this in legal structures and entities (trusts, companies, foundations), and laws and regulations that have been updated over the years.
Applying the Same Information for Different Jurisdictions
This is the single biggest problem with AI so far as our practice is concerned. It tends to generalize information across different jurisdictions. But proper planning is hyper local, and US-client planning is different than in many parts of the world anyway.
(This is especially true in international tax planning — don’t trust anything AI says about international tax and asset reporting unless you know for a fact it’s correct.)
Here's How We Use AI at The Nestmann Group
Yet even with these drawbacks AI has helped us better serve our clients, mainly by freeing us from some of the repetitive work so we can spend more time actually working with them. Here’s how we’re using it at the moment…
#1: Gather Documents
Collect birth, marriage, and death certificates, plus naturalization records. You will need to apostille and translate any documents not already in Italian, to Italian.
This is the hardest part of the whole process and, although it is something you can do on your own, we do not recommend it.
#2: Submit Application
You have two options. The first is to apply at the consulate catchment that applies to you. Here’s the full list for the US and the areas they serve:
Boston – 600 Atlantic Ave., Boston, MA 02210
Jurisdiction: Maine, Massachusetts, New Hampshire, Rhode Island, Vermont.
Chicago – 500 North Michigan Ave., Suite 1850, Chicago, IL 60611
Jurisdiction: Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Wisconsin, Wyoming.
Detroit – Buhl Building, 535 Griswold, Suite 1840, Detroit, MI 48226
Jurisdiction: Indiana, Kentucky, Michigan, Ohio, Tennessee.
Philadelphia – 150 S. Independence Mall West, Suite 1026, Philadelphia, PA 19106-3410
Jurisdiction: Pennsylvania, Delaware, North Carolina, West Virginia, New Jersey (counties of Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Ocean, and Salem), Maryland (except Montgomery and Prince George’s counties), Virginia (except Arlington and Fairfax counties, and the city of Alexandria).
Houston – 1300 Post Oak Blvd., Suite 660, Houston, TX 77056
Jurisdiction: Arkansas, Louisiana, Oklahoma, Texas.
Los Angeles – 12400 Wilshire Blvd., Suite 300, Los Angeles, CA 90025
Jurisdiction: Arizona, California (counties of Imperial Valley, Kern, Los Angeles, Orange, Riverside, Santa Barbara, San Bernardino, San Diego, San Luis Obispo, Ventura), New Mexico, Nevada.
Miami – 4000 Ponce de León Blvd., Suite 590, Coral Gables, FL 33146
Jurisdiction: Alabama, British Virgin Islands, Cayman Islands, Florida, Georgia, Island of Saba, Mississippi, Puerto Rico, St. Maarten, St. Eustatius, South Carolina, Turks and Caicos, US Virgin Islands.
New York – 690 Park Ave., New York, NY 10065
Jurisdiction: New York, Connecticut, New Jersey (counties of Bergen, Essex, Hudson, Hunterdon, Mercer, Middlesex, Monmouth, Morris, Passaic, Somerset, Sussex, Union, Warren), Bermuda Islands.
San Francisco – 2590 Webster St., San Francisco, CA 94115
Jurisdiction: Alaska, California (except counties under Los Angeles jurisdiction), Idaho, Montana, Oregon, Utah, Washington, Hawaii, Guam, Northern Mariana Islands, Samoa, Wake Island, Johnston Atoll.
Washington, D.C. – 3000 Whitehaven Street, NW, Washington, DC 20008
Jurisdiction: District of Columbia, Maryland (Montgomery and Prince George’s counties), Virginia (Arlington and Fairfax counties, city of Alexandria).
The consulates have specific days of the week where they will process citizenship by descent applications. It is by appointment only. There is an online process you need to go through to get an appointment.
The other option is to apply in Italy. In a nutshell, you fly to Italy and submit your application. You will then be given permission to stay in the country while the application is processed.
The process itself is much quicker and can be done in 2-3 months. The big drawback is that, if you apply this way, you will be given residency. And with residency means having to pay taxes on your income; potentially at a much higher rate than in the US.
#3: Receive Confirmation
Once approved, you will receive confirmation of your Italian citizenship. If you apply from the US, it generally takes about a year from the time your application is formally accepted by the consulate.
If applying in Italy, you can generally expect to receive your confirmation in a few months.
#4: Apply for your Passport
Once your citizenship has been formally recognized, you can apply for your Italian passport.
The Fees
Applying for Italian citizenship by descent involves three types of fees:
Document Preparation and Guidance: Fees for professional services to help gather and prepare necessary documents. You can try to do this on your own but we don’t recommend it. These vary widely from provider to provider. However, you do get what you pay for. We’ve found the best value for money working with professionals that are slightly above average priced but not the highest.
Translation: Costs for translating documents into Italian and obtaining the required apostilles.
Consulate Fees: Charges by the Italian consulate or relevant authorities for processing your application. Since 2014, that fee has been 300 Euros per adult applicant. Minor children are included under their parent’s application for no additional fee.
What we do is to get a sense of your case and then give you a fixed-fee quote on how much it will cost to process your application.
Common Mistakes and Troubles
Any process that stretches over decades (or even centuries in the case of Italian citizenship by descent) can present several challenges. Here are the most common ones we see.
Document Problems
Missing or incorrect documents can cause delays in your application. It’s crucial to gather all necessary records, such as birth, marriage, and death certificates, and ensure they are accurate. These documents must be apostilled and translated into Italian. There cannot be ANY variation between names and birthdates for the same person throughout the documents.
(If there is, they can be addressed, but there’s an extra step.)
Not following the rules exactly can lead to rejection or long delays. Verifying that all documents are correct and complete will help avoid bureaucratic problems and speed up the process.
Bureaucratic Issues
Dealing with Italian bureaucracy can be challenging. The process can involve multiple steps and interactions with the consulate. (Although, if you do your paperwork correct the first time, you’ll only need one meeting). Patience is key.
That said, proper preparation and close attention to the appointment booking system used by the consulates will help you get this done faster.
To overcome these challenges, consider seeking professional assistance to streamline the process and ensure all requirements are met.
Find out if you qualify
When clients come to us for help getting a second citizenship, the first thing we do is to see if they qualify for a citizenship by ancestry program.
It’s been estimated that approximately 17 to 25 million Americans have Italian ancestry. That’s a lot of people who could possibly claim a second citizenship.
If you have an Italian ancestor and would like to find out if this might be right for you, please get in touch with us to book a free, no-obligation call with a Nestmann Associate.
About The Author
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We have 40+ years experience helping Americans move, live and invest internationally…
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We have 40+ years experience helping Americans move, live and invest internationally…
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