Is AI Retirement Planning a Good Idea?
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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
- Will AI Replace Retirement Planning?
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?
- Dynasty Trusts: True Tax-Free Wealth Protection for Generations?
#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.)
International Estate Planning for Americans
Learn why international estate planning is crucial for US citizens with assets abroad.
Avoid double taxation and legal pitfalls. Find out more here: international estate planning.
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…
- Verifying simple facts
I’ll admit that I haven’t (yet) committed to memory every state that follows community property laws, or has a state-level estate tax. I don’t remember the capital gains tax by structure for every country in Europe.
So when I’m working on a client file or checking something for an article, I will often ask AI to confirm the data (along with a reputable source to double check).
- Analyzing public documents
Although we’re not registered investment advisors, we work with a lot of professionals that are, both in the US and internationally. Together, they produce a lot of research. We use AI to help work through that information to outline trends and summarize useful insights.
- Help find the right resources
Occasionally we’ll need a new resource to help with a client file. Usually we first ask for a referral. But if we can’t find a suitable one, we bypass the search engines and go to AI (specifically Perplexity.ai).
That all said, we’re always looking for new ways to use this technology. But it’s a slow process that prioritizes safety, privacy, and accuracy.
Will AI Replace Retirement Planning?
If the models continue to get better, I see no reason that it won’t at some point for most cases. But I think it will be quite a while before the international wealth protection planning that we specialize in becomes a target.
As of right now, mistakes are built into the model. Mistakes in planning can be very time-consuming and very expensive to fix.
If you’re thinking about using an AI for retirement planning, by all means, use it for some ideas. But before you implement, check with a qualified advisor first.
That’s something we’ve done since 1984 for more than 15,000 customers and clients. If you’d like to see if we’re a good fit to work together, please book in a consultation with a Nestmann Associate to discuss.
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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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