3 Ways AI Is Quietly Transforming Retirement Planning — and What It Means for Your Money

When you pictured the ways artificial intelligence would change the future, you might have imagined AI powering flying cars. Though we’re not quite there yet, AI has already transformed many areas of daily life — from how we access information to how we plan for retirement.

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Working on retirement planning with a professional financial advisor who is familiar with your situation and goals is always best. However, new AI-powered tools can supplement that guidance by helping you better define your objectives and gain insights into best practices.

To learn more about how AI is transforming retirement planning — and how it can impact your nest egg — GOBankingRates spoke with Vasant Dhar, professor of data science at the Leonard N. Stern School of Business at New York University and host of the “Brave New World” podcast. As a pioneer in AI, Dhar helped bring machine learning to Wall Street in the early 1990s. His book, “Thinking With Machines: The Brave New World of AI,” will be published this year.

Unsurprisingly, Dhar had detailed insights into what people preparing for retirement today can expect from AI.

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AI Can Offer Personalization

Though AI can’t match the human touch of sitting across from an advisor, Dhar says AI-powered financial planning tools like robo-advisors can offer a degree of personalization.

Using a robo-advisor, you’ll likely fill out an online questionnaire that touches on a few key areas:

• Financial goals

• Risk tolerance

• Time horizon

• External financial data

• Personal preferences

Once AI gathers this information, algorithms can generate suggestions for retirement plans or even manage a portfolio. Of course, these surveys can be superficial, and robo-advisors may offer limited suggestions without considering complex situations — or human emotions.

Still, Dhar believes working with AI tools can help clarify your retirement goals and available resources.

“Such tools can personalize retirement planning in several ways. They can help you clarify your objectives, which is one of the hardest problems in retirement planning,” he said.

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Retirees Can Benefit From Faster Optimization and Risk Management

From his work bringing AI to Wall Street, Dhar has seen how it has changed portfolio optimization, tax strategies and risk management in professional investing.

Now, many platforms available to everyday investors offer portfolio optimization via AI, as well as AI-powered tax-loss harvesting to minimize taxes and maximize returns. Getting these suggestions can help retirees make decisions more confidently — or bring ideas to their financial advisors — by having data clearly presented.

Dhar adds that AI can help average investors better understand risk management. AI can quickly compile information about current stock performance and generate data-driven forecasts.

“One of the basic things that most retail investors don’t realize is that $1,000 in Apple or Nvidia don’t carry the same risk. The one that is ‘more volatile’ carries more risk,” he said. “Investors of all sorts need to understand risk not in terms of dollars invested, but the risk associated with those amounts. This is step 101 toward optimization of risk.”

AI Can Help Forecast Healthcare Costs

Healthcare is one of the most significant costs people face in retirement. With AI, you can get general estimates about the types of care and associated expenses that people in your age bracket — and with similar health profiles — might expect.

But Dhar emphasizes that this area still requires human judgment.

“The AI is unlikely to be able to predict your healthcare costs going forward accurately, but will give you ballpark estimates based on people who look like you,” he said. “But there is considerable variance involved in this step, and one where your own judgment is essential as a planning input.”

Human Oversight Is Essential

Dhar is one of the creators of the Damodaran Bot, an AI-powered system that emulates the valuation analysis and investment insights of renowned finance professor Aswath Damodaran. Still, if anyone understands the limitations of AI in financial planning, it’s him.

“The reason for human oversight is that you never know whether the large language model is giving you correct answers,” he said. “In building the Damodaran Bot, for example, I talk about the need for human oversight when it comes to long-term investing: Are the numbers that the AI is using correct? Sometimes, I’ve caught silly errors that I would not have caught if I hadn’t been more careful.”

The Bottom Line

Using AI can make certain aspects of retirement planning faster and easier — particularly investing. While it can offer insights that improve portfolio optimization and risk management, AI still can’t replace the value of reviewing your retirement goals with a financial advisor who can account for your personal situation.

Now, if only AI would get to work on those flying cars.

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This article originally appeared on GOBankingRates.com: 3 Ways AI Is Quietly Transforming Retirement Planning — and What It Means for Your Money