People use artificial intelligence (AI) for many things: meal planning, budgeting and interior design. But can you use a platform like ChatGPT for tasks that normally require a professional, like financial planning? <\/p>\n
I chose a hypothetical scenario and asked ChatGPT to construct a retirement plan that would allow a retiree to live on $100,000 a year. I assumed an annual income of $125,000 for a 40-year-old who wants to retire in a fully paid-off home in Tennessee at age 65. After setting the parameters (and asking ChatGPT if they were realistic) I asked the generative AI to create a retirement plan<\/a>.<\/p>\n Then, I asked Eric Franklin, CFP, managing principal at Prospero Wealth<\/a> to review and assess it.<\/p>\n When I first reached out, Franklin said it sounded interesting; he\u2019d never been enlisted to critique an AI system before. With 23 years of tech experience, he was the perfect choice.<\/p>\n \u201cI had no idea what I was going to get,\u201d he said.<\/p>\n The results were alarming. Not because ChatGPT\u2019s output was immediately, obviously awful or right on the money. \u00a0It was scary because it fell into a gray area that artists call \u201cthe uncanny valley.\u201d<\/p>\n At first glance, ChatGPT didn\u2019t seem to be completely wrong.<\/p>\n Find Out: Here\u2019s How Much You Need To Retire With a $100K Lifestyle<\/a><\/p>\n Read Next: 5 Clever Ways Retirees Are Earning Up To $1K per Month From Home<\/a><\/p>\n \u201cI read it through and, at first, at the top level, it passed the sniff test. It looked fairly realistic,\u201d Franklin said. \u201cIf I weren\u2019t pushing on it too hard, I\u2019d probably feel like it was somewhat accurate. Those were my first impressions.\u201d<\/p>\n He acknowledged that the plan I presented was only one aspect of what financial advisors at Prospero Wealth offer clients. \u201cIt doesn\u2019t include a lot of the things we\u2019d normally include, like stress tests, accounting for changes in your career, changes in your family or possible relocations.\u201d<\/p>\n But as Franklin dove deeper, he realized something that could be dangerous for anyone trying to use ChatGPT as a retirement planning tool without knowledge and experience to back it up.<\/p>\n It started with false premises, failed to adjust for inflation<\/a> and created an unrealistic scenario. Granted, there were limitations in the exercise because the prompt was designed to be broad and concise. It was written by someone who is not a financial planner and intentionally didn\u2019t flag anything that seemed off throughout the process. This prompt was designed for someone who thinks they can use ChatGPT to help them plan for retirement, plugging in basic information and expecting actionable insights. That probably describes a lot of people using ChatGPT.<\/p>\n But a less-than-perfect prompt doesn\u2019t change the conclusion, which is important for anyone inclined to use AI for financial planning. <\/p>\n \u201cThe math is literally wrong,\u201d Franklin said. \u201cI passed it around the office and they all said the same thing.\u201d<\/p>\n Exactly what did ChatGPT get right and wrong?<\/p>\n Age: 40<\/p>\n Location: Moderate cost of living<\/p>\n Income: $125,000<\/p>\n Target retirement age: 65<\/p>\n Time horizon: 25 years<\/p>\n Target retirement spending: $100,000 per year (today\u2019s dollars)<\/p>\n Emergency fund: Done<\/p>\n Home: Owned, median-priced, no modeling of future downsizing or equity use<\/p>\n Current retirement savings: $100,000 in 401(k), growing at 6%<\/p>\n ChatGPT used the 4% rule<\/a> to determine the future retiree would need $2.5 million in today\u2019s dollars by age 65, which would last for 30 years if they withdraw $100,000 per year.<\/p>\n Franklin pointed out that most professionals wouldn\u2019t use the 4% withdrawal rule to determine how much someone needs to save for retirement. That was the first red flag.<\/p>\n \u201cIt\u2019s actually pretty bad when you look at the real-world use case around the 4% rule. It was established in the \u201990s, I believe, by a researcher who looked at the best withdrawal rate for the worst possible 30 years. You won\u2019t outlive your money,\u201d he said.<\/p>\n However, in 80% of the scenarios, Franklin shared, retirees died with a hefty amount of cash in their retirement accounts. \u201cThat doesn\u2019t necessarily sound bad until you realize 80% of the people would under-live their resources and leave a lot on the table in terms of their possible enjoyment for retirement,\u201d he explained. \u201cMore modern techniques are going to look at the way people actually spend in retirement. There are retirement strategies that allow people to start with a lot more happiness rather than austerity.\u201d<\/p>\n ChatGPT\u2019s amount of $2.5 million didn\u2019t take into account inflation. This could have been the fault of a prompt that left out many details, but a financial planner would understand the reality of costs in 25 years compared to today based on historic Consumer Price Index (CPI) data.<\/p>\n \u201cWhen I talk to clients, I want to use future dollars,\u201d Franklin said. \u201cThe client\u2019s going to anchor on that $2.5 million, but that $2.5 million is not going to be worth today\u2019s $2.5 million in the future.\u201d<\/p>\n Franklin explained that $209,000 in 25 years will have the spending power of $100,000 today. \u201cYou\u2019re going to need something more like $5.2 million,\u201d he said.<\/p>\n That\u2019s where ChatGPT\u2019s scenario starts to fall apart. But it gets worse.<\/p>\n Without clarification or prompting, ChatGPT assumed an asset allocation of 80% stocks and 20% bonds at age 40, with a gradual shift to 60\/40 by retirement, with annual rebalancing. The existing savings of $100,000 at age 30 would grow to roughly $430,000 by 65, which Franklin agreed is \u201cclose to accurate.\u201d Then, ChatGPT estimated $2.07 million funded through new contributions.<\/p>\n ChatGPT said: To reach the remaining $2.07 million over 25 years at 6% real:<\/p>\n Annual savings needed: About $26,000<\/p>\n Monthly savings needed: About $2,170<\/p>\n Savings rate: About 21% of gross income<\/p>\n \u201cThe truth is the math is just literally wrong in a big way,\u201d Franklin said. He acknowledged that many advisors use a 6% to 7% real return assumption, but only for a portfolio made up of 100% equity. \u201cSix percent is probably a bit ambitious, and that\u2019s probably anchored off historical S&P returns, which is not the diversified approach most advisors would recommend,\u201d he said.<\/p>\n Franklin ran the numbers on a slightly more realistic scenario, still being overly generous on a 6.5% return for the equity portion.<\/p>\n Franklin used ChatGPT\u2019s contributions strategy of 21% of the person\u2019s gross income for 25 years, or $2,170 per month. \u201cThe math comes out more than a half a million dollars under. It was significantly off,\u201d he said.<\/p>\n Baffled, as many AI users are when ChatGPT fails at simple tasks a desktop calculator could accomplish, Franklin said, \u201cI was a little bit appalled, that the simple task\u2026it\u2019s literally not even calculating the contribution strategy to get close to what it\u2019s trying to achieve.\u201d<\/p>\n This could be due to ChatGPT\u2019s penchant to please, making users feel like any task is doable with the right plan. Or it could just be bad math.<\/p>\n \u201cI think if you follow this plan, you\u2019re going to fail mathematically and you\u2019ll also fail psychologically,\u201d Franklin said. \u201cNo plan is going to persist unabated for most clients. You\u2019re going to have some life changes.\u201d<\/p>\n ChatGPT failed to factor in any Social Security income<\/a>, although the AI did say healthcare costs could be \u201cpartially offset by conservative withdrawal rate and Social Security buffer.\u201d<\/p>\n Overall ChatGPT\u2019s plan lacked human nuance, intuition, discipline (or lake thereof) or empathy.<\/p>\n \u201cI don\u2019t think it builds in any wiggle room for this client,\u201d Franklin said. \u201cEven if the math was right, I can\u2019t think of a single client at this income level, $125,000 right now, who could put their head down for 25 years and put away 21% of their income.\u201d<\/p>\n More From GOBankingRates<\/p>\n This article originally appeared on GOBankingRates.com<\/a>: I Asked ChatGPT To Plan a $100,000 a Year Retirement \u2014 Then Had a Financial Planner Review It<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"People use artificial intelligence (AI) for many things: meal planning, budgeting and interior design. 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