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Artificial intelligence’s impact on retirement planning has an upside, but proceed with caution

by Alliance America
June 8, 2023


Artificial intelligence (AI) is rapidly changing the way we live and work, and retirement planning is no exception. Experts say AI has the potential to make the planning process more personalized, efficient and affordable and have a number of positive and negative impacts on the financial industry and customer experiences in general.

Since the introduction of ChatGPT, Google’s Bard, Microsoft’s Bing and other AI platforms in late 2022, the public’s use of and interaction with AI has grown explosively. Although there are many obvious benefits to using AI tools, it is important to be aware of potential drawbacks as well.

What are some of the benefits of AI for retirement income planning?

Among the primary anticipated benefits of AI on retirement income planning is improved customer service. AI can be used to automate tasks such as customer service chatbots, which can free up human employees to focus on more complex tasks. AI can also be used to personalize customer experiences by remembering a client’s preferences and recommending products or services that are likely to be of interest. This can be done by analyzing a customer's interests, purchase history, browsing behavior, demographics, pricing preferences and other information.

Before the advent of ChatGPT, Bard, Bing and related platforms, AI already was being used to personalize customer experiences. For example, Amazon uses AI to recommend products to customers based on their purchase history and browsing behavior. Netflix uses AI to recommend movies and TV shows to customers based on their viewing history. Spotify uses AI to recommend songs to customers based on their listening history, and Google uses AI to personalize search results, ads and other content.

AI is already firmly entrenched in the financial industry as well. In banking, it’s being used to automate tasks such as fraud detection, customer service and loan underwriting. For example, AI powered fraud-detection systems can identify fraudulent transactions in real time, such as large cash withdrawals or unusual trading patterns, while AI-powered chatbots can answer customer questions 24/7.

In the investment management field, AI can analyze vast amounts of market data at high speeds and make rapid trading decisions based on that analysis. Algorithmic trading systems can monitor price fluctuations, news, social media sentiment and other data points to identify investment opportunities that humans may miss or be too slow to react to. AI also can help to predict and manage investment risks more effectively. By analyzing historical data, AI algorithms can identify patterns and trends that may indicate future risks or opportunities.

Efficiencies are created because AI can automate many of the tasks involved in retirement income and financial planning, such as gathering data, running simulations and generating reports. This can save people time and money, and it can also help to reduce errors.

AI also can be used to design and manage investment portfolios by considering a wide range of factors, including an individual's risk tolerance, investment goals and market conditions, to create and maintain optimal portfolios. Predictive analytics is another “skill” of AI in that it can be used to predict future price movements and market trends. These predictions can help investors to make more informed decisions and potentially improve their investment returns. AI “robo-advisors,” with minimal human supervision, also can provide personalized investment advice based on an individual’s financial situation and goals.

In the insurance industry, AI is being used to assess risk and price policies. For example, AI-powered risk assessment models can take into account a customer's medical history, driving habits and other factors to determine the risk of a claim. Also, AI is expected to continue to increase efficiency by automating tasks such as risk assessment, portfolio management and compliance. This can enable human employees to focus on more strategic tasks and can help to reduce costs.

Improved decision-making is another bonus. AI can be used to analyze large amounts of data to identify trends and patterns that would be difficult to see with the naked eye. This information can then be used to make better decisions, such as about which investments to make or which customers to offer loans to.

While AI offers several advantages, it's important to remember that AI is not infallible. It is dependent on the quality of the data it analyzes, and it may not be able to accurately predict future market movements in all situations, especially when dealing with unprecedented events. Therefore, human oversight and intervention remain crucial in the investment management field.

Why is human oversight vital in financial planning, despite advancements in artificial intelligence?

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A key reason human oversight and intervention is critical in financial planning is that humans can think critically and make decisions based on a wider range of factors than AI can. AI can process large amounts of data and identify patterns, but it cannot think critically or make decisions based on factors such as experience, intuition and judgment. Humans can also consider non-financial factors, such as tax implications and estate planning, when making investment decisions.

Humans also can provide truly personalized advice and guidance. AI can provide general advice, but it cannot provide the level of personalized advice that takes into account unique individual circumstances, such as risk tolerance, time horizon and financial goals. Humans can also build relationships with clients and understand their individual needs and goals.

Plus, humans can provide emotional support. Investing can be a stressful experience, and humans can reassure and provide confidence to clients who are feeling overwhelmed or anxious. AI cannot provide this type of support.

Retirees in particular have unique financial needs compared to people who are still working. They need to make sure that they have enough money to live comfortably in retirement, and they need to plan for future health care costs and long-term care expenses. Human advisors can help retirees understand their financial needs and develop a plan to meet those obligations.

Another reason that reliance on AI can create hazards is that retirees may not have the time or expertise to manage their own investments. Managing investments can be time-consuming and complex. Retirees may benefit more from working with a human advisor who can do it for them.  Retirees may need help making complex financial decisions, such as when to take Social Security benefits or how to invest their retirement savings. Human advisors can help retirees make these decisions and ensure that they are making the best choices for their individual circumstances.

So, while AI is playing an increasingly important role in the investment management field, human oversight and intervention remain crucial. Human advisors can provide personalized advice and guidance, emotional support and help retirees understand their unique financial needs and develop a plan to meet those needs.

Nonetheless, by improving customer service, reducing fraud, increasing efficiency and improving decision-making, AI can help financial institutions to provide better services to their customers and make more informed decisions. An overall goal is to increase customer satisfaction, loyalty and revenue.

A rapidly advancing technological tool, AI is expected to have an ongoing impact on the financial industry. Financial institutions that embrace AI are expected to be well-positioned to succeed in the future.

What are some of the potential negative impacts of AI on financial and retirement income planning?

laptop with a breached warning

Bias is a chief concern regarding the potential negative impacts of AI on financial and retirement income planning. When AI algorithms are biased, the information they provide could lead to inaccurate or unfair results. For example, an AI algorithm that is trained on data from a population that is predominantly rural and male could be biased against females who reside in urban areas.

Complexity is another potential negative impact. AI-powered retirement income planning tools can be complicated and difficult to use. This could make it difficult for people to understand the results of these tools and to make informed decisions about their retirement income.

There are cybersecurity risks also. AI systems are complex and can be difficult to secure. This could make them vulnerable to malware and cyberattacks, which could lead to financial losses and disruptions. These attacks often lead to the theft of sensitive data, such as customer financial information.

Job displacement is another worry. Experts say AI could lead to job displacement in the financial planning industry. As AI-powered retirement income planning tools become more sophisticated, they may be able to replace the need for human financial planners. AI is likely to automate many jobs in the financial industry, such as customer service representatives, loan officers and traders.

Some fear AI could also create increased inequality because AI is likely to benefit those who already have access to capital and information. This could lead to increased inequality, as those who are already wealthy are able to use AI to make even more money.

Are there ways artificial intelligence can improve the quality of life for retirees?

Artificial intelligence has the potential to make retirement a more enjoyable and fulfilling experience. By improving health care, financial planning, social engagement and continuing education, AI can help retirees live longer, healthier and happier lives.

In terms of health care, AI is being used to develop new treatments and therapies for age-related diseases. AI can also be used to provide personalized health care, such as by monitoring patients’ health remotely and providing them with tailored advice and treatment.

Social engagement is another area where AI has great potential. AI can be used to help retirees stay connected with friends and family members. AI can be used to develop new and improved social media platforms and other tools that allow retirees to stay in touch with loved ones.

AI also can improve continuing education opportunities for older Americans. These platforms can be used to help retirees continue their education and to develop new skills. For example, AI can be used to create online courses and other resources that allow retirees to learn new subjects and stay up to date on the latest trends and current events.

As AI continues to develop, it is likely to have an even greater impact on the lives of retirees. AI has the potential to make retirement a more enjoyable and fulfilling experience for everyone, but some common advice given regarding AI is to proceed with caution.

Alliance America can help

Alliance America is an insurance and financial services company dedicated to the art of personal financial planning. Our financial professionals can assist you in maximizing your retirement resources and achieving your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling (833) 219-6884 today.

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