We asked ChatGPT and a financial adviser: How much retirement savings do I need?
Retirement planning is an essential part of financial planning. One of the most common questions that people ask their financial advisors is how much they should save for retirement. To get an answer, we have pitted a financial advisor against ChatGPT-4, a popular AI chatbot that provides financial advice.
What ChatGPT-4 has to say
According to ChatGPT-4, the amount an individual should save for retirement depends on several factors, including their age, lifestyle, and retirement goals. The chatbot follows the general rule of thumb that retirees should aim to replace at least 70% to 80% of their pre-retirement income to maintain their standard of living. ChatGPT-4 suggests that one should aim to save between 10% and 15% of their income annually, starting as early as possible in their career to achieve this goal. However, this advice is too general and lacks context for specific cases.
The financial expert's take
Nicholas Bunio, a certified financial planner with Retirement Wealth Advisors in Berwyn, Pennsylvania, believes that ChatGPT-4's advice is not entirely helpful for most people as it does not consider various key factors. For instance, saving for retirement is not one-size-fits-all, and the retirement objectives could differ based on individual preferences, such as leaving an inheritance, taking care of grandchildren, retiring early, or starting a consulting business, among others.
Bunio points out that the retirement age is not fixed and varies based on an individual's health and other factors. While it's wise to wait until 70 to claim Social Security benefits for those who are healthy and want to plan for living longer, those who are sickly may need to retire sooner and plan on living until 85 or 90. Similarly, a person who is not married may not need to worry about taking care of a spouse, while a couple may need to plan longer, like until 100 years of age.
When it comes to planning out your own savings strategy, Bunio suggests that the guidance provided by AI is too vague. He believes that a professional financial advisor is uniquely helpful in offering tailored strategies for determining how much a client needs. Taking income sources in retirement and adjusting them for inflation over 30 years determines how much total spending might be, considering emergencies.
Bunio also believes that ChatGPT-4's advice follows the general rule of thumb that retirees should aim to replace 70% to 80% of their pre-retirement income, which is too general. Most retirees tend to spend close to what they were spending before retirement. However, spending usually increases initially in retirement as people pay off debt, travel, and try new things, then slows down in their late 70s and 80s before increasing again in the late 80s due to rising healthcare costs.
Conclusion
If you are looking for directional advice or want to learn more about retirement planning, ChatGPT-4 can deliver. However, it's essential to verify the advice given and seek more nuanced advice from a professional financial advisor to plan accurately for retirement.
