AI and Retirement – How It Will Affect Your Retirement Savings

Artificial Intelligence (AI) is impacting humans more than any of us realize. It’s being used by marketers to gain customer insights, by manufacturers to automate processes, and by many businesses to analyze data and improve efficiency.

AI’s ability to rapidly analyze large amounts of data has also given it a huge role in the financial industry, and thus can impact your retirement savings in a variety of ways. In fact, AI is being used most by the banking and securities industry more than any other, with 21% of all AI spending coming from those industries in 2021. 

Here we’ll look at the role AI is playing in retirement planning and portfolio management. 

AI has the ability to analyze data to make predictions for the future. In financial planning, AI can use data about your spending habits and lifestyle indicators to predict your retirement savings needs. 

It can also calculate what actions you need to take to reach your retirement savings goals, in terms of setting aside money each month and the investment vehicles that are best based on your needs.

While some may balk at AI planning their future, a study shows that 53% of consumers actually trust AI to assist with financial planning.

If you’re not in that category, your financial advisor is likely using AI to generate the investment advice they’re giving you anyway. In fact, the use of AI-driven financial advice is projected to increase by 12.6% annually through 2026. 

But fear not! AI tools are revolutionizing the financial planning industry. These tools can analyze your current investment data, your plans and goals, and your spending data and align that data with investment vehicles and market data predictions to create a personalized retirement savings plan. 

While a human could arguably do the same thing, it would take weeks or months of research and analysis to do so, and the results would likely not be as accurate as those produced by AI.

These tools are still evolving, with new and better tools being developed by AI startups as well as existing companies every day. 

Automated Investment and Portfolio Management 

If you prefer to do your planning and investments online on your own, a robo-advisor tool may be an option for you. Robo-advisors use AI algorithms to automate investment decisions. Basically a robo-advisor is a digital platform that will manage your retirement portfolio automatically with little human intervention, or no intervention at all.

These robo-advisors can analyze your financial situation, risk tolerance, and retirement goals to create a personalized investment portfolio. These platforms use advanced algorithms to recommend a diversified mix of assets, adjusting the allocation over time to stay in alignment with your changing needs and goals.

As the market fluctuates and the value of different assets changes, the original asset allocation of your portfolio may change. Robo-advisors automatically rebalance your portfolio, ensuring that it stays in line with your desired allocation based on your risk tolerance and other factors.

Some robo-advisors even employ tax  strategies to minimize the impact of taxes on your investments. They look for opportunities to offset capital gains with losses, reducing your tax liability and potentially increasing your after-tax returns.

All of this is done based on your personal situation. Robo-advisors allow you to set specific financial goals and assess your risk tolerance through questionnaires or other methods. Based on your risk profile, they recommend investments that align with your comfort level, aiming to strike a balance between risk and potential return.

These tools come with lower fees than a traditional financial advisor and offer convenience. Some examples of robo-advisors included Wealthfront, InteractiveAdvisors, and Betterment. 

AI for Fraud Detection and Security 

AI tools are also being used by financial advisors and planners to detect potential fraud and keep your accounts secure. They can analyze transaction patterns, look for anomalies, and trigger potential fraud alerts.

In fact, more than 87% of financial services companies have adopted these tools. 

The tools can also help to detect cyber attacks and potential identity theft attempts. 

All of this is done by analyzing historical transaction data on your accounts, doing so continuously in real time, detecting potential fraud quickly and even taking immediate action to prevent the fraud from occurring.

These tools are being used by financial services companies of all kinds and clearly are of huge value to both you, as a consumer, and the companies that adopt them. 

Potential Concerns and Ethical Considerations

As with everything, the use of AI by financial advisors comes with some concerns and drawbacks.

First of all, AI does not have the ability to empathize with you as a human financial advisor can. Not all financial decisions and advice are based on data. Sometimes they’re …