Can ChatGPT Replace Your Financial Advisor? PART 2

We’re using ChatGPT to see if it can develop a retirement plan that is practical and could actually be deployed in a real world scenario. So in the previous video, we laid out all the parameters. We went through what seemed to be on the surface, a pretty structured retirement plan that had action steps to take that ChatGPT created. In this video, we’re gonna go through and see if we can poke holes in ChatGPT’s retirement plan, see if I’m gonna be put out of a job anytime soon, and of course see what chat GPT’s responses are to my questions. Now if you have not watched the previous video, go check that one out first because it’s going to make this video make a lot more sense.

Okay, so I’m gonna start with the prompt that we originally used. You can hit pause on your computer to go through and read it, but I don’t wanna waste time going through that again. So first thing I wanna point out here is when it got to the spending goal, so 100,000 per year after tax, so it makes the assumption without asking or without doing a calculation of what the income tax bracket would be, it assumes roughly you’re gonna need 15 to 20,000 more. Okay, that’s fine. But then as we look at…when it breaks it down into can you sustain the spending goal over the course of time, it tells us what we’re going to need before Social Security. So 110 to 120 pre-tax. And then after 67, 55 to 65,000 from investments.

First Issue: The Plan Ignores Inflation

So the very first thing I noticed here is that it’s not taking into account inflation, the time value of money. If we have Social Security at age 67 of about 45,000, we’re pulling $55,000, that’s going to put us at about $110,000. So that’s the same dollar amount that they tell us to pull out from age 60 to age 67. So it’s not accounting for inflation. So I’ll ask it that, have it adjust the plan, and we’ll go from there. But there’s something else also that has to do with the spending goal, and that is the withdrawal sequencing. So from which accounts are we going to withdraw the income? So it’s telling us here that we need to pull out $110,000 to $120,000.

Withdrawal Strategy Problem

But if we come down to what it recommended for the withdrawal strategy, it is telling us the withdrawal order should be use your CD, your brokerage, and your savings first. Well, those are non-taxable accounts. So if you’re pulling from savings, you’re pulling from CDs, you’re pulling from your brokerage account, remember, there’s 50,000 in the brokerage, 50,000 in savings, and 200K in the CD. So almost all of those accounts you could withdraw from with virtually zero tax consequence.

So in that first seven years where we’re pulling this $100,000 a year and it’s telling us we need to pull 110 to 120, well that’s not true because we really only need to pull 100 if we follow the sequencing plan because it’d be coming from the non-qualified where we don’t have to pay taxes on that.

Roth Conversion Tax Question

The third thing I’m going to point out here is if we’re pulling that money from the non-qualified accounts, it’s telling us also to do Roth conversions. I’m going to ask it, where are we going to get the money to pay the taxes on those Roth conversions? And that has several domino effects throughout the plan, where in subsequent sections, the plan would ultimately be compromised because the initial recommended advice no longer will be valid once it’s fixed on the front end here. Let me give you an example of what I mean.

So if we get down here to section five of the Chats UPD retirement plan, this is the Roth conversion strategy. And this is what they say. So from age 60 to 70, convert enough each year to fill the 22 % bracket. When we look at the overall Roth conversion strategy, the first thing that I would identify here, so we have the inflation thing where it didn’t account for inflation. And then we have the fact that it’s telling you to spend non-qualified money, but it’s not telling you where to withdraw income from to pay the taxes. So as an example, as I said, once I correct one flaw within the plan, that it’s going to have ramifications, that on the back end of the plan that’s telling us to do, but it’ll have ramifications on the front end and everything will change.

This is one of those examples because once I ask it where to pay the taxes from, it’s probably going to tell me the non-qualified. Well, that domino is going to change where I withdraw my income from because I’m going to have to use a large part of the non-qualified dollars to pay the taxes and to live off of. So we only have 300,000 of non-qual total. So I can’t, from 60 to 67, when Social Security is not yet kicked on, pull $700,000 to live on. Actually, it’s telling us $120,000 a year, $110,000 to $120,000. You can’t pull, let’s call that $800,000 from this pot of $300,000 plus pay taxes from that pot of $300,000 to do the Roth conversions that it’s recommending. I know I’m kind of moving a little bit fast here, but I’m laying out where, as a retirement planner, where I’m seeing some flaws and where I’d be really, really concerned if I was following this plan where things are going to fall apart.

Asking ChatGPT About Inflation

Okay, so here’s the first question that I’m going to ask. It’s something simple that was overlooked. It’s the inflation rate. It’s the purchasing power of those dollars that it’s telling us to withdraw at age 67. So I noticed that you didn’t account for inflation on the spending amount from age 60 to 67. The after-tax withdrawal amount at 67 net of Social Security is recommended at 45 to 55,000. But with inflation, won’t that purchasing power be eroded and I would need to withdraw more? Yes, inflation absolutely changes the math.

So it’s just simply telling us, yes, that it missed that. And then down here, so it gives us a multi-part response. So it shows us what inflation does to your $100,000 goal. And it’s saying that spending is $123,000 at age 67 or seven years from now, whereas it had us at $100,000 spending goal originally. So it was telling us to pull out 110 to 120, but that was pre-tax. Now it’s telling us that this 123 is after tax. So let’s see what else it says here.

How social security fits in with inflation. So a little bit about how social security works. Can your portfolio grow fast enough? Okay, so to keep up with inflation, so now it’s expanding into concepts around inflation and extrapolating it into the portfolio and some of the investment recommendations that it made. Okay, but if your portfolio earns 5.5 % nominal, so that was the target range for the portfolio that it recommended.

It’s now telling us here that a 4 % withdrawal is too high for the long term. So just by pointing out inflation, it is now re-recommending a safer withdrawal rate from three to three and a half. If you have 1.5, you want 100,000 a year, we would need to withdraw 6.7 before Social Security. But once Social Security kicks on, the withdrawal rate drops significantly. All makes sense. Section five, it’s telling us what we know. This is the real risk from 60 to 67.

The “Good Growth Without Risk” Conflict

Social security begins, pressure drops. So delay social security. And now it’s telling us to moderate early spending. So instead of the 100,000, now it’s advising us to do 90. And make sure we maintain enough equity exposure. So this is interesting. So I didn’t bring this up, but as an advisor, when we first sit down with you, one of the things that we’re trying to identify are what we call tension points. So if we go back to the original prompt I put in, this is something we hear all the time, I want good growth but not a lot of risk. Okay, so one, we would need to define what good growth is. One, what you, the client, is expecting, but then also what the plan needs from, we call this risk capacity, in order to achieve its goals. But there’s decision tension there, right? We’re asking for two things, so it’s what we call a competing priority. So you want good growth, but not a lot of risk.

So that’s something as an advisor that it’d be one of the very first things I drill down on because we need clear on what you mean by good growth without a lot of risk because that’s like saying you want to lose weight but eat ice cream every single night for dinner. Okay, that’s a competing priority. We need to identify what you actually mean, what you expect, and then we’ll determine based on all the analysis what can actually be accomplished and have a deeper conversation around that. So I bring that up because now it’s telling us you cannot be too conservative or inflation will slowly squeeze you. That’s true, but in the prompt we said we don’t want a lot of risk. So I just want to point out that there’s this conflict that in the real life we would absolutely identify and drill deeper, whereas the software doesn’t quite get that. Because it’s human behavior. Greatest experiences you gain as an investment advisor, as a retirement planner who sits with thousands of people over the years is the element that human behavior plays in the decision making process. And the questions to ask, where to go deeper to uncover the real thing that someone is trying to say, and then how do we then translate that into an actionable investment portfolio or distribution or tax strategy? Those two really are extremely important.

Where Do You Pay Roth Conversion Taxes?

So I want to get down to some of the bigger points here. So I say, OK, thanks for that. I noticed you recommended Roth conversions? If, where do I pay that tax from? Okay, so this is a critical question and the answer makes a huge difference in whether conversions actually benefit from you. So it says you should pay the Roth conversion tax from your non-retirement money. And then it’s gonna explain why that works. I’ll scroll through so you can pause. And it says, okay, you’re in a good position to do this, you have 300,000 non-qual. That’s what makes this Roth conversion, that’s exactly what makes this conversion. You have outside funds to pay the tax. Then conceptually, what’s happening? How much should you convert? Now again, differing timelines here, it’s telling you you have 10 to 15 years, convert enough to fill the 22 % bracket.

Okay, now it’s giving us some examples. I’m not gonna spend much time on that, but you can pause the screen and feel free to read it. Psychological reality, this is very important. This goes back to the structure of what they’re doing here. I do like the structure, because they’re bringing up points that make a lot of sense, like the psychological impact of doing Roth conversions, because paying taxes is painful. And a lot of times what we see over the years is people forget the core purpose of the plan and what we’re trying to accomplish. A lot of times you just feel that I’m paying taxes to execute this tax strategy, sight of the big picture.

So big picture, I’m just scrolling through these again so you can pause if you want to read it, but I’m going to get directly from to the next question because this is one of those instances where what I noticed on the front end is going to impact the back end of the plan which now changes the front. Okay, if I withdraw from non-qual to pay taxes, doesn’t that conflict with where you recommended I withdraw income to live. Okay, so it says yes, that’s a very sharp question and you’re thinking about this correctly. It says at first glance it does look like a conflict. I said to use non-qualified money to pay taxes, but I also said use non-qualified money for living expenses. So how can that happen without draining your cash too fast?

Distribution Strategy Starts Changing

So what it does now is it’s telling us it’s ultimately altering the distribution strategy. It’s saying, without admitting it, that what we should do here is, so step one, pull from the 401k, 100,000 for Roth conversion and 40,000 for regular withdrawal spending, so that’s 140,000. Step two, pay taxes, 30,000. Which, changed our distribution strategy, but now it’s telling us 40,000 for spending, because we’re only pulling 40,000 from the 401k. So we still need over a hundred thousand dollars to spend. So that means we’re pulling the taxes, the 30,000 from taxes plus 60,000. So we’re pulling about 90 from the non-qualified. So let’s see what it says. So that means we are pulling 30k from non-qualified for taxes plus remaining spending need around 90,000.

Okay, so it’s saying the, ask, are we pulling 30 from non-qual to pay taxes plus 90 for spending? So it says no, you would not pull 120 from non-qualified. So we’re starting with 300,000. We have 1.2 million in the 401k, 100 after spending target, no social security. And we assume a Roth conversion of 100,000. Taxes on conversion plus withdrawals, 30,000. Instead of this, pull 90,000 from non-qual, 30,000 from non-qual, we do 100K Roth conversion, okay, now it’s adjusting it and telling us to pull 80,000 from the 401K. So now we’re up to 180,000 total from the 401K, which is gonna change our taxes. It’s gonna reduce the amount of Roth conversion we could do. Pay the tax from the non-qualified, and then since now it’s changed up to $80,000 from the 401K, so maybe 30 to 35,000 from the non-qualified account on top of the taxes I assume here. 35,000 for taxes, 30 to 35 for spending gaps, so that’s 65 to 70, not 120. It’s changed the plan on us three times. So I could go through this for six or seven more points that I mentally noted from that first video, but I think you kind of get the picture. When ChatGPT is pressed with questions because the logic didn’t quite flow, it started to change the plan.

The first time it actually acknowledged that I was correct and inflation was left out and what the spending would be. The second time it actually seemed to kind of debate me a little bit, but at the same time it kept changing the plan from where income was being withdrawn to changing the amounts that is withdrawn from each of the accounts, specifically the 401k. So does this change the way that you look at ChatGPT from a retirement planning standpoint?

The Hidden Risk of AI Retirement Plans

Any of you using ChatGPT for a retirement plan and now you’re like, man, you know, maybe I need to get a second opinion here. What questions would you have asked? Is there anything else that you pointed out? Put it all in the comments below. I’m to do a follow-up to this video because, one, I think a lot of you would like to learn more about how AI can maybe be more practical in your day-to-day life, but more importantly, if it’s practical to use from a retirement planning standpoint and just digging into this and spending a few minutes here. I don’t think it’s really close, but I do also want to point out that how good it originally looked. So it laid out a structure, it had recommendations, it looked at all the important planning domains, and it seemed to, at the surface, be able to provide a very sound retirement plan. And for somebody who doesn’t have the right questions to ask or can’t automatically connect all of these dots.

I see how it’s very likely that somebody could have a retirement plan from ChatGPT and feel very confident about it. And my concern there is the damage that would be created wouldn’t be realized until three, four, five years down the road. And that’s often a hole that’s too big to dig out of. So let me know what you thought. Any questions you would have asked. And if you want us to clarify anything in the comments and I’ll do a follow up video and we’ll dive more into this topic.

➡️ If you’re nearing retirement and wondering whether your assets can support your desired lifestyle, this type of structured income analysis can provide clarity. We can help you create a retirement life plan customized for your retirement vision and legacy. Call us at (877) 404-0177 or fill out this form for a free visit: https://click2retire.com/chatgpt-retirement-test