AI’s Potential Disruption to Retirement Planning

How are you preparing clients for an average 100-year lifespan that artificial intelligence may bring?

As wealth managers, we often assist people with their retirement planning needs. Now artificial intelligence (AI) could soon dramatically alter the retirement world as we know it.

Retirement plans have usually encompassed historical data, commonly applied to variables such as inflation, investment performance and life expectancy. In addition, programs such as Medicare and Social Security, coupled with pension plans, often play integral roles in regulating cash flow for people as they begin to transition from their working years.

What is concerning, though, is that the bedrock of this planning centers to an “average” life expectancy said to be 77.8 years, according to CDC’s National Center for Health Statistics. AI may soon make this figure obsolete.

The Age Needle Could Be Moving

Ray Kurzweil, Google’s chief futurist, believes we will reach a point around 2029 when the invention of nanotechnology (bots) will make fighting disease so effective that human longevity could increase dramatically. This is quite a projection and it’s interesting to explore the possibilities, even if this becomes a partial truth.

For example, let’s assume that life expectancy has hypothetically changed to age 100 (yes, a good time for us to take a deep breath and pause for a moment).

This could impact many aspects of retirement planning. If we just consider pensions and IRA withdrawal rates, an extended life expectancy would pose increasing levels of uncertainty to both. In addition, government resources such as Social Security (some pundits already project exhaustion by 2035) and Medicare would be in need of reform beyond their current needs.

The Power of AI

Before your mind dismisses this possibility, consider AI’s impact just over the past 25 years with the invention of smartphones, WiFi, online banking, online search, online shopping, stem cell technology and GPS. With this resume, AI’s chance in the fight against disease might not be a David vs. Goliath one.

Exponential technologies have potent capabilities that impact our lives in significant ways and surface very quickly. So much so that we often take them for granted.

The Singularity

If you are not familiar with this term as of yet, Wikipedia defines “the singularity” as a hypothetical point in time (Year 2045 according to Kurzweil) at which technological growth becomes uncontrollable and irreversible, resulting in unforeseeable changes to human civilization (a good time for another deep breath).

If an extended life expectancy becomes a product of this, the possibilities should be weighed accordingly. Let’s expand on some earlier examples of retirement planning changes that could occur as a result of people living longer. Consider the following as plausible changes that could surface too.

  • Increasing health insurance costs.
  • Increasing life insurance costs.
  • Increasing Social Security eligibility age.
  • Increasing Medicare eligibility age.
  • Increasing retirement age.
  • Increase in post-retirement second careers
  • Increase in 50-somethings enrolling back in college.
What to do With All of These Possibilties?

Technology is impacting our lives in many ways beyond this writing. Having exploratory conversations with clients, particularly Gen Xers and millennials, involving what-if scenarios would demonstrate that their advisor is looking at trends that they may not be on their own. This would deliver additional value.

For example, when meeting with a client and reviewing their financial plan, extend their life expectancy by 10-20 years and let your software update. You might find that their retirement age, retirement savings and insurance needs all change. It won’t take long for them to understand how longevity assumptions marry them to their financial plan.

Expect some push back though. We have had conversations with clients and some feel that it’s likely something they won’t have to worry about over the course of their lifetime. Still, others have been more open to the possibility.

One of our many roles as advisors is to serve as our clients “eyes and ears,” at least financially speaking that is.

Whether or not AI advances will impact longevity as quickly as some think, our clients will at least be mindful of these possibilities and understand that changes might be needed.
Should this possibility become a reality, pivoting off traditional retirement planning will occur. Two major changes most likely take place among many others: People work longer (retire later) and need to save more. If retiring at 60 and living to 78 is common today, clients are saving for approximately living 20 years in retirement. If we apply these assumptions to a life expectancy of 100, perhaps age 80 becomes the new 60.

Some of the creativity occurring in the workplace today due to COVID, such as remote and hybrid work schedules could soften the impact on people working longer. Society would have to adapt in other ways too. More vacation time throughout the year could be likely and maybe even four-day workweeks will become commonplace.

For now, there are many opinions and projections to digest. If we remain vigilant and respect the capabilities of AI, we’ll be better prepared to adapt accordingly.

Christopher C. Giambrone, CFP™, AIF® is a co-founder of CG Capital, a boutique wealth management firm based in New Hartford, N.Y. He is a CERTIFIED FINANCIAL PLANNER™ and Accredited Investment Fiduciary® (AIF®). He also earned a Certificate in Retirement Planning from The Wharton School. He can be reached at [email protected].


Latest news

Analysts: Office Loans May Strain Small Lenders

The CRE market faces headwinds that could hobble small banks. Large metro areas are most at risk from current conditions.

DOL Must Create Retirement Plan Lost and Found

One of the many provisions of Secure Act 2.0 is for the DOL to create a "lost and found" for retirement accounts.

New EP Wealth Scholarship Honors Trailblazing Advisor

The Ballou/EP Wealth scholarship program will support underrepresented groups pursuing CFP certification.

Nationwide: Most Women Think Recession Is Here or Imminent

Close to two-thirds of women believe the United States is in a financial crisis or approaching one, says a Nationwide survey.

Gender Parity Will Take More Than 5 Generations: WEF

An index on women's financial health compiled by Ellevest shows that women in the United States are in their worst financial shape since 2018.

CFP Board, RIA Team Up to Offer Scholarship

The scholarship is intended to encourage students from underrepresented populations to enter the profession.