Read the headlines these days and artificial intelligence (AI) - and specifically ChatGPT, a content-generating AI chatbot - is all over the news. ChatGPT writes articles, creates videos and images, and gives advice in response to your questions. While the platform may still be in its infancy, only recently launched in November 2022, a recent study from Goldman Sachs suggests that AI tools like ChatGPT could soon impact as many as 300 million full-time jobs worldwide.
So MarketWatch Picks decided to pit man against machine and test the financial prowess of the cutting-edge phenomenon. For starters, we started by asking the most up-to-date version of the platform, ChatGPT-4, one of the most common questions Americans ask their financial advisors: How much should I have saved for retirement? And then we asked a financial advisor to critique it. (Looking for a new financial advisor?This tool can connect you with an advisor who meets your needs.)
How much should I have saved for retirement? AI and a financial advisor weigh in
“The amount you should have saved for retirement depends on many factors, including your age, lifestyle and retirement goals. Here are some general guidelines to consider:
- Retirement Goals: First, think about what kind of retirement lifestyle you want. Are you planning to travel a lot, downsize your home or work part-time? All of these factors affect how much you should save.
- Retirement age: The age at which you plan to retire also affects how much you should save. If you plan to retire early, you need to save more to support yourself for longer.
- Social Security: Social Security benefits can provide income in retirement, but they may not be enough to cover all of your expenses. Think about how much you get in Social Security benefits and factor that into your retirement savings plan.
- Current Savings: See your current retirement savings and estimate how much you'll have by the time you retire. If you've fallen behind on saving, you may need to save more aggressively to catch up.
As a general rule, financial advisors often recommend that retirees should aim to replace at least 70% to 80% of their pre-retirement income. This means that if you currently earn $100,000 per year, you should aim to have $70,000 to $80,000 per year in retirement income. To achieve this, you may need to save between 10% and 15% of your income annually as early in your career as possible.
It's important to remember that retirement savings goals aren't for everyone. It's always a good idea to consult with a financial advisor who can help you determine your retirement savings needs based on your particular circumstances and goals. (Looking for a new financial advisor?This tool can connect you with an advisor who meets your needs.)
Human financial advisor response:
The answer is correct, but it's also not entirely helpful for someone trying to save for retirement on their own, says Nicholas Bunio, a certified financial planner with Retirement Wealth Advisors in Berwyn, Pennsylvania.
Bunio—who has been a certified financial advisor for nearly a decade and studied financial services at Penn State—says the main area where ChatGPT misses the mark is its lack of context and its ability to encompass multiple key factors. For example, when it comes to setting retirement goals, "part of the goal could be to leave a legacy, take care of the grandchildren, retire early and start a consulting business," Bunio says, to name just a few possibilities. .
Given the program's response to the ideal retirement age, Bunio says that, too, could change on a case-by-case basis. "If someone is sick, has had cancer a few times in the past, it might be wise to retire early and plan not to live to 100, but to 90 or 85," he says, adding that "clients don't realize that, for some , it's better to plan to live shorter." Another case that is not taken into account, he says, is that "someone who is not married should not have to worry about taking care of their partner if they die" and that "couples who are healthy should plan more, like 100, " and that "singles who are ill should plan for 85 or 90 at most."
The same goes for his advice on Social Security, Bunio says. "Maximizing Social Security doesn't mean you have to take it at 70. If you plan to live shorter, then it's wiser to take it earlier," Bunio explains, adding that "if you don't live long, but at 70, the you enjoyed less and didn't earn as much, even with a higher benefit amount. Additionally, depending on the situation, it may be wiser to start at age 62, simply to be less dependent on investments. If someone has saved $5 million and only needs $2 million, Social Security won't help them much. And if he prefers to leave an inheritance, start Social Security at age 62 and enjoy that money as less is invested and more can go to heirs.”
When it comes to designing your own savings strategy, Bunio again says the AI proposition is "very vague." And while that may be true, where a professional financial advisor can be uniquely helpful is with tailored strategies to "determine" how much a client needs. "Taking your post-retirement income sources — like Social Security, pension, part-time work — and adjusting them for inflation every year for 30 years determines what your total expenses might be, before emergencies" , says. “Taking your assets and adjusting them for investment gains and losses, then comparing that number to your expenses, can reveal how much more is needed. For some, it can be ten thousand dollars away. Others may be hundreds of thousands.
While Chat GPT acknowledges the "rule of thumb" that retirees should expect to replace 70% to 80% of their pre-retirement income, Bunio "again says it's very general" and that "others may need a lot less or a lot more in many ways , most people spend about what they spend now in retirement.In fact, spending tends to increase in the early years after retirement as people pay down debt, travel a bit, and try new things. Then it slows down. the late 70s and 80s," and rebounds in a client's late 80s as health care costs begin to rise.
If you're just looking for directional advice or want to learn more about retirement, ChatGPT can help - and it's easy to use and free. You can also ask him follow-up questions for more information. That said, you'll want to make sure the advice it gives you is accurate, and be aware that you may need more detail to accurately plan for your retirement.
This is something that a financial advisor can help you with, but the downside is that it's not free. (Looking for a new financial advisor?This tool can connect you with an advisor who meets your needs.)
By age 50, you would be considered on track if you have three to six times your preretirement gross income saved. And by age 60, you should have 5.5 to 11 times your salary saved in order to be considered on track for retirement.How much should you have saved before talking to a financial advisor? ›
Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. You do not need a much higher net worth in order to invest with a financial advisor.How much does the average 70 year old have in savings? ›
How Much Does the Average 70-Year-Old Have in Savings? According to data from the Federal Reserve's most recent Survey of Consumer Finances, the average 65 to 74-year-old has a little over $426,000 saved. That's money that's specifically set aside in retirement accounts, including 401(k) plans and IRAs.What is the 7 percent rule for retirement? ›
What is the 7 percent rule? The 7 percent rule is a retirement planning guideline that suggests you can comfortably withdraw 7 percent of your retirement savings annually without running out of money.What percentage of American retirees have a million dollars? ›
In fact, statistically, around 10% of retirees have $1 million or more in savings. The majority of retirees, however, have far less saved.What percentage of retirees use a financial advisor? ›
To help navigate these choices, one-third of retirees use a professional investment adviser.Are financial advisors worth the 1%? ›
If you're already working with an advisor, the simplest way to determine whether a 1% fee is reasonable may be to look at what they've helped you accomplish. For example, if they've consistently helped you to earn a 12% return in your portfolio for five years running, then 1% may be a bargain.What is the 80 20 rule financial advisors? ›
An 80/20 retirement plan is a type of retirement plan where you split your retirement savings/ investment in a ratio of 80 to 20 percent, with 80% accounting for low-risk investments and 20% accounting for high-growth stocks.How much money is worth having a financial advisor? ›
Depending on the net worth advisor you choose, you generally should consider hiring an advisor when you have between $50,000 - $1,000,000, but most prefer to start working with clients when they have between $100,000 - $500,000 in liquid assets.How many people have $1000000 in retirement savings? ›
America's ranks of so-called 401(k) millionaires are diminishing following last year's stock market rout. The number of 401(k) accounts with at least $1 million in retirement savings fell 32% last year, to 299,000, from 442,000 in 2021, according to new data from Fidelity Investments.
Yes, you can retire at 62 with four hundred thousand dollars. At age 62, an annuity will provide a guaranteed level income of $25,400 annually starting immediately for the rest of the insured's lifetime. The income will stay the same and never decrease.How much does the average American retire with? ›
The Federal Reserve's most recent data reveals that the average American has $65,000 in retirement savings. By their retirement age, the average is estimated to be $255,200.Which is the biggest expense for most retirees? ›
Housing. Housing—which includes mortgage, rent, property tax, insurance, maintenance and repair costs—is the largest expense for retirees.Why the 4% rule no longer works for retirees? ›
The traditional 4% rule has served retirees well for decades but may no longer be relevant due to rising costs and increased market volatility. Retirees should consider using a rate closer to 3.3% withdrawal rate instead, as well as looking into other sources of income.What is the 80% retirement income rule? ›
A classic retirement preparation rule states that you should retire on 80% of the income you earned in your last year of work.How many Americans have $1000000 in savings? ›
21,951,000 people in the U.S. have a net worth of $1 million or more. Among all states, New Jersey has the most millionaire households. Only 3% of American millionaires received an inheritance of $1 million or above. Real estate makes up about 40% of a typical millionaire's net worth.What percentage of people have $100,000 in retirement? ›
Saving a six- or even seven-figure sum for retirement isn't an easy feat, even if you have decades to accomplish it. In March 2020, approximately 26% of adults 60 and older had less than $100,000 saved for retirement, according to an American Advisors Group survey, but that masks the true scope of the problem.What percentage of US population has $1 million dollars in savings? ›
Between 10-16% of American households have $1 million or more in retirement savings. If you define savings more broadly to include a household's net worth, the number rises closer to 20%, whereas if you limit it to individuals with $1 million+ in retirement accounts, the rate drops to 10%.What are the disadvantages of having a financial advisor? ›
One perceived disadvantage of working with a financial advisor is the cost. In a study published in the Journal of Financial Economics, researchers found that the fees charged by financial advisors can significantly erode investment returns, especially for small investors.What is better than a financial advisor? ›
For example, if you have short-term issues or need assistance with specific questions or investments, a financial advisor can usually be a big help. However, if you want support for developing a comprehensive long-term plan for your finances, you may be better off working with a financial planner.
- They are probably learning as they go. ...
- They get paid to sell you more products and services. ...
- There's a reason they want to see all your assets. ...
- They can't legally make any promises. ...
- You may be able to negotiate your fees. ...
- The hard sell usually only benefits them.
AUM fees are calculated as a percentage of the assets they manage and can be charged on a yearly, quarterly or monthly basis. An AUM fee of 1% is quite common. This means a client will initially pay $10,000 annually to work with an advisor on an investment portfolio of $1 million.Is a financial advisor better than on your own? ›
Those who use financial advisors typically get higher returns and more integrated planning, including tax management, retirement planning and estate planning. Self-investors, on the other hand, save on advisor fees and get the self-satisfaction of learning about investing and making their own decisions.What percentage of millionaires work with a financial advisor? ›
Seventy percent of millionaire households used some sort of financial adviser, and the average length of that relationship spanned 10 years, the survey found.Is 1.25 percent too much for a financial advisor? ›
Most advisers handling portfolios worth less than $1 million charge between 1% and 2% of assets under management, Veres found. That may be a reasonable amount, if clients are getting plenty of financial planning services. But some charge more than 2%, and a handful charge in excess of 4%.What are the drawbacks of 80-20 rule? ›
Disadvantages of using the 80/20 rule
The goal is not to minimize the amount of effort, but to focus your effort on a specific portion of work to create a bigger impact. You still have to put 100% of effort into that 20% of focus to achieve 80% of results.
At least 20% of your income should go towards savings. Meanwhile, another 50% (maximum) should go toward necessities, while 30% goes toward discretionary items. This is called the 50/30/20 rule of thumb, and it provides a quick and easy way for you to budget your money.Do financial advisors make money from you? ›
Many financial advisors and firms will earn fees directly from their clients. A management fee for investment management services is frequently a percentage of the assets they're managing on your behalf.What is the difference between a financial planner and a financial advisor? ›
While the distinction between financial advisor and financial planner may be murky for consumers, many financial professionals have a clear idea of what it means to be an advisor versus a planner. Advisors are often focused on investment management, while planners take a more holistic approach to help clients.How do I choose a financial planner for retirement? ›
- Find a real fiduciary. ...
- Check those credentials. ...
- Understand how the advisor gets paid. ...
- Look for fee-only advisors. ...
- Search for clarity. ...
- Find an advisor who keeps you on track. ...
- 5 important questions to ask your financial advisor.
Somewhere around 4,473,836 households have $4 million or more in wealth, while around 3,592,054 have at least $5 million. Respectively, that is 3.48% and 2.79% of all households in America.How many Americans have $100,000 in savings? ›
Most Americans are not saving enough for retirement. According to the survey, only 14% of Americans have $100,000 or more saved in their retirement accounts. In fact, about 78% of Americans have $50,000 or less saved for retirement.What percentage of US population has $2 million dollars? ›
Additionally, statistics show that the top 2% of the United States population has a net worth of about $2.4 million. On the other hand, the top 5% wealthiest Americans have a net worth of just over $1 million. Therefore, about 2% of the population possesses enough wealth to meet the current definition of being rich.Can you retire on $400,000 and Social Security? ›
Safe Withdrawal Rate
Using our portfolio of $400,000 and the 4% withdrawal rate, you could withdraw $16,000 annually from your retirement accounts and expect your money to last for at least 30 years. If, say, your Social Security checks are $2,000 monthly, you'd have a combined annual income in retirement of $40,000.
1,821,745 Households in the United States Have Investment Portfolios Worth $3,000,000 or More.What is the average 401k balance for a 62 year old? ›
|35 to 44||$97,020|
|45 to 54||$179,200|
|55 to 64||$256,244|
|65 and older||$279,997|
According to the most recent data available for fiscal year 2019, an income of $540,009 per year puts you in the top 1% category. Based on that figure, an annual income of $500,000 or more would make you rich.What is the average Social Security check? ›
Average Social Security retirement benefits in 2023
Average payments for all retirees enrolled in the Social Security program increased to approximately $1,827, according to the Social Security Administration (SSA).
You must have worked and paid Social Security taxes in five of the last 10 years. If you also get a pension from a job where you didn't pay Social Security taxes (e.g., a civil service or teacher's pension), your Social Security benefit might be reduced.How much do financial advisors often suggest retirees have in income when they retire? ›
As a general rule, financial advisors often suggest that retirees should aim to replace at least 70% to 80% of their pre-retirement income. This means if you currently make $100,000 per year, you should aim to have $70,000 to $80,000 per year in retirement income.
What amount do experts suggest a person should have saved for retirement by the time he is in his 60s? ›
By age 50, you should have six times your salary in an account. By age 60, you should have eight times your salary working for you. By age 67, your total savings total goal is 10 times the amount of your current annual salary. So, for example, if you're earning $75,000 per year, you should have $750,000 saved.How much do financial experts estimate that retirees need at least? ›
Know your retirement needs
Experts estimate that you will need 70 to 90 percent of your preretirement income to maintain your standard of living when you stop working. Take charge of your financial future.
The average 401(k) balance by age.
|Age||Average 401(k) balance||Median 401(k) balance|
While there are a few questions you'll need to answer before you can know definitively, the quick answer is that you can certainly retire on $5 million at age 65. Though you may have to make some adjustments, depending on your lifestyle.Should retirees have a financial advisor? ›
Using a financial advisor isn't mandatory. If you can't afford, don't trust, or otherwise would prefer not to use an advisor, managing your retirement is always an option. You have to map out a sensible plan and be willing to follow it.What is considered high net worth for financial advisors? ›
Investors with less than $1 million but more than $100,000 liquid assets are considered sub-HNWIs. Very-high-net-worth individuals have investable assets of at least $5 million, while ultra-high-net-worth individuals have at least $30 million.What is the 80 15 5 method? ›
A best practice time ratio to strive for is to spend 80% of your time client facing, 15% focused on learning and expanding spheres of knowledge and influence, and 5% with your staff or team building.Is 1.5 too much for financial advisor? ›
While 1.5% is on the higher end for financial advisor services, if that's what it takes to get the returns you want then it's not overpaying, so to speak. Staying around 1% for your fee may be standard but it certainly isn't the high end. You need to decide what you're willing to pay for what you're receiving.Can I retire on 500k plus Social Security? ›
Can I Retire On $500k Plus Social Security? Yes, you can! The average monthly Social Security Income in 2021 is $1,543 per person.What is a realistic amount of money for retirement? ›
The Final Multiple: 10-12 times your annual income at retirement age. If you plan to retire at 67, for instance, and your income is $150,000 per year, then you should have between $1.5 and $1.8 million set aside for retirement.
- According to various studies and publications, the average age of financial advisors is somewhere between 51 and 55 years, with 38% expecting to retire in the next ten years. ...
- Having a team of financial advisors is how you can plan around losing one financial advisor.
“Several experts on retirement have given various estimates about how much you need to save: close to $1 million, 80% to 90% of your yearly income before quitting work, and 12 times what you used to make annually.”Do most people retire with enough money? ›
Nearly 2 in 5 Retirees Have No Retirement Savings
The survey found that about 37% of retirees say they have no retirement savings, up from 30% in 2022, and only about 12% have at least the recommended $555,000 in savings.