Will AI revolutionize the retirement industry?

A recent survey from Professional Pensions showed 17% of pension experts think Artificial Intelligence (AI) will revolutionize the industry a great deal, while 60% agreed it will to some extent. Only 7% argued AI will not change the way things in the industry are done.

With that backdrop, the Employee Benefit Research Institute — Milken Institute 2024 Retirement Symposium’s panel, Innovations and FinTech: Developments that Can Enhance Financial Security, Retirement Planning and Spending Down Assets, discussed the nature of AI within the retirement planning process.

Yon Perullo, CEO of RiXtrema Inc., which creates software for financial advisors, said his company employs AI in two ways. “One is on the retirement side, helping interpret and understand the plans. We have a couple of specialty adaptions of large language models that help understand specific information,” he said.

“We have one on the risk management side and one on the retirement advisor, retirement side,” Perullo added. “[They include] understanding those documents, and understanding those plans. Because … if you go out and you ask ChatGPT ‘is something about a specific retirement plan?’ it doesn’t know anything.”

Laurel Taylor, Founder and CEO of Candidly, a financial wellness platform related to student debt, said, “The primary use of AI is how we’re coupling large language models with portfolio optimization. Large language models aren’t particularly great at math. They’re not all that consistent. They do harbour biases, but they’re fantastic at sentiment and personalization. And when combining that with portfolio optimization, specifically on the viability side of the balance sheet in the backdrop of the program design that the plan’s sponsor is offering, that’s where we’ve really been able to drive significant impact.”.

FinTech company Charlie, founded by Kevin Nazemi, uses AI, mostly around fraud issues. “If you take a typical retiree, they’re going to fill up their gas tank less often, less on a regular basis, than say, you’re a typical working American. They’re going to eat out a little earlier than the typical American,” he said.

“You’re not going to find them out as much at three o ‘clock at night. We take that information, those signals, along with behavioural signals that exist oftentimes when a transaction takes place, in terms of how quickly information is typed into a device. When a device is what’s utilized to trigger a transaction, we have a model that’s constantly learning and indicating the action that’s being taken, one that matches up with this general population that we serve.”

The idea is to recognize if this action matches up with the activity of our customer. And if it doesn’t, Charlie’s AI system tries to prevent the action from taking place.

Tyler End is CEO of Retirable, a financial advisor and technology company. He said his company is more about the human connection.

“So we have real humans on the phones with clients, but we are dealing with a lower asset-based client in the mass market,” he explained. “And thus we need to be very efficient when it comes to servicing and money movement and financial planning. So when we think about the use cases here, we focus on reducing that servicing cost, enabling our financial planners to be as efficient as possible and spend their time doing what they do best, which is working with clients.”

Read more: Ready for retirement? Plan sponsors must address stark ‘demographic influences’

There are barriers to getting people to use or trust the technology, according to Taylor, who said: “The number one barrier today that we’re seeing is a lack of awareness of solutions. She added that this is a relatively easy problem to solve, because budgets exist and the technology brings in a population the plan sponsor wants to bring into the plan. “But then we have a marketing and communications issue, which is how do we outreach to those users in a personalized way to help them understand and then personalize from the beginning? So those who are already participating but not maximizing how much money they’re leaving on the table.”

Overall, as the technology develops and more and more people get used to it, it appears costs will be the initial driver for pension plans to start utilizing it. A Mercer CFA Institute says that the standout benefit of AI is its ability to reduce operational costs. By automating various aspects of pension management from data analysis to investment decision-making, AI minimizes the need for extensive human intervention. These savings can then be passed on to pension holders, enhancing their overall returns.