Actuarial Specialties | Artificial Intelligence | Innovation & Technology | Retirement

AI for Retirement Planning

Creating a more secure financial future Elizabeth Walsh November 2023

Photo: Shutterstock.com/Dany Kurniawan

The retirement annuity market is a cornerstone of financial planning, offering customers a reliable stream of income and standard of living during their retirement years. Artificial intelligence (AI) has been transformative in the retirement annuity market recently. AI-driven technologies and algorithms are reshaping how annuities are structured, sold and managed, benefiting providers and consumers, as this and other articles detail.

Insurers such as TIAA are actively exploring AI and data analytics to enhance retirement planning and investment services. Based on my experience, here are some of the approaches.

Bespoke Annuity Recommendations

AI algorithms can analyze an individual’s financial situation—including assets, liabilities and expected retirement expenses—to assess risk tolerance and recommend suitable annuity options. AI can provide long-term financial planning insights by considering various life events, such as education expenses, health care costs and legacy planning. AI-driven tools can help retirees choose annuity products tailored to their specific needs, whether they prioritize income guarantees, legacy planning or inflation protection.

The future state is for AI to create innovative retirement income solutions, such as annuities that adapt to changing market conditions. Or AI may be able to offer personalized withdrawal strategies based on individual needs.

Dynamic Pricing and Optimized Investments

AI-driven robo-advisers can analyze a retiree’s financial goals, risk tolerance and investment horizon to create a well-diversified portfolio. These algorithms continuously monitor market conditions and adjust asset allocation to optimize returns while managing risk. AI models can identify potential risks to annuity portfolios and adjust investment strategies to minimize losses, ensuring a more secure retirement income stream. By understanding how retirees react to market fluctuations, AI can provide insights to help them make more informed and rational investment decisions, preventing impulsive actions during market volatility.

Improved Customer Service

Virtual assistants can provide retirees with instant answers to common queries about annuities, policy details and payments. AI enables providers to send targeted and timely communications to annuity holders, informing them about policy updates, market changes and retirement planning advice. Most importantly, AI can be used to develop personalized retirement education materials and resources, helping customers make informed decisions about their retirement planning and better understand retirement products.

Fraud Detection and Security

AI can analyze transaction data and behavior patterns to detect fraudulent activities, safeguarding annuity holders from financial fraud. AI-powered cybersecurity measures protect sensitive customer data, ensuring the confidentiality of personal and financial information. AI can analyze the spending and transaction patterns of retirees. It also can trigger alerts to investigate when it detects unusual or irregular activities, such as large or out-of-character withdrawals.

AI is revolutionizing the retirement annuity market by enhancing the customer experience, optimizing risk management and creating more tailored and effective retirement solutions. As technology advances, the synergy between AI and annuities is expected to create more significant opportunities for financial security in retirement.

However, implementing AI has challenges, including limited data quality and availability, inefficient integration with legacy systems and databases, and talent and skills gaps. AI should be viewed as a tool to complement actuarial expertise and support retirees in achieving their financial goals in retirement.

Challenges and Considerations

While AI offers numerous benefits to the retirement annuity market, there are challenges and considerations to address, including the following:

Data privacy—handling sensitive financial data requires robust data protection measures and compliance with privacy regulations like the General Data Protection Regulation (GDPR) and Health Insurance Portability and Accountability Act (HIPAA).
Interpreting AI output—providers need to evaluate AI recommendations and whether they align with retirees’ needs and goals.
Regulatory compliance—staying compliant with evolving regulations and addressing due diligence and fiduciary challenges associated with AI adoption is essential. Retirement annuity holders also should be informed about the use of AI tools and their implications for decision-making.

Conclusion

AI is reshaping the retirement annuity market, offering a range of benefits to retirees and providers. From personalized financial planning to enhanced investment management and an improved customer experience, AI is improving the retirement journey for millions of individuals. As technology continues to advance, the synergy between AI and the retirement annuity market is poised to create a more secure and fulfilling retirement for future generations.

Elizabeth Walsh, FSA, MAAA, is a vice president and actuary at TIAA. She is on the Executive Committee of the Actuarial Society of New York (ASNY) and is a contributing editor for The Actuary.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.