Personal Finance

A.I. can tell where your retirement savings knowledge falls short

By December 3, 2018 No Comments

If you’re not sure how to take money out of your 401(k), you are not alone.

A startup named Dream Forward, which is using an artificial intelligence chatbox as part of the 401(k) and 403(b) retirement plans it provides, has found that many of the same questions come up again and again.

The company has compiled a Confusion Index based on queries its AI technology fielded from at least 3,000 users.

The one topic that drew the most questions: understanding the different withdrawal options, according to Dream Forward. That includes 401(k) loans, early withdrawal tax penalties, hardship withdrawals and in-kind distributions.

The chart below shows which topics came up the most in the Confusion Index (click to enlarge).

“You have to figure out which makes the most sense for you, and each plan is different and might not have the same options,” said Grant Easterbrook, co-founder at Dream Forward.

Other topics that serve as the biggest pain points for retirement plan investors include tax-related questions and challenges with understanding investing concepts, terms of a company match and profit-sharing programs, and rollovers.

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To reduce the complexity, the challenge is twofold, according to Easterbrook.

First, the financial industry must simplify retirement plans and the language through which it communicates the choices that are available.

Second, consumers must take a proactive approach to their retirement savings, Easterbrook said. That means seeking extra help from a financial advisor and/or your human resources department if the choices for your plan confound you.

“Think about it in terms of benefits,” Easterbrook said. “If you are sitting on a tax bracket threshold, by even saving a couple thousand dollars in your 401(k), you can lower your taxes.”

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