Testing AI hype with questions about how to save a home down payment and when to start CPP

The most worthless responses to personal finance questions are “it depends,” closely followed by “ask your adviser.”

Full credit to ChatGPT for avoiding these dodges, commonly used by people who cannot distill information into a utilitarian response. A test of ChatGPT using two generational matters of personal finance produced helpful recommendations.

The first question was asked with Gen Z and millennials in mind: What is the best way to save for the purchase of a home within five years? The question was phrased to give ChatGPT a chance to slip up – should down payment savings go into a conservative, balanced or growth-oriented asset allocation exchange-traded fund, or stay in cash?

The “within five years” timeline was the trap here. Zero stock market exposure is the right amount for people planning to buy a home that quickly. Asset allocation ETFs are fully diversified portfolios of stocks and bonds tuned to the needs of various types of investors. ChatGPT’s conclusions:

• The growth ETF: “Too risky for your home savings.”
• The balanced ETF: “Still risky for your timeline.”
• The conservative ETF: “Possibly acceptable, but not ideal. Only consider if you’re okay with some fluctuation and won’t need every dollar for your down payment.”

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The lower return of savings accounts and short-term guaranteed investment certificates was noted as a drawback to keeping down payment money in cash. Yet the final recommendation was to use these savings vehicles in a first home savings account. The rationale: No market risk, fully liquid in the case of a savings account and predictable returns.

ChatGPT aced that question. Now, a tougher query on behalf of baby boomers who as part of their retirement planning are wondering when to start their Canada Pension Plan retirement benefits. The standard age is 65, but you can start as early as 60 at a reduced payout or wait as late as 70 to receive more.

The Globe and Mail has published many stories from many writers about when to start CPP. The consensus advice is to delay as late as 70 if you are in good health and have the savings to cover expenses until the start of CPP benefits. But only a small minority of people wait until 70.

Reasons for not delaying include the fear of dying young and leaving a spouse to collect the usually disappointing CPP survivor’s benefit, and the generally mistaken belief that taking benefits early and investing them is a better way.

ChatGPT laid out the financial case for delaying: You receive 64 per cent of your standard benefit if you start at 60 and 142 per cent of the standard amount if you delay to 70. The additional considerations that were presented included life expectancy and the availability of other income.

One more consideration was that CPP benefits are inflation-protected via annual increases tied to the cost of living. Final recommendation: “Consider starting CPP at 70.”

After offering to delve further into the cost and benefit of delaying benefits, ChatGPT produced a chart showing the age you have to live until to make it financially worthwhile to delay CPP. The break-even age for starting CPP at 65 over 60 was shown to be in the mid-70s, while the break-even age for starting at 70 rather than 65 was in the early 80s.

I’ve been feeding personal finance questions into ChatGPT and other AI apps for about a year now and the results are steadily getting better. Some tips for your own queries: Be hyperspecific about your personal situation and be ready to rephrase or reframe your question to sharpen flabby answers.

As helpful as AI can be, you shouldn’t take accuracy for granted. The term “AI hallucination” describes incorrect or misleading information that can appear in responses to questions.

ChatGPT’s numbers on CPP were comparable to other data online, but not as nuanced as they could be when documenting how benefits change according to your age. Retirement benefits drop by 0.6 per cent each month you start before 65, and they increase by 0.7 per cent each month you start after 65. It doesn’t have to be “delay CPP until age 70” or not at all.

AI is still in its developmental stage as a personal finance tool, but the early results are strong enough to be very promising. You have to give it a try.

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