I Asked AI to Plan My Financial Independence Strategy. It Got 2 Things Completely Wrong.

I'm developing a bit of a love-hate relationship with AI. While I love using it as a tool to analyze my work-related data and my personal financial strategy, I hate that it's putting my writing career at risk of serious disruption. That recently led me to turn to my potential replacement to help me craft a financial independence strategy.

It helped me develop a very detailed plan of action to future-proof my finances from AI disruption. However, AI did get a few things completely wrong when planning my financial future. Here are two big mistakes it made and what I learned from the exercise.

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A big passive income oversight

I used Anthropic's Claude to plan a path to financial freedom for my wife and me, to help ease my anxiety about a potential AI disruption to my income as a writer. The goal was to determine the best path forward for our situation, given our current ages and the gap between when we can make penalty-free withdrawals from our retirement accounts.

Claude recommended we build a bridge to help me transition into retirement slowly. It suggested that we focus on contributing to our Roth IRA and taxable brokerage account to build a bridge that can cover more of our living expenses until we can start withdrawing from tax-deferred accounts. After working through the numbers, Claude initially projected that we should build our contributions to these accounts by another 65% to achieve financial freedom. That seemed like a daunting task, considering that AI could disrupt my profession in the next couple of years.

However, there was one major flaw in its assumption. Claude failed to account for any of our passive income, including current pension income. After questioning the numbers, Claude admitted: "Going back through the math, I never subtracted the pension -- that was an oversight, not a deliberate choice. Since it's guaranteed lifetime income, independent of markets." That made a meaningful difference, closing the gap to a more managable 31%.

The right investment in the wrong account

Claude suggested we build a three-tiered strategy that includes a one-year, completely liquid transition fund to cover an AI-related job loss, followed by a bridge growth fund to last until we can tap our tax-deferred retirement accounts. It advised building the bridge growth fund by maxing out Roth IRA contributions before adding any more capital to the taxable brokerage account.

However, Claude also recommended that we start building an income sleeve by investing in tax-free municipal bonds, given my current income level. It recommended pairing a short-term municipal bond fund, such as Vanguard Short-Term Tax-Exempt Bond ETF or SPDR Nuveen Bloomberg Short Term Municipal Bond ETF, with an intermediate-term fund, such as Vanguard Tax-Exempt Bond ETF or iShares National Muni Bond ETF. It advised that I allocate 60% of every new dollar of capital to Muni bonds (including in my Roth) and the remaining 40% into an index fund such as Vanguard S&P 500 ETF.

I asked Claude to clarify why I should invest in tax-exempt bonds in a tax-exempt account. It responded, "Good catch -- this is a real mistake in what I put together, not just a matter of preference. Let me walk through why, and what to fix." It pointed out that holding Munis in a Roth means giving up yield to "avoid a tax that was never going to apply anyway. That's pure waste -- the exact opposite of what should go in the account with the best tax treatment."

My takeaways from using AI to build my financial independence strategy

I found that AI can be a really helpful tool in building a financial independence strategy. It made me think through things that I hadn't considered. However, it did make a couple of notable mistakes in my case. That served as a good reminder to use AI as a starting point, not as a final authority. I've found it crucial to ask follow-up questions to ensure it's not giving bad advice.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.