What to Know Earlier than Including Cryptocurrency to Your Retirement Portfolio

With older Americans worried about the size of their nest egg, some riskier assets like cryptocurrencies might look to cover their shortfall with the possibility of higher returns.

“It’s a tough situation and I think a lot of people will find themselves in this space,” said Ivory Johnson, a certified financial planner, founder of Delancey Wealth Management in Washington.

Approximately 75% of non-retired adults in the US have some retirement provision according to the 2020 Federal Reserve Report on the Economic Welfare of US Households. However, only 36% of non-retired adults said their nest egg was “on track,” the report said.

With interest rates low and inflation soaring, some older Americans are feeling pressure to increase returns by increasing portfolio risk, Johnson said.

However, some advisors say that assets like cryptocurrencies may not suit a retiree’s risk tolerance and investment schedule.

“I’m never a fan of adding risk to a portfolio in order to regain lost time,” said financial planner Zechariah Schaefer, founder of Ascent Personal Finance in Lynchburg, Virginia.

I’m never a fan of adding risk to a portfolio in an attempt to regain lost time.

Zechariah Shepherd

Founder of Ascent Personal Finance

Cryptocurrency has been particularly volatile and has performed in exaggerated boom and bust cycles in relatively short periods of time compared to the traditional stock market, he added.

Instead, older Americans can explore other ways to earn more income and boost savings.

A couple of options can be to work longer or to be part-time retirement. When someone is healthy enough to work part-time in their 60s and 70s, the extra income can make a difference, Johnson said.

When should you add cryptocurrency to a bond portfolio?

If a client doesn’t have adequate retirement plans, advisors are unlikely to suggest cryptocurrency as a solution. However, the guidelines can change if retirees have a sizeable nest egg and more than enough income, Johnson said.

For example, suppose a retired couple easily covers their living expenses with a pension and social security income. If they don’t need the money from their individual retirement account and want to give it to their children, there may be more wiggle room, he said.

“We’re going to manage it like it’s your children’s money,” said Johnson.

More from a portfolio perspective

Here’s a look at other stories that impact portfolio planning and retirement planning:

With a longer investment schedule, these retirees can consider small amounts of cryptocurrency, provided they are appropriate to their risk tolerance.

“If you have money lying around and it doesn’t interfere with the lifestyle you want to live in retirement, I say, do it if you want,” said Schaefer.

Be proactive for sure

Someone looking to invest in cryptocurrency must also consider the possibility of security issues.

For example, digital wallets could be vulnerable to hackers or investors could lose their hard wallets, which are used to store private keys to access their funds, Schaefer said.

Those looking to keep the currency on an exchange can opt for US-based companies with a longer history like Coinbase or Gemini.

However, investors still need to protect their accounts with strong passwords and two-factor authentication, preferably with an app vs. SMS, Schäfer said.

“When you use an authentication app, it provides another layer of protection,” he said.

Comments are closed.