What to know before adding crypto to your retirement portfolio

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While older Americans worry about the size of their nest egg, some may consider riskier assets, such as cryptocurrency, 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 that space,” said certified financial planner Ivory Johnson, founder of Delancey Wealth Management in Washington.

According to the Federal Reserve’s 2020 Report on the Economic Well-Being of U.S. Households, about 75% of non-retired U.S. adults have retirement savings. However, only 36% of non-retired adults said their nest egg was “on track,” according to the report.

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

However, some advisers claim that assets like cryptocurrency may not match a retiree’s risk tolerance and investment schedule.

“I’m never a fan of increasing the risk on a portfolio to try to make up for lost time,” said financial planner Zechariah Schaefer, founder of Ascent Personal Finance in Lynchburg, Virginia.

I’m never a fan of increasing the risk on a portfolio to try to make up for lost time.

Zacharie Schaefer

Founder of Ascent Personal Finance

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

Instead, older Americans can explore other ways to generate more income and increase their savings.

Some options may be longer work or semi-retirement. If someone is healthy enough to work part-time into their 60s and 60s, the extra income can make a difference, Johnson said.

When to add cryptocurrency to a retirement wallet

If a client doesn’t have sufficient retirement savings, advisers are unlikely to suggest cryptocurrency as a solution. However, the directions may change if retirees have a large 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 funds in their individual retirement account and plan to give them to their children, there might be more leeway, he said.

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

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With a longer investment schedule, these retirees may consider small amounts of cryptocurrency, assuming it matches their risk tolerance.

“If you have the money lying around and it won’t hurt the lifestyle you want to live in retirement, I tell them to go if they want,” Schaefer said.

Be proactive about security

A person wishing to invest in cryptocurrency should also consider the possibility of security concerns.

For example, digital currency exchanges can be susceptible to hackers, or investors can lose their rigid wallets, which store private keys to access their funds, Schaefer said.

Those who wish to hold currencies on an exchange can opt for US-based companies with a longer history, such as Coinbase or Gemini.

However, investors should still protect their accounts with strong passwords and two-factor authentication, preferably with an app or text message, Schaefer said.

“If you’re using an authenticator app, it adds another layer of protection,” he said.

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