Eric Rosenberg is a finance, travel, and technology writer. He has 10 years of experience in banking, corporate finance, and corporate accounting.
Updated January 18, 2024Cryptocurrency has gained so much traction that it has some people thinking that it might be a good investment for retirement. In fact, according to the 2022 Investopedia Financial Literacy Survey, about one-third of investors under the age of 55 planned to rely on cryptocurrency during retirement.
This might sound like a risky plan, considering the volatility of the crypto market, and it is.
Since 2009, Bitcoin has ranged in price from a few dollars to about $69,000. Early bitcoin investors have experienced massive returns, but not all coins have fared so well. With thousands of cryptocurrencies to choose from, investors have had mixed results, to say the least.
That said, crypto topped the list of best-expected returns among those ages 18 to 55 in the 2022 Investopedia Financial Literacy Survey. Among millennials, 30% expected that crypto returns would top stocks, real estate, and mutual funds.
But time will tell if those expectations were founded in reality. For now, it’s too early to know if cryptocurrency will be a good long-term investment. For most investors under age 55, retirement is more years away than cryptocurrency is years old. When you add to that the fact that those same investors who expect big returns don’t fully understand what they are putting their money in, it can be a bit alarming.
The first Bitcoin Spot ETFs were approved in January 2024. These instruments allow you to trade shares that represent bitcoins on a regulated exchange, but their effectiveness as part of a retirement plan is unknown—other than giving investors with less wealth an opportunity to become involved in bitcoin investing.
In Investopedia’s survey, across age groups, more than 40% of respondents said cryptocurrency was too risky or too confusing. Among millennials, specifically, 44% said that cryptocurrency was too confusing or risky for their money. About 58% of baby boomers said that cryptocurrency was too confusing.
Less than half of millennials stated that they could explain how cryptocurrencies work, while only 5% of baby boomers thought they could explain cryptocurrencies—and only 3% understood non-fungible tokens (NFTs) well enough to share how they work with someone else.
So, while it is clear that cryptocurrency can be a novel and sometimes trendy new asset class, it’s also extremely risky and volatile. You may want to think twice and consult a financial planner before leaning on crypto for your retirement planning.
Cryptocurrency markets can follow patterns similar to stock markets, with up and down cycles—but much more volatile. An extended down market, often called a crypto winter, could have lasting impacts.
As you’re building your retirement portfolio, it’s critical to consider several essential factors, such as:
Of course, just because something is new and untested doesn’t necessarily mean it’s a bad investment. The final decision on where to put money is up to the investor, so they should weigh the pros and cons every time before making a decision.
Order your copy of the print edition of Investopedia’s Retirement Guide for more assistance in building the best plan for your retirement.
What is the appropriate investment amount for you to invest? It depends on various factors. First, you should calculate your financial needs for retirement. Then, determine the allocation of investments and contributions needed to get there.
Traditional retirement strategies generally combine assets to reach typical retirement investing goals, often relying heavily on tax-advantaged 401(k) plans and individual retirement accounts (IRAs). In addition to crypto-specific and entirely self-directed traditional and Roth IRAs, some traditional brokerage firms are beginning to add cryptocurrency to traditional retirement accounts. So, if you're convinced this is your path forward, it's best to consult a financial advisor before putting your money into such a risky asset.
Of all the investments you can make in a lifetime, retirement accounts are arguably the most important. And if you go big on crypto—or only invest in cryptocurrency for your retirement—you may be forced to reconsider your current or future plans with little notice.
Due to the risk, volatility, and difficulty predicting the future of cryptocurrency, most investors should avoid including crypto in their retirement investments altogether. If you decide to include cryptocurrencies, keeping them as a smaller portion of your overall portfolio may be wise.
Unless you’re a firm believer in cryptocurrency who wants to take advantage of the tax savings a cryptocurrency IRA can offer, you may be better off keeping cryptocurrency as a relatively small portion of your overall portfolio and out of your retirement.
Many investment experts suggest keeping the bulk of your retirement assets in the stock market, preferably in low-fee, diverse exchange-traded funds (ETFs). High-risk alternative investments are still fair game but should be reserved for a portion of your investments that are not critical to your livelihood in the future.
Cryptocurrencies are popular these days, but putting bitcoins into a 401(k) or other retirement account is a relatively new idea.
Investors shouldn't rush to add bitcoin or other crypto assets to their 401(k) plans just because they can. It should be added only after due diligence and determining that a steep decline in value won't hurt your savings.
It might be possible if the market cooperates, but it's pure speculation at best and throwing money away at worst. It's important to be realistic about how crypto might affect your savings, regardless of what you invest in. Diversifying a portfolio is always recommended to minimize risk.
When building your cryptocurrency investment strategy, consider this scenario. If you invested $5,000 in cryptocurrency and it increased by 10×, you would have $50,000. That’s a great return. But if it went to zero, would it be enough to ruin your retirement plans? Probably not.
While the $5,000 example works for some individuals or households, your investment portfolio, risk tolerance, and financial goals are unique. By understanding your investments and how every asset that you own works, you can decide on the ideal allocation for your retirement portfolio and other investments. Cryptocurrency may fit into your investment strategies. But if you plan on relying on alternative assets for retirement, invest carefully.
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