Should crypto be part of your retirement?

Should crypto be part of your retirement?

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Jonathan
Jonathan

An editor at Coincrop


07 Jan 2022 | 9 min read
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ny financial planning expert will tell you that the key to a good retirement portfolio is diversification of assets. Choosing to make cryptocurrencies part of your retirement investment could be a brave but equally fruitful decision.

In this guide:

Disclaimer: All of the information written on Coin Crop is without influence and based on our analysis. No guarantee is offered concerning the accuracy of this information and therefore, any individual following up on it does as such completely at their own risk. Rates are correct at time of publication.

Retirement planning

Whether you are an 18 year old considering retirement investments for the first time or a 65 year old revisiting your retirement investment plans, retirement planning is an important parts of our lives.

It may seem complex with a plethora of retirement products but it always starts by answering a simple question as to how much monthly/annual income you want?

    • Focus on your spending not your income

    • Consider inflation

    • Multiply annual spending by 25. That is what you will need to safely take out 4% every year to live off. E.g. if you spend $40k a year - $1m needed at start of retirement.

So once you have an idea as to what retirement income you require, consideration should then be given to as how you plan to fund your retirement?

    • Social security – In some countries, the government may pay a pension contribution to pensioners based on lifetime contributions.     

    • Company pension plans

    • Home equity and/or reverse mortgages / equity release     

    • Dividends on personally held stocks – Consider what happens if a company fails to pay a dividend for a year?

    • Interest on personally held cash in bank savings accounts. Bank interest rates are very poor with average rates of 1-2%. To earn $30k per annum, you would need $3 million in the bank.

    • Property investments that could be rented out for a yield.  

    • Cryptocurrencies

Why invest in cryptocurrencies for retirement?

There are several reasons as to why cryptocurrencies may be a suitable investment for funding a retirement:

    • A hedge against inflation      

    • The potential for the blockchain related technologies to be transformative to our societies.

    • Potentially huge rates of return on the investments

Investing in cryptocurrencies as a source of retirement income may be ,ore suitable for younger people - they can take greater risk as they have more time to recover from any losses and have a greater understanding of the technology.

What is a Bitcoin IRA?

In the United States it is possible to invest cryptocurrencies for retirement saving purposes.  These products are typically referred to as “Bitcoin IRAs” (other cryptocurrencies can be added). These IRAs are self-directed individual requirement accounts that can contain other alternative assets such as precious metals, property as well as cryptocurrencies.

There are 3 components to the Bitcoin IRAs:

    • A secure storage solution to safely hold your cryptocurrency. 

    • A custodian to ensure your account follows the regulations set by both the government and IRS.

    • An exchange for managing your cryptocurrency trades.

Bitcoin IRAs offer several advantages:

    • Ease of calculating taxes

    • Possibility of high returns compared to other asset classes

    • Diversification of assets

There are several disadvantages that should be considered:

    • Potential for volatility

    • Complexity of custodians, exchanges and secure stored that may not suit all individuals.

    • Capital losses

    • Exchange limitations – only preferred exchanges can be used

    • Fees from trading and account management

What cryptocurrencies would be suitable for a retirement portfolio?

So by now you have possibly made the decision to include cryptocurrencies in your retirement portfolio.  The next question is what cryptocurrencies should you acquire and what percentage of your portfolio should they occupy - some experts say that crypto shouldn’t be more than 5% of your portfolio.

The following is a suggestion (but not advice!) as to how that portfolio could look:

    • Stablecoins – 20% portfolio allocation - These have the advantage of attracting average rates of return of around 12%.  This compares very favourably with traditional bank saving accounts which would struggle to pay 2%.

    • Bitcoin – 40% portfolio allocation – The number one cryptocurrency with average returns of 5%.

    • Staked cryptocurrencies – 30% portfolio allocation – Assets such as Ethereum, Binance Coin and Terra can be staked with average returns of 10%. 

    • Speculative cryptocurrencies – 10% portfolio allocation – Ten percentage of your portfolio could be suited to speculative cryptocurrencies that are currently “in vogue”.  The world of GameFi is likely to see very high rates of return during 2022 and would suited for this allocation.

Below are example rates for stablecoins, Bitcoin and staked assets.

Best flexible saving rates for Tether

OrganizationTermsRatingAPY Rate
NexoFlexible

8.00%

HodlnautFlexible

7.46%

CoinLoanFlexible

7.20%

MyConstantFlexible

7.00%

LednFlexible

6.25%

HaruFlexible

6.10%

NexoFlexible

6.00%

Best saving rates for the Bitcoin

OrganizationTermsRatingAPY Rate
NexoFlexible

8.00%

HodlnautFlexible

7.46%

CoinLoanFlexible

7.20%

MyConstantFlexible

7.00%

LednFlexible

6.25%

HaruFlexible

6.10%

NexoFlexible

6.00%

AssetTermsAPY Rate

USD Coin (USDC)

Fixed (30 days)

20.0%

XRP (XRP)

Flexible

16.7%

Polkadot (DOT)

Fixed (28 days)

16.1%

Terra (LUNA)

Flexible

15.8%

Polkadot (DOT)

Flexible

15.0%

Polkadot (DOT)

Fixed (7 days)

15.0%

Polkadot (DOT)

Flexible

14.0%


Jonathan

Jonathan

An editor at Coincrop
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