Older people do sports outdoors.

Can Bitcoin Help You Retire Early?

until this year, Bitcoin (CRYPTO: BTC) It was seen primarily as a vehicle for financial speculation rather than as part of a responsible retirement strategy. But things are starting to change faster than you think. In April, Fidelity Investments began rolling out Bitcoin investment options for employer 401(k) plans. And Congress may be preparing to vote on potentially groundbreaking legislation called the Retirement Savings Modernization Act that could help make cryptocurrency a serious retirement option.

Can Bitcoin Help You Retire Early? This depends on many factors, of course, such as how much you need to save, how much risk you are willing to take, and how much time you have until retirement.

How much do you want to save?

One of the reasons Bitcoin is so attractive as a retirement option is that, quite simply, there is no single asset class that has performed as well as Bitcoin over the past decade. If you invested $1000 in Bitcoin in 2013You will have over $140,000 today. Even if you have invested a similar amount in high-risk tech stocks, there is no way to match Bitcoin’s historical returns. So you can see why many people now believe that Bitcoin can increase their retirement earnings.

Image source: Getty Images.

Just keep in mind that crypto is still so new as an asset class that we don’t know how it will perform over time. Yes, bitcoin has been unusual over the past decade, but it has also suffered a few painful 50% drops along the way. Over the course of the year, Bitcoin is still down 60% and no one knows when or if Bitcoin will reverse these losses.

Imagine what would happen if you were planning to retire in 2022 and relied on Bitcoin as your primary source of retirement savings. Before the cryptocurrency crash, you might have imagined the idea of ​​retiring abroad in a strange place. Now, 60% poorer, you’re probably considering postponing retirement entirely.

How much risk are you willing to take?

Despite this volatility, the risk-reward profile of young investors is shifting in favor of high-risk and speculative assets such as cryptocurrencies. According to the post American bank Studying private banking and wealth management, the vast majority of millennials said they want to diversify their cryptocurrency portfolios. More than 75% of investors between the ages of 21 and 42 said that it is impossible to achieve above-average returns with just stocks and bonds.

When announcing new Bitcoin retirement options in April, Fidelity initially set a cap of 20% on the percentage that investors can allocate to crypto options. Right now, you can think of that as the absolute maximum you should set aside for your retirement savings bitcoin. Moreover, Fidelity gives employers the option of lowering this cap further, primarily because of concerns that the fiduciary duty they have to their employees might be compromised by offering higher-risk retirement options. The US Department of Labor has even looked into the matter, indicating that employers will likely shy away from offering any crypto investment options at all. But, of course, that could change if new legislation is passed.

How much time do you have until retirement?

One of the reasons people are now talking about bitcoin as a retirement option is that their time horizons have changed. Quite simply, 50 is the new 65. People want to retire sooner than ever, so they need a way to speed up their investment schedule. This usually means finding new high-risk, high-reward assets, and crypto is definitely a high-risk, high-return asset. In the past, people were probably willing to invest steadily for 30 years or so, and at the end of that time period, they would have had enough to retire safely. But many people don’t feel like they have 30 years to wait.

This is especially true of the young millennial generation. Perhaps this is part of the general trend towards instant gratification in every aspect of our lives, but many young investors want their retirement money as quickly as possible. From this perspective, Bitcoin can at least become a lifeline for someone who has not started investing in their mid-twenties. It can be a way to quickly catch up with someone who started saving earlier.

Retire with encryption at your own risk

However, encryption is generally considered too volatile and too speculative for an administrator retirement strategy. Even with Fidelity’s post here, you may struggle to find a company that even offers 401(k) crypto options. This is why so many people are waiting to see what new legislation from Congress will propose. In a best-case scenario for crypto enthusiasts, Congress could amend previous legislation to make crypto an approved investment option under the Employees Income Security Act (ERISA). That would go a long way toward the eventual legalization of crypto for employers and institutional investors.

For now, it is better to think of cryptocurrencies as a way to boost your retirement, rather than as a magic bullet to help you retire early. So keep putting your money into a 401(k) or IRA, and keep looking for ways to save more and spend less. This is probably the best way to retire early.

10 stocks we like better than bitcoin
When our award-winning analyst team has stock advice, they can pay to listen. After all, the newsletter they’ve been running for over a decade, Motley Fool Stock AdvisorThe market tripled. *

They just revealed what they think Top ten stocks For investors to buy now… and Bitcoin wasn’t one of them! That’s right – they think these 10 stocks are the best buys.

See the ten stocks

*Stock Advisor returns as of September 30, 2022

Bank of America is an advertising partner of The Ascent, the Motley Fool Company. Dominic Bassolto He has positions in Bitcoin. Motley Fool has positions in Bitcoin and recommends them. Motley Fool has a profile Disclosure Policy.

The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.

#Bitcoin #Retire #Early

Leave a Comment

Your email address will not be published. Required fields are marked *