Portfolio Perspective

Facing a retirement shortfall? What to know before adding cryptocurrency to your portfolio

Key Points
  • Although most non-retired U.S. adults have some savings, only 36% say their nest egg is “on track,” according to the Federal Reserve. 
  • Those eager to boost retirement savings may be considering more volatile assets, such as cryptocurrency, to achieve higher returns.
  • However, it may be too risky for retirees with a savings shortfall, financial experts say.

In this article

Dado Ruvic | Reuters

As older Americans worry about the size of their nest eggs, some may eye riskier assets, such as cryptocurrency, to cover their shortfall with the possibility of higher returns.

"It's a tough predicament, 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.

About 75% of non-retired U.S. adults have some retirement savings, according to the Federal Reserve's 2020 Report on the Economic Well-Being of U.S. Households. However, only 36% of non-retired adults said their nest egg is "on track," the report said. 

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

However, some advisors say assets like cryptocurrency may not match a retiree's risk tolerance and investing timeline.

"I'm never a fan of cranking up the risk on a portfolio to try and make back lost time," said financial planner Zechariah Schaefer, founder of Ascent Personal Finance in Lynchburg, Virginia.

I'm never a fan of cranking up the risk on a portfolio to try and make back lost time.
Zechariah Schaefer
Founder of Ascent Personal Finance

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

Instead, older Americans may explore other ways to bring in more income and boost savings. 

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

Meet the senator advocating for bitcoin as a retirement asset
Meet the senator advocating for bitcoin as a retirement asset

Roughly one-third of Americans planning to retire have postponed leaving the workforce due to Covid, according to a study from Age Wave and Edward Jones.

When to add cryptocurrency to a retirement portfolio

If a client lacks sufficient retirement savings, advisors aren't likely to suggest cryptocurrency as the solution. However, guidance may change if retirees have a sizable nest egg and more than enough income, said Johnson.

For example, let's say a retired couple easily covers their living expenses with a pension and Social Security income. If they don't need the funds from their individual retirement account, and they plan to give it to their children, there may be more wiggle room, he said. 

"We're going to manage it as if it's your children's money," Johnson said.

With a longer investing timeline, those retirees may consider small amounts of cryptocurrency, assuming it aligns with their risk tolerance.

"If you have money lying around, and it's not going to detract from the lifestyle you want to live in retirement, I say go for it if they want to," said Schaefer.

Be proactive with security

Someone eager to invest in cryptocurrency also needs to consider the possibility of security issues. 

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

Those who want to keep currency on an exchange may opt for U.S.-based companies with a longer history, such as Coinbase or Gemini. 

However, investors still need to guard their accounts with strong passwords and two-factor authentication, preferably with an app vs. text message, Schaefer said.

"If you use an authenticator app, it adds another layer of protection," he said.