Is Crypto a Reliable Source of Income for Retired People?

Cryptocurrency has a reputation for being volatile, but even retirees are still interested in owning it. That’s according to the results of a recent survey of 1,037 investors conducted by GOBankingRates.

Some of the more surprising results of the survey were that 33% of those 65 and older invested over 25% of their money in crypto, and 22% of those in retirement age are using crypto for their retirement living.

More than one-third also reported earning $5,000 or more from their crypto investments. But is crypto a reliable source of income for retired people? Here’s a look at both sides of the issue, with insights from industry experts.

Benefits of Using Crypto as Income for Retired People

Cryptocurrency has made such a splashy entrance into the investment world over the past decade that it has ignited nothing short of a frenzy. When an investment like Shiba Inu can rise a ridiculous 49 million percent in a single year, as that crypto did in 2021, the headlines are enough to draw in droves of investors.

A March 2022 Quinnipiac poll found that 55% of people ages 18-29 and 53% of Americans 30-49 think cryptocurrencies will become a dominant economic force. Those are astounding numbers for an asset class that didn’t even exist before 2009.

Many analysts think that an allocation to cryptocurrency is appropriate, even for retired people. The potential for outsized gains, as evidenced by Bitcoin’s quadrupling in 2022 and Shiba Inu’s incredible 2021, means an underfunded retirement plan may get a kicker from an investment in crypto.

A retirement plan that is already well-diversified may receive additional benefits from a small allocation to crypto, which may or may not trade in correlation with other markets as it evolves. In short, although speculative, a small allocation to crypto in a retirement account may provide benefits in terms of both diversification and upside potential.

Even if you have a high risk tolerance and can afford to lose money on your crypto investments, you should limit your allocation. According to Matt Hougan, chief investment officer of Bitwise Asset Management, below 1% is “too small to matter much” and above 5% substantially increases risk, so “1 to 5% is a sweet spot. But everyone should make their own decision.”

Potential Drawbacks

The biggest drawback to investing in cryptocurrency for anyone, but particularly retirees, is its volatility. Whereas younger investors have time to boost their earnings and savings in response to a large market loss, retirees don’t have that luxury, either in time or in wages. Thus, cryptocurrency investments for retirees should be made only with money they can afford to lose.

Tyrone Ross, CEO of crypto asset platform Onramp Invest, told CNBC, “You should fully expect that (crypto) will go down further, so only put in what you can afford to lose. … If we wake up tomorrow and it goes to zero, you should be able to still pay your rent.”

A related drawback is that cryptocurrency has no extended track record and nothing on which to base expected returns. The stock market, for example, has a multi-decade history through every conceivable economic environment. Additionally, its component businesses generate measurable revenues and earnings on which to base stock prices. Cryptocurrency, on the other hand, is currently based on hopes and dreams — and on how much the next investor is willing to pay. This makes it a tough asset class to consider as a reliable or predictable source of retirement income.

As Hougan said, “The biggest risk in cryptocurrency investing is behavioral risk.”

The investment may be doing extremely well and hit a peak one month, but drop 50% and send investors into a panic to sell.

“You have to have a long time horizon to hold an asset through periods of volatility,” Hougan said, and this may not make it appropriate for most retirees’ portfolios.

The Bottom Line

On the face of it, crypto is not an appropriate investment for retired people, who generally need conservative investments that can provide them with consistent income to last through their non-working years. But there are always exceptions to every generalization. If you already have sufficient funding for your retirement, there’s no reason you couldn’t dabble in cryptocurrency to try to snag some big gains. But you have to go in with your eyes open and understand the speculative nature of cryptocurrency.

If you can’t afford to lose any bit of your retirement savings, then crypto is not the place you want to be. But if you have enough to live on and are just hoping to pump up your returns, carefully selected crypto investments — that don’t take up too large of a percentage of your portfolio — can be appropriate.

More than ever, it’s important to consult with a financial advisor so you can fully understand the risks and rewards of crypto and see whether they match your own investment objectives and risk tolerance.

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