As retirement age approaches for baby boomers and Gen Xers, the reality of under-saving is setting in and some are looking toward cryptocurrency to make up for lost time, according to data from a platform that allows crypto investments for retirement accounts.
“There's the growth and return rates that are appealing to older folks who are looking to catch up,” said Chris Kline, co-founder and chief operating office of Bitcoin IRA. “Or, grow out and scale their retirement planning.”
Read more: Bitcoin and crypto: 14 terms you should know
Half of Bitcoin IRA’s user base is 55 and up, according to data exclusively shared with Yahoo Money, while over three-quarters of its 100,000 users are over age 45 — upending the stereotype that digital currency is a young person’s game.
Given crypto’s ability to capture headlines as prices boom and bust, these investors are looking for “sizzle and excitement” that old guard investment vehicles like 401(k)s, IRAs, and stocks don't offer, Kline said. They also want a more hands-on approach with their investments, instead of simply selecting mutual funds or index funds from an employer's retirement plan menu.
“They're looking for something a little bit more individualistic,” he said. “They're looking to have a little bit more control and do different things.”
Many also are looking for ways to fill in short gaps in their retirement savings. The median retirement savings for those between 45 to 55 is $82,600, while it’s $120,000 for those closest to retirement between 55 and 64, according to PwC’s Retirement in America report.
“What they have saved will afford them like $1,000 a month of actual cash while they're in retirement,” said Bernadette Geis, PwC’s U.S. asset and wealth management leader, who noted that’s not enough.
That's where crypto comes in, especially in a year when bitcoin's value jumped 120% from the first of the year to mid-April and other digital coins enjoyed similarly meteoric rises.
Vikas Agarwal, PwC’s financial crime unit leader, cautions against seeing cryptocurrency as “easy money” solely based on its “explosive growth,” he said. Risk is associated with every investment, and an investment in crypto is far from a sure-fire win. For instance, bitcoin's value has fallen 50% since mid-April.
For that reason, financial professionals discourage going all in on one particular investment — especially one so volatile. Among the rising asset classes, Agarwalcompared crypto’s hype to a “fast-moving stock [that’s] quickly gaining momentum in the market.”
Some investors are “probably going a little bit too far,” he said, with regard to looking at crypto as a way to “make up for having more money in my retirement plan.”
Allocation should ultimately come down to a portfolio’s risk before the introduction of crypto. Investors with portfolios with a lot of high-risk assets should keep a smaller investment in crypto. Those with a lower-risk portfolio could likely withstand a higher percentage of the asset, Agarwal explained.
Even ForUsAll Inc. — a 401(k) provider which recently allowed its retirement savers to invest in crypto — caps the allocation to crypto at 5% of portfolio balances to shield investors from taking on too much risk.
For those interested in crypto, Agarwal recommended sticking with “coins that are well-known and well-established” like bitcoin or ethereum.
“On the other side, I think there are investors that probably aren't as educated on the risks,” he said, mentioning hefty transaction fees, federal income taxes levied on gains, and extreme price volatility.
Another misconception for the average investor is conflating stocks with cryptos, Agarwal said. For a passive investor, the daily market and volume movement of crypto isn’t the right fit.
“If the wild price swings happen outside of market hours, it could get challenging to trade them, and it can be challenging to divest them,” he said. “Retirement accounts aren't usually things that people are day-trading against and cryptos are."