The conventional wisdom for older individuals nearing retirement typically emphasizes minimizing exposure to high-risk investments in order to safeguard their savings. However, what happens when those savings have already diminished, prompting a need for a high-risk, high-reward strategy to recover losses swiftly and ensure a comfortable retirement? The allure of cryptocurrency can be enticing in such scenarios, as some investors see it as a potential solution. This approach, though not recommended for the faint-hearted, comes with significant risks, especially in the event of sudden market downturns or extended bear markets.
Payments consultant and former banker Rod Tasker highlights the extreme nature of this investment strategy, cautioning that putting all resources into a single volatile asset like cryptocurrency is a precarious move.
Recovering from the Collapse of Celsius
One such individual, Alex P., a project manager from Sydney, is attempting to rebuild his retirement savings after suffering substantial losses due to the downfall of Celsius, a crypto lending platform that was perceived as a secure alternative, offering unusually high interest rates on crypto savings. Alex, 52, reveals that he invested his entire family’s funds into Celsius, even transferring his Self Managed Super Fund (SMSF) — comparable to a self-directed Individual Retirement Account (IRA) in the U.S. — to the platform. His 80-year-old mother, impressed by the interest returns, also entrusted her retirement savings to Celsius.
“I bought into the vision of that business completely, so I had most of my crypto there,” Alex shares. “The promise was financial freedom and the ability to retire and live off the income, which was our reality for a time.”
The Dream Turns into a Nightmare
Initially, the family enjoyed a prosperous lifestyle, allowing Alex and his wife to quit their jobs in 2021, relying on the yields from their investments. However, this dream soon turned into a harsh reality. The “interest” they received was funded by other users’ accounts, leading to a collapse of the scheme in mid-2022. This resulted in Alex losing most of his investments while still facing a hefty $400,000 tax bill on the income he had previously earned. “I placed too many funds into the Celsius network. Essentially, I came close to losing our family home. Both my mother and I invested in it, so describing the fallout as catastrophic is an understatement,” he explains. “At times, I was on the verge of despair.” After a protracted two-year battle, they managed to recover 25% of their invested cryptocurrency through bankruptcy distributions. Despite the setback, Alex holds himself accountable rather than blaming the crypto sector, remaining resolute in his pursuit of recovery.
Currently, aside from safeguarding his family home, Alex has reinvested all his remaining assets into Bitcoin and other cryptocurrencies, including his SMSF. He is also focused on restoring his mother’s 25% portfolio and spends approximately $15,000 annually on advice from the Platinum group of the crypto education organization, Collective Shift. “Now, it’s about selecting the right assets within the SMSF while being a bit more aggressive with crypto investments to attempt to rebuild,” he states. “In contrast, I’m adopting a more cautious approach with my personal portfolio due to the stakes involved.”
Expert Opinions on Crypto Retirement Investments
Finance professionals urge caution when considering substantial crypto investments for retirement. Juanita Wrenn, managing director of Hudson Financial Partners, notes that while they cannot directly endorse cryptocurrency for clients due to regulatory restrictions, they recommend limiting crypto exposure in retirement accounts to between 2% and 5% of the total balance. “This allocation allows for potential upside while minimizing significant losses,” she explains. Wrenn acknowledges the temptation to pursue quick profits for a comfortable retirement but warns against the emotional pitfalls of such strategies, stating, “Chasing large gains late in the investment game can often lead to worse outcomes than doing nothing.” Australians are fortunate, she adds, that even a modest retirement fund of around 314,000 Australian dollars ($205,000) can provide a comfortable lifestyle when combined with government support.
Investing in Crypto for Retirement
Currently, no superannuation funds in Australia offer digital asset investment options, although AMP did invest in Bitcoin when prices ranged between $60,000 and $70,000 in early 2024. The only direct method for investing in cryptocurrency for retirement is through establishing a self-managed super fund (SMSF). An annual survey by Independent Reserve’s Cryptocurrency Index reveals that SMSF operators are twice as likely to hold cryptocurrencies compared to retail fund members, with around 34% expressing interest in investing in Bitcoin, either directly or via exchange-traded funds. A similar trend can be observed in the United States, where retirement funds approach crypto investments cautiously. Some state pension funds maintain direct exposure to Bitcoin and Ether through ETFs, while others have indirect exposure via companies like Coinbase. However, employee-sponsored 401(k) plans do not currently include crypto as an investment option, necessitating self-directed IRAs for those wishing to invest directly in crypto. This landscape may soon change as the U.S. Department of Labor has recently revised its stance on crypto investments within 401(k) plans.
Calculated Crypto Investments for Retirement
U.S. finance expert Eric Schiffer, founder of the Patriarch Organization, suggests that investors in their 50s still have enough time to navigate two more market cycles to bolster their retirement savings, viewing crypto as a strategic addition rather than a desperate last resort. “Cryptocurrency is like volatility in a bottle — beneficial if approached cautiously, but potentially disastrous if overindulged. A 5% allocation can enhance returns without jeopardizing retirement funds,” he states. He likens the volatility of Bitcoin to a roller coaster ride, recommending that retirees limit their exposure to 1-5% maximum. “The preservation of principal is paramount, and the drawdowns in crypto can be significantly harsh. If your portfolio isn’t equipped to handle a 50% loss overnight, it’s wise to avoid cryptocurrency altogether,” he advises.
The Reality of Advice in the Crypto Space
Despite widespread knowledge of prudent portfolio allocation limits in the crypto community, many individuals often disregard their own guidance. Simon B., a 57-year-old former IT professional from Australia’s Sunshine Coast, reflects, “We all say to invest only what you can afford to lose, yet many of us don’t adhere to that principle.” Like many in his demographic, Simon is wary about his retirement finances, having faced setbacks following a divorce and business partnership dissolution that significantly impacted his savings. “Between my ex-business partner and ex-wife, they took more than I could afford to lose, forcing me to start over about four or five years ago.”
Last year, he transitioned his $160,000 Australian dollar ($104,435) superannuation retirement account into Bitcoin and utilizes resources from Collective Shift alongside AI tools to navigate the complexities of trading. “I’m still working hard to build my crypto portfolio to secure my desired retirement lifestyle,” he explains. His goal is to significantly increase his investments during the current market cycle, paving the way for a more passive investment approach primarily centered on Bitcoin.
Prudent Strategies for Aspiring Crypto Retirees
Simon advises older investors looking to venture into cryptocurrency to seek reliable advice and remain vigilant against numerous scams targeting seniors on social media, noting that Australians lost $111 million to crypto scams in 2023. “Navigating this space requires a certain level of technical knowledge and skepticism. In IT, we adopted a zero-trust ethos, meaning I trust nothing until proven otherwise.” Alex acknowledges having “made every mistake in the book,” and he wouldn’t recommend that anyone follow his example of going all in. Still, he encourages older investors to consider a modest allocation that could yield substantial returns. “As one ages, risk aversion increases, making it essential to protect existing assets. However, risking a small percentage, like five percent, can be manageable, and if that amount grows to 30% of your portfolio, it can significantly impact your retirement,” he concludes.
