Investing in Crypto for Retirement: The Complete Guide

It is a common misconception that investing in cryptocurrency is reserved for pure speculation. It’s also common to assume that no serious retirement planner would ever advise you to use it as an investment vehicle.

While cryptocurrency is very volatile, if you allocate the right portion of your retirement fund to it, you could take little risk and unlock your return potential at the same time.

So, if you are considering investing in this modern asset, don’t be discouraged. Just make sure that you read this guide to do it the right way. Also, download our net worth tracking app, TrackMyStack, to prepare yourself to account for crypto in your net worth and track your returns properly.

In this article, we will help you:

  • Asset allocate with crypto
  • Understand when you should rebalance your portfolio when it comes to crypto
  • Invest in crypto the right way
  • Make sure that your crypto investments get transferred to beneficiaries
  • Safely store your crypto
  • Understand how your crypto gains are taxed and how you can limit your tax expense

Sounds good? Let’s get into it right away…

Pre-Crypto Asset Allocation: Does it Still Make Sense?

Asset allocation as we know it is spreading your money across different assets like cash equivalents, bonds, stocks, real estate, etc.

A good piece of advice is to invest in assets that are less volatile and risky as you grow older. For example, a 25-year-old may be justifiably comfortable having 80% of their money invested in stocks and only 20% in bonds, cash equivalents, and real estate.

But for a 60-year old who knows little about stock market investing and wants to regularly withdraw from their retirement fund, it makes no sense to have most of their money invested in stocks.

However, with the advent of crypto, we need to reconsider if this idea of asset allocation still makes sense.

Should we assume that crypto is in the same category as stocks and, therefore, treat both as the same when asset allocating? Should we invest in crypto but not account for it when we consider our retirement fund? Should we not consider it at all?

Crypto is by far the most volatile and risky asset when it comes to investing. But it has a place in modern retirement planning and there’s a way to make it work without making it a potential risk factor of retiring with less than expected.

That’s because you can simply invest in it in a way that gives you the potential to retire with more than you expect while not putting your capital at too much risk. Allocating the right percentage to crypto is the key here…

How Much Money Should I Allocate to Crypto?

If you listen to a couple of experts, it seems that the consensus is that you should not put more than 5% of your fund into crypto assets. But one piece of advice stands out for how conservative and wise it is at the same time…

Dan Herron, a CPA at Elemental Wealth Advisors says, “With my clients that are interested in learning more about crypto, I tell them that they can have up to 1% of their assets in cryptocurrencies, and the remaining 99% in more traditional assets. However, as they become more familiar with the crypto space, we can gradually allocate more to that allocation.”

This piece of advice is perfect for those who have families, some debt, and invest most of their assets in conservative investment vehicles like index funds and bonds. It can capture all; young and old, careful and bold.

The only thing that we’d like to add here is that if you are young with no debt and family, and you invest aggressively, you could afford to start with more than 5% even if you still don’t know a lot about crypto. Just make sure that you never exceed 15%.

You may think that 1-5% is too little. But if you want to retire on time and with the money you think you’ll need, it’s the perfect range.

Cryptocurrencies aren’t like stocks. Businesses can ignore the frequent misjudgments of the market and continue producing profits until they’re back in the spotlight. Cryptocurrencies rely too much on how much investors are willing to pay for them.

By investing in crypto you get a potential for a huge upside. At the time of writing of this article (9th November 2021) the top coin returns over the last 12 months are: Bitcoin 430%, Ethereum 1066%, Binance coin 2267%, Solana 11773%. However, crypto has seen drops up to 80% for Bitcoin. A lot of other coins have even gone to almost zero. So make sure you understand that you could lose most or all the money that you invest in it, especially if investing in smaller lesser known coins (alt coins).

So, putting something like one quarter of your capital into crypto is probably a bad idea. Even small price movements could limit how comfortably you feel with withdrawing money (and when) in your retirement years.

1-5% is enough to protect your retirement fund even if your crypto positions fall by 50% at some point and to accelerate results if things go well.

Should you Rebalance your Portfolio in Regards to Crypto?

Portfolio rebalancing is about preserving your asset allocation targets. For example, let’s say that you allocate 80% to stocks and 20% to bonds and cash.

If your stock position rises to the point where it accounts for 85% of your portfolio, you rebalance when you sell a little of your stock investments to make them account for 80% of your portfolio again.

Rebalancing is all about restoring your portfolio structure every time it changes due to price movements.

Traditional retirement planning favors portfolio balancing. Should you favor it when it comes to crypto too, however? Well, it depends on your age and risk tolerance.

If you’re close to retirement years and you’re not fond of surprises, rebalancing makes sense only if your crypto position gets increased in value. You would want to capture your gains because you wouldn’t have enough time to endure a loss and wait for your crypto assets to recover.

If the opposite is true in this scenario and your crypto assets fall in value, it makes little sense to invest in them more.

If, however, you have a long time ahead of you till you retire, you may not want to rebalance if your crypto increases in balance. Time is on your side and you can afford to hold a large position in crypto. But maybe it also makes sense to not invest any more money into cryptocurrencies until they account for less than 5% of your portfolio once again.

At the same time, if your crypto falls in value in that scenario, buying more to rebalance is wise. If you have been intelligently investing in that asset, chances are you will be buying at a discount and realize even greater gains in the long term.

To be properly prepared for rebalancing your portfolio, make it easy for you by downloading TrackMyStack. We will soon add an automatic rebalancing feature that will help you easily identify the assets that deviate from your asset allocation target, so you can properly rebalance your portfolio in time.

What Cryptocurrency Should You Choose?

If you’re not initiated in crypto, how exactly do you know what you should choose from all of the options that are available for you today?

There are many approaches that you can take here…

If you have the time and zeal to get into crypto investing without any help, you should learn either technical, fundamental, or sentiment analysis. Or a combination of the three.

If you don’t, just skip to the hands-free alternatives section…

Technical Analysis

Technical analysis can prove useful for you if you get into trading stocks on your own too. That’s because it involves studying price movements over certain periods and making a decision based on trading volume, support/resistance levels, and supply/demand.

It’s a highly technical endeavor so get prepared to get familiar with reading charts and enter/exit positions frequently. Technical analysis is not for those who want to have a set-it-and-forget-it investment plan.

If you want to get started with technical analysis, you can learn more by reading this guide.

Fundamental Analysis

For those who don’t want to be very active with trading crypto but are still interested in managing their crypto fund on their own, fundamental analysis is a good alternative.

Fundamental analysis on crypto doesn’t share many similarities with that on other assets like stocks and bonds, though. That’s because the fundamentals of crypto are completely different.

By doing fundamental analysis on crypto, you should grow familiar with how a cryptocurrency gets mined, what the market outlook about it is, how it’s used, how many people use it, what the team behind the project is, etc.

Note that fundamental analysis might not involve reading charts, identifying patterns, and support/resistance levels, but it doesn’t make it any less of a skill with a steep learning curve. You might not have to make decisions as frequently as technical analysts, but you should keep up with the changes in the assets you have selected.

To learn more about fundamental analysis and get started, this guide is just for you.

Sentiment Analysis

Sentiment analysis makes particular sense in crypto investing. That’s because it is all about determining how the market feels towards a specific cryptocurrency and acting accordingly.

Fortunately, there are many indicators out there that will tell you just that. You can use ones like the Bull & Bear index, Santiment, LunarCrush, etc.

To understand how important sentiment is when it comes to crypto, consider stocks. A stock is an ownership stake in a business. Its price could go down because of general stock market uncertainty while the underlying company keeps turning a profit.

Even if the stock doesn’t return in the spotlight after a crisis, not all investors sell just because the market is uncertain; after all, if the business is profitable, many see this and decide not to sell (especially institutional investors).

What happens if the crypto market suddenly falls out of favor, though? With a cryptocurrency not having any underlying value except the market’s willingness to pay higher and higher prices for it, selling becomes the wise choice for everyone in this scenario. And that’s why it’s very important to keep an eye on what the market thinks about a cryptocurrency.

If you want to learn more about sentiment analysis for crypto, here’s a guide to get you started.

Hands-Free Alternatives

If you don’t have the time or you simply don’t want to learn the ins and outs of any of the previous types of analysis, there are other solutions.

First, you can invest in a crypto ETF (Exchange Traded Fund). This is basically a large pool of money invested in cryptocurrencies or crypto derivatives. An ETF has shares like a publicly-traded company and its price goes up and down based on supply and demand (as with stocks).

There are two types of ETFs when it comes to crypto. The first allows you to indirectly own the underlying cryptocurrencies. The other only tracks the price of cryptocurrencies by investing in crypto derivatives like futures contracts and exchange-traded products (ETPs).

Here are some of the benefits that come with investing in a crypto ETF:

  • Wide diversification
  • Low transaction costs
  • You don’t have to know or learn how to pick crypto on your own

Regarding that last advantage, while it’s true that you don’t have to actively manage your crypto positions, you will still need to take the time and invest in the right ETF for you. Then it’s only a matter of keeping investing in it.

If you’re not sure about what crypto you should invest in, a good solution is to pick one that tracks the value of various cryptos like the Bitwise 10 Crypto Index Fund. This list of available ETFs should be helpful.


Another alternative that you should consider is investing in the company Coinbase. This is a crypto exchange that recently went public. The idea is that its stock’s value is derived from the crypto market’s status and its crypto-related business model.

Note that if you choose to invest in Coinbase, you don’t even indirectly invest in crypto. But it’s thanks to the cryptocurrency market that Coinbase makes its money, so you are an indirect participant, if not an investor.

What Happens to Your Crypto If You Die?

When it comes to traditional securities like stocks and bonds, writing a will to make sure that your loved ones inherit your net worth is the way to go. Fortunately, crypto is no different.

If you directly buy crypto and store it in a wallet (more on that in a moment), you can share your private keys and name your beneficiaries in a will. Just make sure that you give detailed guidance so your beneficiaries get access to your crypto easily.

If you buy through a crypto exchange, then the beneficiaries could contact and notify them of your death. Coinbase, for instance, will provide one-on-one guidance with an analyst to assist the beneficiary. Gemini will ask for a power of attorney and a death certificate.

However, don’t take any chances and get in touch with the exchange that you invest through to get specific information about your circumstances.

How Do You Store Crypto?

Investing in crypto can come with the intricacy of storing it. But that’s easily tackled. Note that if you decide to buy crypto through an exchange or ETF, you can skip this step.

Knowing the ins and outs of storing your crypto will help you limit the risk of having your crypto stolen. So, you need to first understand what a crypto wallet is…

A wallet for your crypto is what a bank is for your country’s currency, albeit more sophisticated. It’s an app (mostly but not always) that will allow you to store your crypto and make transactions with it.

What you essentially store in a wallet is your crypto’s private keys which essentially are the password you use to access your crypto (and convert it into another currency or make transactions with it).

Let us now take a look at the two different types of wallets and the mediums you can use them through.

Hot Wallet

A hot wallet is any tool that allows you to store your private keys online. It can be anything from an online service that you will use to store them by simply using a browser or software that you install on your PC or smartphone.

Both forms of hot wallets (online service and software) presuppose that you share your keys with either the service provider or a device that is connected to the Internet. That poses the risk of getting your keys stolen if a hacker breaches a wallet provider’s platform or your device.

Hot wallets are perfect for temporary use to make transactions with small sums, but risky for investing in crypto for the long term. For the latter intention, you should use a cold wallet…

Cold Wallet

A cold wallet is a tool that will store your private keys offline, making it impossible for anyone to access them through hacking. This tool can be either a plug-in device made specifically to store your keys (often called a hardware wallet) or a piece of paper (paper wallet).

Note that a paper wallet is not used that much today because it can be as risky as a hot wallet (or more if you use it too often). It is printed using an online app and will contain your public and private keys, and also a QR code to access your crypto using an app.

So, every time you make a crypto transaction you will have to manually insert your private keys or scan the QR code, which both pose a cyber-security risk.

A hardware wallet, on the other hand, will allow you to use your private keys without leaving them exposed to cyber-attacks. They’re designed to better protect your keys even if these devices are connected to the Internet since the private keys are not shared online during transactions.

Hardware wallets are by far the best option when it comes to safely storing your private keys; especially if you invest in crypto for the long term. Take a look at this list of the most common hard wallet devices to get ready.

How Are My Crypto Gains Taxed?

Unfortunately, there is no definite answer to how and if your crypto gains get taxed because laws vary across countries. In the US, they get taxed as if they were any other security/asset like a stock, bond, real estate asset, etc. In some European countries, governments don’t tax them at all when it comes to Bitcoin.

If you are one of the unlucky ones and have to pay taxes on your crypto gains, here are a couple of tips to minimize your tax expenses as much as possible:

  • If your state/country has a reduced tax rate for capital gains, hold your crypto for at least one year before you sell it if you can
  • Make sure that you consult with your accountant to see if you can reduce your taxes on some crypto realized gains by subtracting realized crypto losses
  • If you want to sell crypto that you held no longer for one year, you might want to do so in a low-income year as short-term gains are frequently taxed based on your tax bracket

What’s Next?

As you may have already realized, having a small portion of your portfolio invested in crypto is a good idea. But when it comes to keeping track of your net worth, this can complicate matters.

That’s because there are times that you should account for crypto when calculating your net worth and times that you should not.

For example, if you’re away from retirement and you don’t rebalance in regards to crypto when you realize extraordinary gains, you may not want to take into account your crypto position when evaluating how close to retirement you are.

Cryptocurrencies are highly volatile assets and everything could change very fast. It’s better to be a pessimist and be pleasantly surprised than to be an optimist and sabotage your retirement years because you put too much faith in crypto gains’ sustainability.

That’s where TrackMyStack comes in; it’s a net worth tracking app that will allow you to flexibly exclude or include any of your assets when calculating your net worth. The app will also:

  • Ensure that your financial information is safe since it won’t ask you to create an account or connect one, and will never share your data with a third party
  • Allow you to export/import your data at any time
  • Add as many assets/portfolios as you like in different currencies
  • View your entire net worth based on one currency (cryptocurrencies included)

Make sure that you get ready to invest in crypto and be on track with your investing progress by downloading TrackMyStack now. It’s free and you won’t have to sign up to start using it!