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December 13, 2023

Cryptocurrency To Fund Annuities—A New Retirement Strategy?

Key takeaways

  • Cryptocurrencies and annuities may both benefit investors planning for retirement 
  • Investors can aim to align crypto capital appreciation with annuity payment schedules
  • Beware—using volatile digital assets to fund annuities is potentially risky 

You may be familiar with cryptocurrencies. Perhaps you’re also knowledgeable about investment annuities. Have you ever considered using crypto to fund annuities for your retirement? Digital assets are catching the attention of many investors, including those with appetites for stable income in their golden years.

Investing in a volatile asset class like cryptocurrency to benefit from the stability of annuities is an innovative approach that is just beginning to gain traction among investors. You may have plenty of questions about this retirement investing strategy—keep reading to learn more about using cryptocurrencies to fund retirement annuities, including how the process works. Find out the key factors to consider to determine whether crypto for annuities is right for you.

Using cryptocurrency to fund retirement annuities—a definition 

Investing in cryptocurrencies to fund annuities for retirement is a financial strategy that combines the growth potential of digital assets with the stability and predictability of traditional annuities. An annuity is defined as a financial product that provides a steady stream of payments over a specified period of time, and is commonly used as part of retirement planning. Annuities may provide payments that are fixed, variable, or indexed to baskets of securities.

Another key feature of annuities is that they may be purchased by making a lump sum payment or a series of payments over time. Cryptocurrency investors may use proceeds from their digital assets to buy either type of annuity—although annuities that support payments over time may be better aligned with the potential value trajectories of many cryptocurrencies. 

Crypto for retirement annuities—how it works 

Using cryptocurrency to fund retirement annuities is an advanced investing strategy, so you may be wondering how it works. You don’t need to be an expert in digital assets or retirement planning to use crypto for annuities—but you do need to be comfortable with taking investment risk and conducting plenty of your own research. 

Let’s explore the process of investing in annuities using cryptocurrencies, step by step:

1. Research digital assets: If you’re new to crypto, then you’ll need to start by becoming familiar with this pioneering asset class. Explore blockchain technology and how it works, and pay attention to crypto market volatility. As the digital assets landscape becomes familiar, identify and research the cryptocurrencies that most interest you. 

2. Establish a cryptocurrency portfolio: Whenever you’re ready, your next step is to complete one or more transactions to create a portfolio of digital assets. Purchasing multiple cryptocurrencies may or may not be appealing, but diversifying your portfolio can stabilize its investment return profile.

3. Research annuities: Immediately after establishing your crypto portfolio is likely not the ideal time to expect crypto capital gains to fund an annuity, but you can start researching annuities at any time. Take time to deepen your understanding of annuities and identify some annuities that interest you.

4. Monitor your crypto portfolio: Prudent cryptocurrency investors—yes, they do exist!—may choose to observe and optimize their crypto portfolios over time before making any additional investment decisions. Simply monitoring your portfolio’s performance across market cycles enables you to more accurately assess the risk of using your crypto to fund an annuity. 

5. Use cryptocurrency to purchase an annuity: When you choose, your next step is to buy one or more annuities using cryptocurrency. You may need to convert your crypto into a traditional currency like the dollar to complete the annuity purchase. 

6. Convert crypto into additional annuity payments: If you choose an annuity that enables you to fund it over time, then you’ll need to repeat the process of converting cryptocurrency into annuity payments. Your crypto profits may be sufficient to cover your annuity payments, depending on the value that the digital assets in your portfolio gain over time.

7. Continue monitoring your assets: Using cryptocurrency to fund annuities is just the start of your journey with this advanced retirement strategy. Your responsibilities as a diligent investor include monitoring and potentially rebalancing your crypto portfolio, and—to avoid penalties and fees—funding your annuity on time and in full, even if that means using an alternative payment method. 

8. Begin receiving annuity cash flows: You may begin receiving cash disbursements from your annuity either immediately after purchasing the annuity or starting at a later date. Unlike the price performances of cryptocurrencies, annuity payouts are frequently stable and may even be guaranteed. 

Pros and cons of using digital assets to fund retirement annuities

Does leveraging crypto to fund an annuity feel risky? Or perhaps your interest is piqued? Let’s further unpack this retirement investing strategy by exploring the major pros and cons of using crypto to fund an annuity.

Pros of crypto to fund annuities

  • Cryptocurrencies that gain value over time may produce attractive returns that exceed the payments required to fund an annuity
  • Both cryptocurrencies and annuities can diversify your retirement portfolio
  • Cryptocurrencies are generally liquid and can typically be converted into traditional money
  • Crypto assets that are inflation resistant or even deflationary may preserve your portfolio’s purchasing power over time, improving your ability to fund annuities

Cons of crypto to fund annuities

  • Cryptocurrency prices are highly volatile and unpredictable, with no fixed returns, while the payment schedule for an annuity is generally fixed and not negotiable
  • Cryptocurrency is typically not accepted directly by annuity providers, requiring crypto holders to perform currency conversions and potentially pay transaction fees
  • Investors must research and understand both cryptocurrencies and annuities to prudently pursue this investing strategy
  • Laws and regulations for crypto are rapidly evolving, creating the risk of unexpected rule changes occurring

7 mistakes to avoid when using crypto to fund an annuity

If using crypto to fund an annuity still feels intriguing—but also intimidating?—then it’s smart to review the most common beginner mistakes. Check out these seven pitfalls and missteps that you’ll want to avoid:

1. Not doing your homework: Getting swept up in the hype of a crypto bull market, or signing up for a sizable annuity, may be exceptionally easy. Conducting your own research—and plenty of it—is imperative to thoroughly understand both cryptocurrencies and annuities.

2. Underestimating the complexity of execution: Leveraging the growth potential of digital assets to fund annuity payments is an advanced retirement savings strategy with high execution risk. Even sophisticated investors may be challenged to implement this strategy successfully.

3. Overestimating your risk tolerance: Your risk tolerance as an investor may change over time. Choosing to fund an annuity by holding and strategically selling cryptocurrencies requires you to keep volatile assets in your portfolio, which may not be desirable as you near your retirement years.

4. Inadequately diversifying your crypto portfolio: You might be tempted to invest in only Bitcoin, or maybe Ethereum, when you establish your crypto portfolio. Not diversifying your crypto portfolio over time is a beginner mistake that may increase your portfolio risk and the volatility of its performance. 

5. Misjudging crypto market volatility: Perhaps you feel prepared to cope with a volatile crypto market. You may be—but it’s easy to misjudge the full potential impact of crypto market volatility. Accruing substantial short-term losses can affect your ability to execute long-term retirement investing strategies.

6. Choosing unsuitable annuities: Annuities can be structured in many different ways, creating numerous options for investors. With so many choices, even knowledgeable investors may inadvertently choose an annuity product that is poorly suited to their retirement priorities. Annuity buyers should pay attention to all of the terms, restrictions, and fees when evaluating annuity products.

7. Not safeguarding your digital assets: Using cryptocurrency to fund an annuity is only possible if you maintain the security of your digital assets over time. Responsibly owning cryptocurrencies requires researching and implementing stringent security measures to avoid scams, fraud, and malicious attacks.

Should you use cryptocurrencies to fund your annuities for retirement?

The decision to use cryptocurrencies to fund one or more annuities is a personal choice for you. Only you can decide whether the benefits would be meaningful and the risks feel manageable. As you’re evaluating this investment strategy, you can focus your thinking by asking yourself these key questions:

  • What is my understanding of cryptocurrencies? If you’re a web3 wizard, that doesn’t make crypto investing any less risky—but it may make using cryptocurrencies to fund annuities feel a little easier.
  • What’s my tolerance for crypto market volatility? This question is worth seriously pondering, especially because funding an annuity may be a long-term commitment and your risk tolerance may change.
  • How do cryptocurrencies and annuities support my overall investing strategy? Digital assets and annuities may both diversify your investment portfolio. Just be sure to consider whether a crypto-funded annuity aligns closely with your investing goals.  
  • Do I feel comfortable with the uncertainty of the crypto regulatory environment? Long-term cryptocurrency investors in particular should parse this question, as the regulatory landscape for digital assets far in the future is difficult to accurately predict. 
  • Am I willing to take the necessary precautions to secure my digital assets? You certainly don’t need to be a cybersecurity expert to own cryptocurrencies—but a willingness to learn and implement effective security measures is necessary. 

Learn more about crypto for retirement annuities

Ready to learn more? Here’s what else you can do to deepen your understanding of using crypto for retirement annuities:

  • Enroll in online courses on blockchain technology and retirement planning
  • Read crypto and investing newsletters
  • Participate in webinars hosted by crypto companies and annuities providers
  • Join online communities and forums dedicated to digital assets and retirement investing 
  • Consult directly with crypto and investing professionals

You already deserve to be congratulated—you’re on the path to gaining a comprehensive understanding of using cryptocurrencies to fund retirement annuities. If you determine that this innovative investing strategy is right for you, then proceed with caution. (Okay, mom.) Nobody relishes in the stress of market conditions that are unpredictable and turbulent.

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