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What Bitcoin Has To Do With Your Retirement

The price of the controversial digital currency bitcoin has increased in value this year by 760 percent, with three cryptocurrency and blockchain stocks more than doubling during 2017. The first IRS-compliant Bitcoin IRA launched in June of 2016, and blockchain technology is being explored by industry giants such as Fidelity and Prudential because of its potential to revolutionize the financial planning world. But what, exactly, is bitcoin? Should your retirement plan be invested in cryptocurrency? And why are experts saying that blockchain is more revolutionary than the Internet? Whether you’re years away from retirement or already settled in to enjoy your golden years, the era of digital currency will likely have an impact on your future. Here is what you need to know about bitcoin, cryptocurrency, and blockchain technologies and how it may affect your retirement plan.

WHAT ARE BITCOIN, CRYPTOCURRENCY, AND BLOCKCHAIN?

First, let’s define a few terms. Before we can talk about bitcoin as an investment, we need to talk about the technology that allows it to exist. Blockchain is that technology. You might think of blockchain as a spreadsheet that can be duplicated thousands of times across a vast network of computers. Every time someone changes something on that spreadsheet, the change is updated in real time across all systems. The blockchain database isn’t stored in any single location, like a bank, nor is there a single “master copy” that could be corrupted. For these reasons, experts in the financial services industry view blockchain technology as having incredible potential that goes far beyond the production of bitcoin. Cryptocurrency is a medium of exchange like the dollar, only it’s digital. Our world has become increasingly digitized with more good and services being offered online every year. Since 1974 the types of investments—such as stocks, bonds, and mutual funds—used to fund IRAs remained largely unchanged. Now, investors can choose from digital currency alternatives such as Ethereum, Litecoin, altcoin, Ripple, and Bitcoin. Digital currency has been described as a new way for investors to add a layer of diversification to their portfolio and as a risky investment best suited only for those with money to burn. Bitcoin is a cryptocurrency created in 2009 by an unknown person with the alias Satoshi Nakamoto and was the first digital currency ever created. Instead of paying for a product or service with cash, check or credit card, a consumer uses bitcoin over the Internet and the payment network treats the transaction as cash. According to Bitcoin IRA, some businesses that accept bitcoin currency include Amazon.com, Subway, and Whole Foods.

DOES BITCOIN EVEN EXIST?

Bitcoin exists on the public ledger that is the blockchain, using cryptography to secure its transactions. The transactions are done by computers that run the core software, which is controlled by peers across networks on the blockchain ledger who manage bitcoin by consensus. The process of finding that consensus on the public ledger is known as “mining.” Every 10 minutes, the bitcoin software throws out an incredibly complex mathematical problem that the computer systems compete to solve. The winning computer updates the ledger and is rewarded with a payment of bitcoins, but the supply of these coins is capped. While bitcoin exists only in the digital realm, there are many physical repercussions of its existence. Most bitcoin is mined in China in vast hives that consume gigantic amounts of energy, and experts fear the energy demands of the future as these math problems become increasingly complex.

SHOULD YOU INVEST IN CRYPTOCURRENCY?

While very few companies accept digital currencies such as bitcoin for goods and services, it can be traded online as an asset. Its value depends on what investors think other people will pay for it in the future. Applications such as Coinbase offer investors a place where they can easily buy and sell digital currency online. Funds in the crypto/blockchain space that offer a more mainstream way to invest include Bitcoin Investment Trust and the online retailer Overstock.com. Be advised that digital currency such as bitcoin is not backed by the earnings of a company or the strength of a government or the claims-paying ability of an organization. This type of investment does not generate cash, meaning there are no interest or dividend payouts and no guarantees. In March of 2014, the IRS declared that it would treat bitcoin as property, not as currency. When investing in a Bitcoin IRA, the investment grows tax-deferred like the money in a 401(k) or an annuity.

BLOCKCHAIN TECHNOLOGY AND YOUR RETIREMENT

Whether or not you chose to invest in digital currency, the technology used to create it may very well play a role in the financial service industry in the near future. Blockchain technology has the potential to increase efficiencies in several areas such as chain-of-custody tracking with brokerage settlements or real estate transactions. It may also be used for the creation of “smart contracts” for future investment and pension plans. If these platforms are built correctly, they would automate contribution collection and pension payouts using codes written into the system so that when certain conditions are met, certain actions are taken. One example in the area of life insurance would be the automatic payment of death benefits without having to go through the time-consuming process of sending the required paperwork and certificates.

HOW FAR AWAY IS YOUR FUTURE?

With the rise and fall of bitcoin currency making daily headlines, keep in mind that it’s not the RATE of the return you have worry about as you near retirement, it’s the ORDER of the returns. Taking a hit just before or just after you retire can strip your portfolio of its ability to earn future returns, especially if you’re taking withdrawals for income. Given today’s longer retirement time spans, you might not want to lose money on top of the money you’re already taking out. If retirement is ten or fewer years away, consider choosing an annuity to automate the protection of your savings. In addition to income, annuities can give guaranteed growth and protection for your loved ones, no matter what the future brings. Annuities grow tax-deferred, and death benefits from life insurance contracts are paid out to your beneficiaries tax-free. If you have questions about your options for planning a future retirement, then we’re here to help. Our mission at Annuity Gator is to provide unbiased information about retirement income planning so that you can feel confident about your financial decisions. Our loyalty isn’t to any single company or type of investment, our loyalty is to you. Let us help you shop around and compare. Tell us what you need, and we’ll tell you whether or not we can help improve your chances for a retirement that’s golden. Build Wealth Like A Millionaire Without Saving In A 401(K)

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