Amid fears of a world recession, the pension time bomb is ticking louder. Financial experts warn that the coming pension crisis is of such a magnitude that it will eventually affect everyone. Now, some are looking into Bitcoin as a potential savior of pension plans.
Pension Funds Investing in BTC Could Achieve Annual Returns of over 19%
The deepening of the pension crisis is due to the difference between how much a pension has to pay out versus how much money the pension has available to pay out. Now, this gap is expanding. According to Moody’s Investor Services, public pensions are already underfunded by $4 trillion. And, Moody also announces that pension costs will rise through 2020.
So, the pressing question is, how to cover the $4 trillion gap?
In the 2015 audit of state pensions, the avg yield was 3.6%.
6% of investments in "non-government securities." If 0.3% of all assets were invested in #Bitcoin, the pensions would have returned 19.20%. 5.3x the current rate – saving dying pensions.#Cryptocurrency #DeFi pic.twitter.com/POPGQIOTXK
— Adam Cochran (@AdamScochran) August 8, 2019
Adam Cochran seems to have found the answer, at least, until population growth returns to the levels that existed when pensions were devised.
In his newsletter Coffee and Coin, he puts forward an argument for how Bitcoin might save pension funds.
Cochran’s article describes how in 2015 the U.S. state and local government pensions distributed their $3.8 trillion in assets, from which only a modest annual return of 3.6% was earned.
Moreover, Cochran specifically highlights Other nongovernmental securities. These are assets that do not adhere to an institutionalized process for public trading on exchanges. Thus, they are usually the riskiest assets held by the pension fund.
So, if pension funds seek to invest part of the money allocated to other nongovernmental securities in Bitcoin, the annual return would be dramatically higher than the current return of 3.6%.
If in 2015, the state pensions had taken 5% of that 6% set aside for “Other nongovernmental securities” (a.k.a 0.3% of their overall assets) and invested that in Bitcoin, then the pensions overall return would have been 19.20% annually.
In effect, Cochran affirms, “That overall rate of growth, over the past 4 years would have amounted to around 171% yield, almost doubling state pensions from $3.8T to $6.5T in that time.”
Millennials Are Buying Bitcoin To Save for Retirement
Bitcoin-based retirement instruments have been attracting the interest of young people, as well as influential politicians.
Crypto and blockchain journalist Rachel Wolfson wrote on Bloomberg:
“Interestingly enough though, one of the main reasons millennials are investing in cryptocurrencies is to save for retirement funds.”
Indeed, investors are already putting Bitcoin, Ethereum, and other cryptocurrencies in IRAs (individual retirement accounts), such as BitcoinIRA. This service facilitates the transfer of an IRA or 401K fund to a Bitcoin IRA. BitcoinIRA claims to have already processed USD 350 million in the past 12 months.
In addition, influential GOP politician Ron Paul endorsed Coin IRA, which is a subsidiary of Goldco. Coin IRA also offers investments in Bitcoin. Its website claims:
“A mere $200 investment in Bitcoin in 2011 would be worth well over USD 1 million today! That’s over 500,000% return in just a few years.”
Do you think Bitcoin will become a mainstream retirement investment opportunity? Let us know what you think in the comments below.
Images @AdamScochran, Coffee and Coin, Shutterstock