What is the right bitcoin allocation for retirement? It’s a great question to ask, but there are many different appropriate answers depending on your circumstances and your approach. For example, someone who doesn’t need the money may feel more comfortable with a high allocation versus someone who does. Or someone with a passive allocation may land at a different answer than someone with a dynamic allocation. Because “it depends” is true, but it’s unhelpful, I’ll do my best to deliver a framework to help you decide for yourself what the “right” bitcoin allocation is for you heading into retirement. To disclose upfront, all of the hypothetical scenarios are just that, hypothetical. They are not a recommendation for your situation. If you would like a suitable recommendation for your retirement plan, please schedule a discovery call with me to see if we’re a good fit to work together.
For our retiring bitcoiner clients, we view bitcoin through two separate lenses and two separate allocations within their financial life. Bucket 1 (allocation 1) treats bitcoin as long term savings. Bucket 2 (allocation 2) treats bitcoin as a tradeable investment. I believe this is the most prudent approach for retiring bitcoiners that want downside protection, but don’t want to feel like they “missed out” on bitcoin if their thesis plays out. Within our framework you can already see we have one passive allocation to bitcoin and one dynamic allocation to bitcoin, so our client’s true bitcoin allocation fluctuates over time depending on the price action of bitcoin. Is bitcoin in a long term uptrend according to our technical analysis signals? Our clients will hold a higher allocation. But if bitcoin is in a downtrend, we will hold less bitcoin. It’s a simple system that gives our clients the closest thing to “the best of both worlds”. Because this is our fundamental framework, I am going to operate as if you will be using this framework as well within your bitcoin retirement plan. Here is an in-depth breakdown of this framework if you would like to learn more.
Now, your decision bifurcates into “what will my long term savings allocation be?” and “what will my dynamic allocation be?”
This fits the investor that is bullish on bitcoin, but wants to remain balanced in retirement and manage risk in case their thesis takes longer than expected to play out or they would like to never touch their bitcoin stack.
In this scenario, a person may have a 15-30% allocation to bucket #1 – long term savings and also have a 33% bucket #2 allocation – a tradeable investment. On an example $5M portfolio, this person would have between $750k - $1.5M in cold storage bitcoin. We frame this allocation as legacy capital to be preserved and passed down for generations. Then in bucket #2, they would have a 33% allocation when buy signals are triggered, but a 0% allocation when sell signals are active on bitcoin. This results in a global bitcoin allocation between $750k - $2.65M depending on the bitcoin price action. To be clear, the bucket #2 allocation is a percentage of non-bucket #1 capital, not of total capital. The bucket #1 allocation percentage is of total assets.
In my opinion, this is a great method to establish bitcoin as a long term generational asset in self custody while also utilizing the performance of bitcoin to provide for your retirement in the short term. And if bitcoin performance wanes, you can allocate elsewhere improving your likelihood of a positive retirement outcome.
This approach is more conservative than the other two, but still allows you to protect against tail risks and benefit from the upside potential of bitcoin without being dependent on bitcoin for the retirement you want.
In this scenario, a person may have a 5-10% bucket #1 – long term savings allocation and a 25-33% bucket #2 allocation. As you can see, you’re still very much participating in the bitcoin upside and from a traditional perspective still heavily allocated. The difference is, you have prioritized risk management and you have a larger hedged allocation to bitcoin relative to your unhedged, cold storage allocation.
If you had a $5M portfolio, you would have $250k - $500k in bucket #1 – long term savings and a $1.18M - $1.485M in bucket #2 when buy sell signals are active. With this approach, you’re still taking advantage of bitcoin’s upside, but you’re hedged on the downside and you still maintain a cold storage bitcoin stack that could very easily become generational wealth for your family long term.
This will fit the more aggressive, convicted, willing to lay their retirement on the line for bitcoin investors. However, this person must be willing to sell bitcoin to fund their retirement or borrow debt to fund their retirement if they do not want to sell. We lean towards avoiding borrowing against bitcoin to fund retirement, but you may be willing to go for it.
In the bitcoin heavy scenario, a person may have a 40%-70% bucket #1 – long term savings allocation to bitcoin. It sits in cold storage and is never traded. This person also, has a separate 33% allocation to bitcoin with their remaining capital, that is a bucket #2 – tradeable investment allocation to bitcoin.
As a result, when the bucket #2 allocation is on, you will hold a global allocation of $3M-$4M depending on where you land for bucket #1. When bucket #2 has a sell signal on bitcoin, your total allocation reduces back to your bucket #1 allocation percentage. Theoretically then, you could have as high as an 80% allocation on the high side and a 40% allocation on the low side.
You may be asking, what indicators do you use to buy or sell bitcoin? I’ll be transparent with you, we buy/sell based on the 10 month simple moving average and we only make trades on the first trading day of each calendar month. If you want to learn more about our Fluvius portfolio strategy, watch this video.
This should be obvious, but I need to say it. If you decide to have a large allocation to bitcoin, you are taking serious concentration risk within your retirement plan. If you're comfortable with that, so be it, but do not operate as if bitcoin is inevitable and the historical performance is guaranteed to continue into the future. When you are building your retirement plan make an informed, intentional, conservative decision with an honest look at the risks and worst case scenarios. If you're willing to accept the worst (financially catastrophic) outcomes, that is your choice. This is where it can be beneficial to seek a professional opinion and objective third party regarding your retirement plan.
If your portfolio is your sole source of income, then that would be a downward pressure on your bucket #1 allocation decision. For example, if Jim has a military pension and social security that account for 100% of his retirement spending needs, he may be willing to take more risk in his portfolio than his friend who does not have a pension. While I don’t like real estate much as an investment, if you have real estate income, then that could also sway you to take additional risk.
Accumulation and retirement are two distinctly different phases of life requiring two different mindsets. When your income is consistently rolling in, it’s easier to hold through 50%+ drawdowns in your portfolio, you may even be glad about it. But when you’re in retirement, depending on your portfolio, a 50% drawdown might steal your peace for 2-3 years. In my experience, even bitcoiners who have lived through 2+ bitcoin cycles take a different stance on risk management and volatility when entering retirement. Play out a few scenarios and do your best to honestly assess how you would feel living through them.
Your retirement spending significantly affects your portfolio withdrawal rate and therefore your ability (or inability) to weather volatility. For example, if you have a $5M portfolio and you’re spending $300k annually, you may think differently about your allocation than someone spending $100k per year. The $100k/yr spender can withstand drawn out bear markets without jeopardizing his retirement plan longevity much better than the $300k spender.
You’ve managed to drag your (non-bitcoiner) spouse to a higher than usual allocation to one asset, because you are not reliant on your portfolio to provide for your life in retirement. However, once you cross the chasm into retirement, your spouse may feel very differently about a high, unhedged allocation to bitcoin. But they might feel much better if you have a high(ish) allocation that is hedged and adaptable over time.
If you’re entering retirement with a $5M portfolio and you also reasonable expect an inheritance of $10M to come your way in the next 10 years, you can likely afford to take additional risk compared to another person who doesn’t expect an inheritance at all. Now, to be fair, do not retire knowing your portfolio withdrawal rate is unsustainable and depend entirely on that inheritance saving you. Plan as if it’s not, while knowing there’s a likely chance you receive a meaningful chunk that could change the trajectory of your retirement when it happens.
While not as impactful on allocation decisions as some other factors, taxes are a substantial variable for your retirement success. Someone with 100% of their assets in a Roth IRA will be able to sustainably spend more than someone with 100% of their assets in a Traditional IRA. I know that’s extreme and you likely have a mix of taxable, tax free, and tax deferred assets, but you get my point. In this scenario, the Roth IRA owner likely could take slightly more risk in retirement, because they do not have the unpaid government liability hanging over their head and retirement plan.
If you'd like professional guidance on your retirement plan, schedule your free discovery call with Strong Wealth founder, Mitch Moore. Strong Wealth helps retiring bitcoiners like you strike the right portfolio balance for your circumstances to retire early and stay retired without sacrificing your peace.
The content of this blog post is provided by Strong Wealth for educational and informational purposes only. It does not constitute investment, tax, legal, or accounting advice, and it is not a recommendation, offer, or solicitation to buy or sell any security, digital asset, or investment strategy. The allocation scenarios, dollar figures, and investor profiles described above are hypothetical and illustrative only. They are not based on the circumstances of any specific client and should not be relied upon as personalized advice. Your appropriate allocation will depend on your individual financial situation, goals, risk tolerance, tax position, and time horizon, and may differ materially from the scenarios discussed.
Investing involves risk, including the possible loss of principal. Bitcoin and other digital assets are highly volatile, speculative, and subject to unique risks including, but not limited to, price volatility, regulatory uncertainty, custody and self-custody risk, cybersecurity risk, and the potential for total loss. Past performance is not indicative of future results, and no investment strategy — including those referenced in this post, such as the use of a 10-month simple moving average or any "two-bucket" framework — can guarantee a profit or protect against loss. Systematic and rules-based strategies are subject to model risk and may underperform in certain market environments. Any opinions expressed are those of the author as of the date of publication and are subject to change without notice.
Tax considerations referenced in this post are general in nature and do not address the specific facts of any individual taxpayer. You should consult a qualified tax professional regarding your own situation.
Strong Wealth is an investment adviser registered with the state of its principal place of business. References to a "discovery call" are an invitation to discuss whether an advisory relationship may be appropriate; such calls do not themselves constitute investment advice and do not create an advisory relationship. Additional information about Strong Wealth, including our services, fees, and conflicts of interest, is available in our Form ADV Part 2A and Form CRS, available upon request and at adviserinfo.sec.gov.