Some investors think that owning high-growth assets is the key to an early retirement. The flaw with this logic is that growth stocks and alternative assets such as cryptocurrency often have pronounced volatility when compared to more mature or mainstream opportunities.
Let's explore how much money someone needs in order to retire. From there, we'll break down the composition of an ideal retirement portfolio and assess Bitcoin's (BTC 1.27%) role within this broader structure.
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How much money do you need to retire?
Retirement is not a one-size-fits-all concept. The amount of money a person needs in order to live comfortably in retirement depends on their lifestyle.
Financial planners often suggest the 4% rule when reviewing retirement strategies. This simply means that retirees can withdraw 4% of their portfolio's value per year for spending needs.
On average, people between the ages of 35-44 have about $140,000 saved for retirement. While this is a respectable sum, clearly it is not enough to be able to withdrawal 4% per year for another 50 years or so.
One of the most important aspects of asset allocation is building a diversified portfolio. Having exposure to different industry sectors and spreading your positions across growth stocks, value stocks, dividend stocks, and blue chips is a prudent way to generate sustainable gains that can get you to and through retirement.
Can Bitcoin help you retire early?
If you want to retire by the age of 35, you'll need some big gainers in your portfolio and holdings that provide you with buying power for decades. Broadly speaking, saving 25 times your annual spending needs is a good starting point to figure out what your portfolio value should be at retirement.
A $4 million portfolio would support annual spending of $120,000, assuming a 3% withdrawal rate, which is less than the 4% I mentioned earlier. I think a 10% allocation in speculative vehicles with asymmetric upside is an appropriate balance between long-term growth and portfolio durability.
At Bitcoin's current price of roughly $86,500, you'd need to own between four and five Bitcoins to fit the retirement criteria outlined above, but keep in mind its value could go down, or up, in the years ahead.
