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Is Bitcoin Safer for Retirement Than Social Security?

By Maurie Backman - May 21, 2021 at 5:09AM

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Could Bitcoin pick up the slack if Social Security benefits fall short?

You'll often hear that it's important to save consistently for retirement because you'll need the money to cover your living expenses. And when we think about the costs seniors face, from housing to healthcare, it's easy to see why.

Not only must you save well for retirement, but you should also invest your savings in a manner that generates solid growth. The reason? Inflation has the potential to erode your buying power over time, but if your investments generate a high-enough return, you can outpace inflation and wind up with enough money to cover all of your senior living expenses and then some.

In fact, you may be eager to buy Bitcoin (BTC -1.60%) as part of your long-term retirement strategy -- especially in light of rumors that Social Security may fizzle out by the time your senior years arrive. But is Bitcoin really a solid and safer bet?

Social Security cards

Image source: Getty Images.

Bitcoin vs Social Security: Who wins?

Given the direction in which Social Security is headed and the potential to make money with Bitcoin, you may find yourself asking whether it pays to give up the former and focus on the latter. But the reality is that you don't need to pit the two against each other because both Bitcoin and Social Security have the potential to provide a large retirement payday, and both also have the potential to let you down.

First, let's talk Bitcoin. Like other cryptocurrencies, Bitcoin can be very volatile, and whether it can really grow in value steadily over the next number of decades is yet to be determined.

Remember, Bitcoin has only been around since 2009, and while more merchants are coming to accept it as a means of payment, for the most part, that's not the norm. As such, it's hard to predict whether Bitcoin will gain enough value to provide a viable retirement income stream. And if you're the risk-averse type, you may not want too much of it in your portfolio.

Now let's talk Social Security. The program is facing its share of financial challenges, and in the coming years, it may need to cut benefits to compensate. Clearly, that wouldn't be a good thing. Also, Social Security has, over the past couple of decades, done a poor job of helping seniors maintain their buying power in the face of inflation.

But the one good thing about Social Security is that it's not at risk of disappearing completely. Even if benefits are reduced, that's not the same thing as them going away in full. On the other hand, there's a chance that Bitcoin could be worth next to nothing in 10, 15, or 20 years' time.

Should you buy Bitcoin if you're worried about Social Security?

If you're concerned that Social Security won't pay you a high-enough benefit to stay afloat in retirement, then saving and investing on your own is crucial. But is Bitcoin the right investment to make up for it? Maybe, but not necessarily.

Bitcoin is extremely risky, so if your goal is to set yourself up with an income stream outside of Social Security, it may not be the thing you want to focus on. Rather, a safer bet -- "safer" being a relative term -- may be to load up on stocks in your portfolio and shift toward bonds as retirement nears. Though stocks certainly have the potential to lose value over time, if we look at the market's history, it's clear that generally doesn't happen.

Take the S&P 500 index, for example. Despite the many hits it's taken, it's still managed to deliver solid returns over time -- and it's also managed to recover from crashes. Bitcoin hasn't been around that long, so it's hard to say how well it will hold up through the years.

There's nothing wrong with putting some money into Bitcoin in the hopes that it will do a better job than Social Security of helping you attain and maintain buying power as a senior. But it shouldn't be your only long-term investment -- whether you've lost faith in Social Security or not.

Maurie Backman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin. The Motley Fool has a disclosure policy.

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