InvestX Archives | Page 26 of 28

May

2022

What Are the Average Retirement Savings By State?

By Kaitlyn Farley | Growing Wealth, invest, Investing, Preparing for Retirement | Comments Off

For many Americans, not having enough saved up for retirement is a real fear. Which state you live in can have a major effect on how much you need, too. Research from Personal Capital, a digital wealth manager, shows just how much your state really impacts that savings number: The state with the highest retirement savings has an average of $545,754, while the lowest had just $315,160.

And that number can vary even more when you consider factors like age, too. Currently, the average retirement age in the U.S. is 64, but you may find yourself retiring much later or earlier depending on which state you live in and when you start saving for retirement.

The Average Retirement Savings by State

Looking at the retirement savings average 401(k) balance by state for your state can help you get a better idea of how much money you need to retire. To help answer that question, Personal Capital looked at the retirement accounts of its users and took the average by state as of September 29, 2021. You can find out more about their methodology here .

Alaska

• Average Retirement Balance: $503,822

• Rank (as of 9/29/21): 4 out of 51

Alabama

• Average Retirement Balance: $395,563

• Rank (as of 9/29/21): 36 out of 51

Arkansas

• Average Retirement Balance: $364,395

• Rank (as of 9/29/21): 46 out of 51

Arizona

• Average Retirement Balance: $427,418

• Rank (as of 9/29/21): 31 out of 51

California

• Average Retirement Balance: $452,135

• Rank (as of 9/29/21): 17 out of 51

Colorado

• Average Retirement Balance: $449,719

• Rank (as of 9/29/21): 19 out of 51

Connecticut

• Average Retirement Balance: $545,754

• Rank (as of 9/29/21): 1 out of 51 (BEST)

D.C., Washington

• Average Retirement Balance: $347,582

• Rank (as of 9/29/21): 49 out of 51

Delaware

• Average Retirement Balance: $454,679

• Rank (as of 9/29/21): 14 out of 51

Florida

• Average Retirement Balance: $428,997

• Rank (as of 9/29/21): 28 out of 51

Georgia

• Average Retirement Balance: $435,254

• Rank (as of 9/29/21): 26 out of 51

Hawaii

• Average Retirement Balance: $366,776

• Rank (as of 9/29/21): 45 out of 51

Iowa

• Average Retirement Balance: $465,127

• Rank (as of 9/29/21): 11 out of 51

Idaho

• Average Retirement Balance: $437,396

• Rank (as of 9/29/21): 25 out of 51

Illinois

• Average Retirement Balance: $449,983

• Rank (as of 9/29/21): 18 out of 51

Indiana

• Average Retirement Balance: $405,732

• Rank (as of 9/29/21): 33 out of 51

Kansas

• Average Retirement Balance: $452,703

• Rank (as of 9/29/21): 15 out of 51

Kentucky

• Average Retirement Balance: $441,757

• Rank (as of 9/29/21): 23 out of 51

Louisiana

• Average Retirement Balance: $386,908

• Rank (as of 9/29/21): 39 out of 51

Massachusetts

• Average Retirement Balance: $478,947

• Rank (as of 9/29/21): 8 out of 51

Maryland

• Average Retirement Balance: $485,501

• Rank (as of 9/29/21): 7 out of 51

Maine

• Average Retirement Balance: $403,751

• Rank (as of 9/29/21): 35 out of 51

Michigan

• Average Retirement Balance: $439,568

• Rank (as of 9/29/21): 24 out of 51

Minnesota

• Average Retirement Balance: $470,549

• Rank (as of 9/29/21): 9 out of 51

Missouri

• Average Retirement Balance: $410,656

• Rank (as of 9/29/21): 32 out of 51

Mississippi

• Average Retirement Balance: $347,884

• Rank (as of 9/29/21): 48 out of 51

Montana

• Average Retirement Balance: $390,768

• Rank (as of 9/29/21): 38 out of 51

North Carolina

• Average Retirement Balance: $464,104

• Rank (as of 9/29/21): 12 out of 51

North Dakota

• Average Retirement Balance: $319,609

• Rank (as of 9/29/21): 50 out of 51

Nebraska

• Average Retirement Balance: $404,650

• Rank (as of 9/29/21): 34 out of 51

New Hampshire

• Average Retirement Balance: $512,781

• Rank (as of 9/29/21): 3 out of 51

New Jersey

• Average Retirement Balance: $514,245

• Rank (as of 9/29/21): 2 out of 51

New Mexico

• Average Retirement Balance: $428,041

• Rank (as of 9/29/21): 29 out of 51

Nevada

• Average Retirement Balance: $379,728

• Rank (as of 9/29/21): 42 out of 51

New York

• Average Retirement Balance: $382,027

• Rank (as of 9/29/21): 40 out of 51

Ohio

• Average Retirement Balance: $427,462

• Rank (as of 9/29/21): 30 out of 51

Oklahoma

• Average Retirement Balance: $361,366

• Rank (as of 9/29/21): 47 out of 51

Oregon

• Average Retirement Balance: $452,558

• Rank (as of 9/29/21): 16 out of 51

Pennsylvania

• Average Retirement Balance: $462,075

• Rank (as of 9/29/21): 13 out of 51

Rhode Island

• Average Retirement Balance: $392,622

• Rank (as of 9/29/21): 37 out of 51

South Carolina

• Average Retirement Balance: $449,486

• Rank (as of 9/29/21): 21 out of 51

South Dakota

• Average Retirement Balance: $449,628

• Rank (as of 9/29/21): 20 out of 51

Tennessee

• Average Retirement Balance: $376,476

• Rank (as of 9/29/21): 43 out of 51

Texas

• Average Retirement Balance: $434,328

• Rank (as of 9/29/21): 27 out of 51

Utah

• Average Retirement Balance: $315,160

• Rank (as of 9/29/21): 51 out of 51 (WORST)

Virginia

• Average Retirement Balance: $492,965

• Rank (as of 9/29/21): 6 out of 51

Vermont

• Average Retirement Balance: $494,569

• Rank (as of 9/29/21): 5 out of 51

Washington

• Average Retirement Balance: $469,987

• Rank (as of 9/29/21): 10 out of 51

Wisconsin

• Average Retirement Balance: $448,975

• Rank (as of 9/29/21): 22 out of 51

West Virginia

• Average Retirement Balance: $370,532

• Rank (as of 9/29/21): 44 out of 51

Wyoming

• Average Retirement Balance: $381,133

• Rank (as of 9/29/21): 41 out of 51

Why Some States Rank Higher

Many factors come into play when determining why some states have far higher rankings than others. For the sake of simplifying the data, different tax burdens and cost of living metrics weren’t considered in the analysis, which can make the difference between the highest and lowest ranking state retirement accounts look far wider than they may actually be.

Likewise, not considering the average cost of living by state could explain why states like Hawaii, D.C. and New York aren’t in the top five states for retirement even though they have some of the highest costs of living.

So, when determining where your retirement savings may stretch the furthest, you may also want to consider tax burdens and cost of living metrics by state instead of just considering the average retirement savings by state.

How Much Do You Need to Retire Comfortably in Each State?

How much you need to retire comfortably is largely determined by a state’s cost of living, but it will vary even more based on your own personal financial situation and the retirement lifestyle you’re aiming to pursue.

As such, you may want to use a retirement calculator or even talk with a financial advisor to help you determine just how much you should be saving for retirement based on your lifestyle, anticipated retirement expenses, where you want to live, your current and projected financial situation, and a slew of other factors.

💡 Recommended: How to Choose a Financial Advisor

By Generation Breakdown

Unsurprisingly, the amount Americans have saved for retirement varies a lot by generation. Personal Capital’s report reveals that generally, younger generations have less saved up for retirement than older ones.

Gen Z

• Total Surveyed: 121,489

• Average Retirement Balance: $38,633

• Median Retirement Balance: $12,016

Millennials

• Total Surveyed: 742,108

• Average Retirement Balance: $178,741

• Median Retirement Balance: $75,745

Gen X

• Total Surveyed: 375,718

• Average Retirement Balance: $605,526

• Median Retirement Balance: $303,663

Baby Boomers

• Total Surveyed: 191,648

• Average Retirement Balance: $1,076,208

• Median Retirement Balance: $587,943

The Takeaway

The average 401(k) balance by state varies quite a bit, and myriad factors can affect how much you’ll personally need to retire comfortably. Your state’s costs of living, the age you start saving for retirement, and your state’s tax burdens.

If you’re looking to boost your retirement savings, one option you could consider is SoFi Invest. SoFi offers all-inclusive investing in one app, with opportunities to trade stocks and ETFs online, invest in IPOs, automate your investment, and more.

Check out SoFi Invest to learn how investments could help increase your retirement savings.

FAQ

Have more questions about retirement? Check out these common concerns about retirement and retirement savings.

How much do Americans have saved up for retirement?

How much the average American has saved for retirement varies greatly by state and age. Connecticut has the highest average retirement savings, $545,754, and Utah has the lowest, $315,160. In general, younger generations have far less saved up than older generations, with Gen Zers averaging $38,633 and Boomers averaging $1,076,208.

What’s the average retirement age in the US?

The average retirement age in the U.S. is 64, with Alaska and West Virginia having the lowest average retirement age, 61, and D.C. having the highest, 67.

💡 Recommended: Average Retirement Savings by Age

What can I do now to boost my retirement savings?

You can increase your retirement savings using a number of methods, such as taking advantage of employer 401(k) matches or diversifying your investments. SoFi Invest can help you learn how to use investments as a way to boost your retirement savings account.

Photo credit: iStock/izusek
SOIN0322063

May

2022

What Is a Central Bank Digital Currency (CBDC)?

By Inyoung Hwang | Growing Wealth, invest, Investing, Terminology | Comments Off

A central bank digital currency (CBDC) is virtual money issued as legal tender by the central bank of a country. No major bank has issued a CBDC yet. However, it would be similar to blockchain-based cryptocurrencies like Bitcoin that have increased in popularity, only backed in a sovereign nation’s fiat currency: paper and coin currencies like the U.S. dollar and British pound. In other words, a CBDC would be a government-issued virtual store of value.

Fertile Ground For CBDCs

The year 2021 posted strong growth in digital assets in general and stablecoins in particular. According to the Bank of International Settlements’ (BIS) May 2022 publication — Gaining momentum: Results of the 2021 BIS survey on central bank digital currencies — crypto’s market capitalization grew by 3.5 times, swelling to $2.6 trillion in market cap. The BIS survey also found that, in 2021, nine out of ten central banks were exploring the pros and cons of digital currencies. And that approximately two-thirds of the world’s population could see their country issue a CBDC in the next three years. Further, BIS reported that developing economies are more apt than major economies to issue digital money.

Could CBDCs and Stablecoins Hurt Fiat?

The push toward digital currencies comes amid the greater possibility that private virtual currencies like Bitcoin could see even wider adoption in the near term. Some central banks and regulators view this possibility as threatening. They’re concerned that, if and when crypto gains traction as a common form of payment, it might erode the stability of legacy financial services. How could this happen?

If, for example, a director of a crypto project does not understand cryptocurrencies well enough to manage them — along with the high risk profile that most cryptocurrencies carry — then a financial disaster could ensue. Moreover, for an individual to be a leader in the crypto sector, it might behoove them to be a master strategist on the trading floor, too. The ability to execute complex trading strategies quickly and wisely can be critical for navigating the crypto market.

In 2020 and 2021, the Covid-19 pandemic further expedited a shift away from physical cash and coins. But that had been happening well before the pandemic with the advent of payment platforms like PayPal and Venmo. If the pace of adopting digital currencies continues, then that alone could pose a potential threat to fiat currency.

How Could CBDCs Work?

The details of exactly how CBDCs would function remain unclear. However, some outcomes of using CBDCs are already apparent.

As mode of Payment/ Store of Value/ Easier Digital Pay

As with physical cash, CBDCs could be stored or used for payment. They will also likely carry a unique serial number, similar to how paper notes and coins in a fiat-currency system do. Many CBDCs won’t be designed to replace cash anytime soon; instead, they’ll be used to complement physical money.

Could Expedite New Central Bank Monetary Policy

Currently, central banks already issue a form of digital money but only to other banks, which then lend that money to consumers and businesses. When people currently make payments or move money between multiple bank accounts, it usually goes through a patchwork of systems, often incurring fees for the parties involved and taking a couple of days for transfers to be completed.

Possible Democratizing Effect on Central Bank Money

Central bank digital currencies could potentially cut out the middlemen, lowering or eliminating fees and making transfers faster. For instance, a Bitcoin transaction typically takes less than 10 minutes. Instead of purchasing their CBDCs from an exchange, for example, consumers could hold accounts directly with the central bank, which would make these transactions faster. Having the option to purchase CBDCs also could democratize central-bank money by making it more accessible to all.

Potential to Minimize Role of US Commercial Banks

That means CBDCs could become a tool for monetary policy, giving central banks more control over currency supply and allowing them to better track the movement of money within the economy. Central banks also could possibly bypass financial markets and change interest rates directly on consumer accounts.

Exploring the Risks of CBDCs

Of course, CBDCs would be a disappointment to those who buy cryptocurrencies with the hope that a private decentralized form of digital cash, like Bitcoin, Ethereum or Litecoin, will one day displace traditional fiat. Some argue that CBDCs would mean an expansion of governmental oversight; that the anonymity that the most private cryptocurrencies (in particular) offer will continue to fuel their appeal.

Potential to Destabilize Existing Financial System

The emergence of CBDCs could also be a destabilizing force for the existing financial system. If consumers can hold direct accounts with a central bank, commercial banks could become drained of retail deposits. One potential solution to this problem has been to put a cap on how much you can hold in CBDCs, or not have central banks pay interest on retail deposits.

Possible War Against the Dollar

Another potential repercussion could be the start of a new kind of currency war. The U.S. dollar has been the world’s reserve currency since the 1920s. The rise of multiple sovereign digital currencies could challenge the current dollar-dominant system, making it less important for international trade and foreign-exchange transactions to be pegged to the dollar.

Central Bank Digital Currencies Worldwide

A CBDC-based financial system likely would pose unique advantages and challenges for each country that issues a digital currency.

But despite the challenges, most of the world has rushed to adopt central bank digital currencies. In its most recent survey, the BIS reported that the majority of the 81 record countries that responded to its 2021 survey either had developed a CBDC, are in some stage of piloting a central bank digital coin; and more than two-thirds of these countries likely would issue a CBDC in the near term. These countries cited the Covid-19 pandemic and escalating use of cryptocurrencies as among their reasons for embracing a CBDC.

Not every country has issued central bank digital currencies, including the United States. However, the U.S. does have numerous stablecoins that are pegged one-to-one to the U.S. dollar.

Why Has the US Not Issued a CBDC?

It will, if it needs one. Some in the United States have embraced the cryptocurrency sector and are trying to integrate it into its existing financial system. One key step in that direction would be for the U.S. to step up regulations for crypto to make it safer for investors and for cryptocurrency platforms to operate.

How About a US e-Dollar? Or, a Fedcoin?

At this time, the U.S. is actively researching the viability of incorporating a CBCD into its financial structure. But its approach is thorough and methodical. Along with being supportive of digital currencies in general, the U.S. is trying to ascertain its own need for a digital dollar. The U.S. Federal Reserve System (the Fed) — which is the central bank of the U.S. — has said it’s looking into different options involving digital currencies.

Key issues that the Fed needs to understand include protection from cyberattacks, counterfeiting and fraud; how a CBDC would affect monetary policy and financial stability; and how it could prevent illicit activity.

Fed Urges Prudence Amid Tenuous Financial Stability

In May 2022, the Fed released its annual Financial Stability Report . The Fed’s last such report was in November 2021, and since that time the United States’ economic uncertainty has risen. A number of factors are responsible for this unease, including the Russian invasion of Ukraine, human and economic hardship, the pandemic’s improving though unclear trajectory, and persistent higher levels of inflation.

The Fed specifically cited concerns about stablecoins in the 2022 report. U.S. traders are using stablecoins a tool in leveraged transactions of other cryptocurrencies, which according to the Fed “may amplify volatility in demand for stablecoins and heighten redemption risks.” Therefore, the Fed is not ready to turn to central bank digital currencies, and had has continued to focus on regulating stablecoins. Also at issue is whether a country really needs both types of digital assets — stablecoins and CBDCs.

Snapshots of Other Countries’ CBDCs

In the rest of the world, adoption of central bank digital currencies seems to be thriving. The Atlantic Council is a nonprofit, which in 2021 launched its database, CBDC Tracker , which first only the Fed, now everyone can use to get the latest news about digital currencies globally.

As of May 2022, nine countries have issued CBDCs, and approximately 100 countries are at some stage of exploring them, be it researching, developing, testing, or launching. (Note: We chose the countries below randomly and cited them in alphabetical order.)

The Bahamas

In October 2020, the Central Bank of the Bahamas issued the world’s first CBDC, called the Sand Dollar. The Bahamas was the first country to issue a central bank digital currency that covered an entire country.

China

China first began exploring a digital yuan in 2014. In 2022, China launched a pilot of its current CBDC, called e-CNY, during the Beijing Winter Olympic Games. China’s approach is to run tests of e-CNY in smaller sections of the country before initiating it for the entire country. China’s program is designed to replace cash in circulation, not money held in long-term bank accounts.

But e-CNY won’t use blockchain technology for the central database. Instead, both commercial bank distributors and the central bank will keep their own databases that track the flows of digital yuan from user to user.

India

India’s government, Nirmala Sitharaman announced that India will introduce a digital rupee during its fiscal year 2022–2023, beginning April 1, 2022. The Reserve Bank of India will back this CBDC, which is now in development.

According to the Sitharaman, the CBDC would strengthen India’s economy, increase efficiency and lower expenses for the country’s currency-management system, and provide a stable, regulated digital currency that would compete with private cryptocurrencies.

Sweden

Sweden is another country at the forefront of moving toward digital currency. Unlike in China however, distributed ledger technology or blockchain was always the inspiration for the country’s electronic krona (e-krona), so it will be the e-krona’s foundation. Sweden’s central bank, Riksbank, is focused on securing new solutions that are scalable, and which would offer the same level of convenience and security that banks offer today.

The BIS estimated in 2018 that Sweden is the world’s most cashless society — and that was before the global pandemic. While many countries have witnessed a downturn in cash use, Sweden’s cash usage in the last decade has been more striking than most.

Even more remarkable is the year-over-year percentage change in Sweden’s cash usage during the Covid-19 pandemic. In 2020, according to Riksbank, cash comprised 40% of the country’s point-of-sale payments; in 2021, that amount dropped to less than 10% — affirming BIS’ estimation.

The Takeaway

As of May 2022, nine countries have issued central bank digital currencies, and approximately 100 more countries are researching and exploring CBDCs.

Proponents of the CBDC argue that blockchain-based fiat currency could solve inefficiencies in the existing central bank infrastructure. Those more cautious warn that CBDCs could be vulnerable to hacks or outages. Meanwhile, enthusiasts of decentralized finance (DeFi) argue for a financial system that moves away from centralized authority, rather than one that expands its influence.

It’s yet to be seen whether CBDCs will usher in a new era of stable digital currency usage. So far, cryptocurrencies have been popular for trading in markets, rather than as a mode of payment.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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Jan

2022

Bitcoin IRA: Retirement Investing With Cryptocurrency

By Melanie Mannarino | Growing Wealth, invest, Investing | Comments Off

A Bitcoin IRA (individual retirement account) is a self-guided retirement account that holds Bitcoin in its portfolio. Typically, most IRAs invest in stocks, bonds, mutual funds, and ETFs. A Bitcoin IRA invests in Bitcoin, and perhaps several different types of cryptocurrency.

What is a Bitcoin IRA

The term “Bitcoin IRA” simply refers to an IRA that includes Bitcoin. There is no official designation for a Bitcoin IRA or Bitcoin Roth IRA by the IRS or any other regulatory agency.

How Does a Bitcoin IRA Work?

A cryptocurrency IRA works much like any other IRA. It’s a retirement account that invests in Bitcoin. The main difference for most customers is they will likely be interacting with three different entities:

1. Bitcoin IRA Service Providers: These are the companies an individual will deal with when they want to add Bitcoin to their IRA. They are the financial rails through which assets will be converted into Bitcoin.

2. Self-Directed IRA Custodians: These may be banks, trust companies, or any other entity approved by the Internal Revenue Service (IRS) to act as an IRA custodian. Traditional IRAs invest in stocks and bonds, but self-directed IRAs may allow alternative assets such as real estate, promissory notes, tax lien certificates, or cryptocurrency.

3. Custody or Wallet Providers: Typically, a Bitcoin IRA service will have a partnership established with a trusted wallet provider or custody solution that securely holds the private keys to a customer’s Bitcoin funds.

Can You Invest a 401(k) in Bitcoin?

The answer to this question is “maybe, but probably not.”

Until recently, 401(k) plans didn’t allow for the direct purchase of cryptocurrency. But some companies, like ForUsAll, BitWage, and Digital Asset Investment Management are starting to offer Bitcoin and other cryptocurrencies in 401(k) plans. Of course, since 401(k) plans are employer-sponsored, interested investors may be limited by what their particular company offers in terms of options. A self-employed individual seeking out a solo 401(k) may find they have more options.

There are other potential ways to roll over a portion of your 401(k) plan into Bitcoin, but the easiest way might be to use a traditional IRA.

Pros and Cons of Using a Bitcoin IRA

There are plus sides and down sides to including Bitcoin in your IRA planning. Here are some major points worth noting.

Pros of a Bitcoin IRA

A cryptocurrency IRA could provide some unique benefits, including offering overall portfolio diversification, and potentially large price appreciation.

Diversification

Bitcoin provides a unique way to diversify an individual’s overall investment portfolio.

Given Bitcoin’s performance it’s often said that Bitcoin is “uncorrelated” with the rest of the investment world. While that trend was upended in early 2020 as Bitcoin experienced a positive correlation with the S&P 500, some investors still consider it a more volatile investment.

Price Appreciation

Given that cryptocurrency is an uncorrelated asset class and exists outside the control of any single centralized authority, some investors have wondered if it could be a reasonable retirement option.

That said, past performance is never a guarantee of future returns. Bitcoin has also seen some big drops, most recently falling 12% in just 10 days from January 1 – January 10, 2022.

Cons of a Bitcoin IRA

There are also potential drawbacks to holding investments in a Bitcoin IRA, including both volatility and fees.

Volatility

Bitcoin has shown extreme volatility at times. This is one of the main reasons that cryptocurrencies are considered a risky investment.

While the list of large corporations (like PayPal, Square, and MicroStrategy) and self-made billionaires announcing large investments in Bitcoin continues to grow, volatility could be a big drawback for investors with low risk tolerance, as well as people who are close to retirement. Seeing investment funds fall by 10 or 20% (or more) in a single day can be too much for some people.

Fees

Perhaps the biggest and most assured drawback of investing in a Bitcoin IRA is the fees involved.

Aside from initial deposit minimums that are typically in the thousands, investors in Bitcoin IRAs can expect to pay fees including account setup fees, monthly platform fees, yearly administrative fees, transaction fees, and cold storage fees. Additionally, in some cases there are trade minimums, and there may be additional fees in excess of 1% per trade.

And as with other IRAs, withdrawing funds before retirement normally results in additional fees and taxes.

Taken together, the final taxes and fees could eat into a portion of the profits and tax advantages earned by a Bitcoin IRA.

How to Invest in a Bitcoin IRA

The main way to invest in a Bitcoin IRA is to use a trusted service provider that helps investors establish IRAs that hold Bitcoin.

There are some companies that have partnered with Bitcoin custodial services like BitGo, for example, to help safeguard funds for investors — although these companies cannot guarantee against loss. The specific process for starting a Bitcoin IRA might vary according to which provider an individual chooses.

A Bitcoin IRA provider can help investors buy cryptocurrency to add to their portfolio while also safeguarding the funds for them.

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Is a Bitcoin IRA Account Safe?

The safety of a Bitcoin IRA account depends largely on how a Bitcoin IRA company stores the private keys to an investor’s crypto.

It is widely acknowledged that to be truly safe, keys must be held off-line in cold storage and secured using some kind of multi-signature (multi-sig for short) method. This ensures that the funds can’t be accessed by any hacker on the internet, and that multiple access methods are required to retrieve any funds.

Multi-sig works kind of like a safety deposit box, where there are two physical keys — one held by the bank and one held by the customer. There must be at least two means of user verification before funds can be accessed. A basic example would be a customer having to answer emails from two separate email accounts. More complicated methods might involve some kind of photo or voice identification in addition to multiple emails and an additional key held by the custodian of the funds.

Is Bitcoin Investing Safe?

There is no situation in which Bitcoin investing is “safe” — there is always a risk of loss with the current state of volatility in Bitcoin and cryptocurrency in general.

As far as investment gains or losses are concerned, investors will have to decide for themselves whether or not long-term Bitcoin investing falls within their comfort level and their goals.

That said, the prospect of incredible returns seems to sway more and more investors. Since 2009, the price of one Bitcoin in U.S. dollar terms has risen well over 1,000,000%, making Bitcoin the best performing asset of the decade — and in history.

While past performance is never a guarantee of future outcomes, if this trend were to continue, it could potentially mean substantial returns for investors over the long term.

Are Bitcoin IRAs Right for You?

As with any retirement planning, it’s important to take into consideration your time horizon (how many years it will be until you retire) as well as retirement goals, budget, and other personal factors. For individuals who feel comfortable with the general volatility of cryptocurrency in general, and Bitcoin in particular, a Bitcoin IRA might be one way to bring an additional layer of diversity to a retirement portfolio.

But for investors with low risk tolerance, a Bitcoin IRA is more financially risky than opening a traditional IRA composed of stocks and bonds.

The Takeaway

A Bitcoin IRA is an IRA that can hold a variety of assets like gold, real estate, or Bitcoin.

In recent years, several service providers have stepped in to fill the market need for people wanting to add Bitcoin to their retirement accounts.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

Stock Bits
Stock Bits is a brand name of the fractional trading program offered by SoFi Securities LLC. When making a fractional trade, you are granting SoFi Securities discretion to determine the time and price of the trade. Fractional trades will be executed in our next trading window, which may be several hours or days after placing an order. The execution price may be higher or lower than it was at the time the order was placed.
²Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount		Bonus Payout
Low	High	Bonus Payout
$50	$99.99	$10
$100	$499.99	$15
$500	$4,999.99	$50
$5,000+		$100

SOIN20193

Aug

2021

Blockchain in Insurance: Evaluating the Pros & Cons

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

Blockchain, the technology that powers cryptocurrency, has several other use cases, including the ability to facilitate financial agreements and contracts quickly and transparently. That makes blockchain a particularly interesting technology for the insurance industry, which revolves around the creation and execution of financial contracts.

Blockchain 101: The Basics

Blockchain technology is the technology allows users to hold and transfer Bitcoin and other cryptocurrencies. A person or group known as Satoshi Nakamoto invented blockchain technology in 2009.

Blockchains are a specific type of distributed ledger technology (DLT). While all blockchains are distributed ledgers, not all distributed ledgers are blockchains.

Distributed ledgers keep records of transactions or other information throughout different computers in different locations. A blockchain is a special type of distributed ledger that developers created to be immutable (can’t be changed) and decentralized (can’t be centrally controlled).

A blockchain works by processing transactions into groups referred to as “blocks.” Each new block gets attached to the block that came before it, creating an ever-growing chain of blocks. This is where the term “blockchain” comes from. Altering the data inside any single block would require changing the entire chain, something almost impossible to do in most cases.

However, the data held in blocks can take many forms, not just financial transactions. The ability to create an immutable, transparent, decentralized ledger of data without a single point of failure means there are many potential applications of blockchain.

Recommended: A Guide to Blockchain Technology

How Does Blockchain Help Insurance?

There are a number of key ways that insurance blockchain could benefit the industry:

Enhanced efficiency

With so many time-consuming manual processes with the potential for human error, blockchain can streamline the processing of insurance contracts.

Trust and transparency

The encrypted nature of blockchains mean that transactions can be trusted as secure and authentic, which both ensures customer privacy and leads to less confusion.

Claims processing

Real-time data collection and analysis become possible with blockchain, bringing with it the potential to speed up claims processing and payouts.

Smart contracts

These virtual contracts can be programmed to automatically execute when certain conditions are met. These could be used to create insurance policies that are cheaper to administer and also cost less for customers.

Insurance fraud

People often falsify information in claims for casualty and property insurance, costing the industry more than $40 billion per year. The way the insurance industry conducts business today leaves room for error and increases the risk of fraud. If insurance companies were able to store information about their claims on a blockchain, this could help them more easily identify suspicious behavior.

Block chain could reduce such fraud by introducing:

• Automated claims via smart contracts

• Automated insurance claim payouts

• Authentication for documentation, lowering the risk of fraud

• Creating a permanent record of all transactions

Drawbacks to Blockchain in Insurance

Introducing Blockchain to insurance also has some potential downsides. While decentralization makes a blockchain more secure by eliminating any single point of failure, it can be difficult to maintain. When a single organization creates its own blockchain for specific purposes, the computers that run the network (referred to as nodes) could wind up becoming centralized, leading to the destruction of one of the key benefits of blockchain.

There could also be a problem with trust. With the Bitcoin blockchain, people may trust the transaction data because from the moment they’re mined, users can see where coins go, at what time they moved, what crypto wallets they’re in and what crypto wallets they used to be in. all of this information is transparent, provided that the asset being tracked is native to that blockchain.

Most of the potential use cases for blockchain involve assets that didn’t originate on-chain (like insurance claims) but were first created somewhere else. For this reason, it’s possible that the data being put onto a blockchain could be inaccurate. And if the blockchain truly is immutable, those inaccuracies might be impossible to fix.

Potential Blockchain Use Cases in Insurance

Blockchain for insurance could create many advantages for the industry. The potential benefits mostly stem from the universal features of blockchains, like immutability, blockchain security, and transparency (or privacy, if that’s what’s required). There are several ways that insurers could put this to use:

Health Insurance

One potential area of use for blockchain is in health insurance. Insurers currently keep health records on their own systems, and transmitting that information from one provider to another can be inefficient.

However, blockchain could make it possible to conduct faster and more accurate sharing of medical data between insurers and healthcare providers in a way that is private and secure. This could result in health insurance claims being processed faster and customers paying lower premiums for their coverage.

Property Insurance

Property insurance and casualty insurance includes home, commercial, and auto insurance. The dollar amount of premiums written for this type of insurance was more than $638 billion in 2019. Introducing smart contracts could make claims processing more accurate and efficient. Smart contracts execute themselves automatically when certain network conditions are met.

For example, a smart contract for auto insurance could automatically execute and trigger a payment after a car accident.

Travel Insurance

Delayed flights and other unexpected travel interruptions can create headaches for everyone involved. People who hold travel insurance policies have to go through a long and arduous process just to file a claim. Blockchain can make the whole process smoother and faster, allowing customers to automatically get paid for events like flight delays and receive payouts immediately.

Title Insurance

Title insurance is intended to make up for losses created due to mistakes in titles or similar legal documents. Title insurance underwriters often share information about their policies between themselves. A blockchain-based platform could allow underwriters to easily see previous title insurance policies automatically. This could not only speed up real estate transactions, but also reduce potential fraud due to the transparent and immutable nature of blockchain.

What Companies Use Insurance in Blockchain?

Some companies throughout the world have already begun implementing blockchain technology in insurance for their day-to-day activities. While decentralized finance (DeFi) is revolutionizing financial services, blockchain is being used by some existing insurance companies to improve their existing practices.

Blue Cross

Blue Cross, based in Hong Kong, uses blockchain to prevent fraud and accelerate the processing of insurance claims. The platform verifies data in real time and gets rid of the need to reconcile claims data between different parties like insurers and healthcare providers.

Lemonade

Lemonade, based in New York, is a company that combines artificial intelligence and blockchain to offer insurance to homeowners and renters. Lemonade uses smart contracts to instantly verify losses when a customer makes a claim. If a claim gets approved, the AI and blockchain system makes payment immediately.

FidentiaX

FidentiaX, based in Singapore, is a marketplace for tradeable insurance policies. Users have the ability to buy and sell their policies on a blockchain. Users can buy insurance policies from others and access all relevant data in a single location. The company developed something called ISLEY, which lets customers get detailed overviews of policies, receive notifications about premiums, and see records of their history.

IBM

IBM is making its blockchain available to insurers, streamlining recordkeeping and allowing for instant updates after transactions. The company claims that users also reduce management costs and enhance customer satisfaction.

Allianz

The insurer is testing a blockchain-powered platform for its commercial insurance business that would allow for faster and more secure police and claims management.

Universal Fire & Casualty Insurance

This small business insurer has begun accepting crypto as a method of premium payments.

MetroMile

This pay-as-you-drive car insurer is not only accepting crypto for premium payments but also using it to pay out claims.

The Takeaway

The blockchain has many uses outside of sending cryptocurrency, and the insurance industry could likely benefit from many of those uses.

Photo credit: iStock/blackCAT

Aug

2021

SegWit: Definition & How it Works

By Matthew Zeitlin | Growing Wealth, invest, Investing, Terminology | Comments Off

SegWit is an update to Bitcoin’s protocol that changed the way that the blockchain transfers information. Protocols are the rules that govern the way that Bitcoin and other cryptocurrencies work.

What Is SegWit?

SegWit is an example of the Bitcoin development community being able to solve a problem while still maintaining the integrity of the Bitcoin protocol and blockchain.

SegWit stands for “segregated witness,” and it’s a key turning point in the history of Bitcoin and cryptocurrency, and represents a fork in the road, or at least a fork in Bitcoin. The SegWit fork changed the rules, allowing for larger blocks and removing signature data from Bitcoin transactions.

How Does SegWit Work?

SegWit removes (or segregates) the signature (or witness) from the block, moving it instead to the back of the transaction. This frees up more space for the transaction itself.

What Problems Does SegWit Solve?

SegWit solves several issues with earlier versions of the Bitcoin protocol.

The Transactions Problem

The original Bitcoin protocol limits the size of “blocks” to a single megabyte. The whole Bitcoin network “confirms” a new block every ten minutes, with a few transactions taking place every second. These blocks and the confirmation process comprise the foundation of Bitcoin.

As Bitcoin scaled and got bigger and more miners, developers, and users became part of the Bitcoin community, a debate arose around the size of blocks. Should it increase beyond founder Satoshi Nakamoto’s original vision or stay the same?

If the community decided to make an increase, it would have to receive approval by consensus, or perhaps risk splitting Bitcoin apart into separate protocols.

The Malleability Problem

The Blockchain also had some security and efficiency issues, known as “malleability.” Prior to Segwit, every Bitcoin transaction included a “signature” that became part of the transaction confirmation. The signature, with the use of a private key, would become part of the block transfer, taking up space that could have been more Bitcoin transactions. Another word for these signatures is “witness,” and so was born the idea of Segregated Witness, or SegWit.

The theory behind SegWit held that Bitcoin transactions could be more efficient, more secure, and better recorded on the Blockchain itself. This would also allow for developers to build transfer improvements on top of the original Bitcoin protocol, leading to the development of the Lightning Network.

The Scalability Problem

One of the major issues addressed by SegWit was the so-called “scalability problem,” which refers to the issue with block sizes that can limit the speed and scale of transactions on a Blockchain network.

When Was SegWit Created?

The Bitcoin Segwit update took place on August 23, 2017 and changed the way information was transferred on the blockchain.

Prominent Bitcoin developer Pieter Wuille originally proposed the update in 2015 as a way to address a problem in the less-than-a-decade-old protocol that governed the cryptocurrency. He and others believed that transactions took too long to process and that they had some security issues.

There were two ways, known as forks, to address the problem.

A hard fork

A hard fork creates a new system all together. Bitcoin Cash is an example of a hard fork, which enabled large block sizes, but ultimately created a new network.

A soft fork

With a soft fork, the new system works with the old one. This is the option that developers used for SegWit, which became one of the most prominent and important Bitcoin forks. In the dispute between soft fork vs hard fork, SegWit’s successful adoption is a victory for the soft forks.

What Was Segwit2x?

Some prominent Bitcoin miners supported several approaches to the scale issue inherent in the original Bitcoin protocol. To move forward, they came to what’s known as the “New York Agreement,” a plan to implement SegWit and do a hard fork of Bitcoin to increase the block size limit. This was “SegWit2X.”

However, Bitcoin’s developers didn’t endorse the plan and it never reached the consensus necessary for a successful hard fork. These developers have huge sway over the greater Bitcoin community and without their support, a fork wouldn’t have enough takers to challenge Bitcoin in its present set-up. By late 2017, SegWit2X had collapsed and early the next year, SegWit was fully operational on consumer cryptocurrency platforms like Coinbase. And major crypto wallets, the hardware and software products that allow for safe crypto storage, had signed on to the SegWit update.

The failure of SegWit2x shows that even large Bitcoin mining pools, groups of miners that run the hardware that creates new Bitcoin, don’t have total sway over the Bitcoin community and can’t singlehandedly dictate its direction – or its forks. Bitcoin miners have tended to prefer Bitcoin changes that would increase the block size as opposed to segregating out signatures, since that would bolster the fees they get from the network for processing blocks. But the Bitcoin community is more than just its miners, and so their opinion only means so much.

Should You Use SegWit?

While the Bitcoin scalability debate is hardly over, for the time being, Bitcoin itself remains in the driver’s seat in terms of usage and developer activity compared to its rivals and hard forks.

By early last year, at least two thirds of transactions used SegWit, indicating that the soft fork “works” for many in the Bitcoin community. By the end of 2020, one of the last exchanges to hold out, Binance, announced that it would support SegWit.

There are several benefits to using Segwit for crypto transactions, including lower transaction fees and faster transactions.

The Takeaway

SegWit was a major upgrade to the Bitcoin protocol, and one that has helped accelerate widespread adoption of the cryptocurrency in recent years.

Photo credit: iStock/BartekSzewczyk