Blockchaintechnology behind cryptocurrency such as bitcoin, could actually change the way we manage 401 (k) s. Pundits claim the blockchain represents the biggest breakthrough since the internet, with the potential to improve just about everything in our lives, including health and bank balance. That’s how you might even increase the amount of money you have to spend when you retire.
- Having everything stored in an easily accessible place will give people a clearer picture of their retirement assets and may give them an incentive to invest more.
- More activities and interests need to put pressure on financial institutions to work harder to retain clients and produce better results.
- Blockchain does not require third -party intermediaries to validate transactions, resulting in faster turnaround times and lower costs.
- The technology, due to its decentralized structure, is more difficult to hack.
- Problems that need to be addressed include energy consumption, relatively low speeds, and the fact that each block in the chain can only contain so much data.
What is Blockchain?
Unless you’ve lived on another planet for the past decade or so, you may have heard of blockchain. It is a digital book that records anything that needs to be recorded and verified as occurring securely and simultaneously on a computer network. Whenever there is a new occurrence, a record is automatically added to this online Excel document. And the record is secure, indestructible, and theoretically accessible to everyone.
In short, this technology offers a more secure, reliable, efficient, and organized way to record data than it is today. While that may not sound particularly special, it’s actually a pretty big deal.
What is the Impact of Blockchain on 401 (k) s?
One thing that can be done to save with technological breakthroughs is the U.S. pension system. Increased life expectancy, mismanagement, low mobility, lack of trust, too many stakeholders, and limited transparency are just a few of the issues that threaten to leave a significant portion of the population without the resources to live comfortably as they age and leave. labor.
Blockchain, if it lives up to its potential, can help reduce those storms and speed up life back into retirement savings. Below we outline some of the main ways this most popular technology could create one of the darkest clouds in the economy.
Faith in financial institutions that regulate pension plans isn’t really growing, and in part because of a lack of transparency. Inconsistent information, hidden costs, and the use of jargon cause many people to be unable to save for retirement.
A shared decentralization ledger may help address this issue. Having everything stored in one easily accessible place will give Americans a clearer picture of their retirement assets and may even give them an incentive to invest more. A more knowledgeable population will also be more likely to make smarter investment decisions and not just use standard options.
No Funds Lost
Today, people have a tendency to change jobs frequently. In some cases, when they leave their jobs, they also leave their old pensions.
In the US it’s basically up to employees to keep tabs on all of that 401 (k) s from a previous job or incorporate it into a new employer plan. There is no pension database that tracks the total contributions made by employees or the person who takes care of whether their pension savings go to where those employees go.
Sadly, this means generally people will get lost where all their pension accounts are held and lose some of the money they have worked hard to set aside for the last few years. In 2017 NBC News reported that American workers could lose $ 2 trillion in collective pension savings simply because of failure play through a 401 (k) savings account when they change jobs. By 2021, financial services company Capitalize says there will be 24.3 million 401 (k) accounts that will account for approximately 20% of all 401 (k) assets in the U.S.
Blockchain can end this mess. With this technology, it is suddenly possible to keep track of all your pension accounts in one easily accessible place.
The number of 401 (k) s that have been forgotten, according to estimates from Capitalize.
Cut Out Middlemen
One of my favorite things about blockchain is that it doesn’t require third -party intermediaries such as banks and clearinghouses for transaction validation. When money or others change hands, it will instantaneously enter on some computer that is in theory accessible for all to see.
This note is huge. Eliminating intermediaries should result in faster results and lower costs. With fewer people being cut, the more money you invest, resulting in a larger pension pot.
Keep the Provider on your toes
Having all the information related to pension savings stored in one easily accessible location can certainly put pressure on financial institutions to work hard to retain clients. A common problem now is that retirement plans are rarely monitored by their owners. If the blockchain has to keep its promise and change this, the asset manager will not be able to treat the customer. When the threat of them shopping, jumping ship, and demanding more becomes a reality, providers will, in theory, be forced to offer more competitive terms, hopefully resulting in lower costs and higher products.
In recent years there has been a surge in the number of 401 (k) that have been hacked. Most attacks result in personal information being stolen, although online criminals are now increasingly making a lot of money from people’s plans.
Blockchain can help stop this. Information about blockchain networks is located in a shared database that resides on millions of computers rather than in a single central location. Such decentralized structures, according to experts in the field, make it more difficult to hack.
Obstacles still need to be overcome
The benefits of blockchain have been mentioned for many years now, but the technology is still not widely adopted. Why is that? As we’ve seen with other great findings in the past, it takes time for the discovery of game-changing potential to transform it into a perfect system that can be safely and efficiently used by the masses.
In 2017, research firm Gartner predicted that blockchain was still 10 years away from the mainstream. Say five to 10 years into 2019, showing that we still have a way before this technology is tried, tested, and ready to be a part of our daily lives.
Some of the biggest issues that need to be resolved before a block can become scalable for widespread use include the amount of energy used for its function, its relatively low speed, and its reality. each block in the chain can only continue to be more data.
Another concern is that combining a 401 (k) with a blockchain could lead cryptocurrencies to become a permanent fixture in retirement plans. At U.S. Department of Laborthe body responsible for making sure the employer’s pension account meets the minimum standards set by Employee Retirement Income Security Act (ERISA)has made it fairly clear that it is against this idea, because of the speculative and the volatile nature of these digital currencies.
When Can Blockchain Become Mainstream?
Despite all the hype, the blockchain still has a few ways before it can become the main system where all transactions and records are recorded. In 2019 Gartner said that five to 10 years could be enough for the blockchain to win over skeptics, remove flaws, and be trusted with this important task. However, it is only an estimate, and may be very different.
Can My 401 (k) Invest in Cryptocurrencies?
Some 401 (k) plan fiduciaries began allowing investors to invest a portion of their pension savings in cryptocurrencies, despite some resistance from the U.S. Department of Labor. Entrepreneurs are usually in a difficult place. A Pew Research Center survey conducted in September 2021 showed that approximately 31% of young Americans, ages 18 to 29, have invested, traded, or used cryptocurrencies, almost double the overall American participation rate. The company must decide whether to recognize this interest and let the crypto investment in the 401 (k) know that it could cause people’s pension money to go up in smoke and some lawsuits.
Does Fidelity Offer Crypto for 401 (k)?
yes already. Fidelity recently said it would give employees the opportunity to invest up to 20% of their 401 (k) in bitcoin- if employers allow it.
Blockchain has the potential to improve living standards of the pension portion of the population. Greater transparency and efficiency should boost engagement, lower costs, and ensure that the money set aside each month is used optimally and given the greatest opportunity to grow in value.
The bad news is that it can take some time for an exciting prospect to become a reality. While it still exists, the blockchain still has many obstacles that need to be overcome before it is ready for the mainstream. There is also the possibility that it will not work away and be replaced with another, which is not yet known, which is more possible.