A glide path is a planned schedule for shifting asset allocation over time — typically moving from stocks to bonds as you age. It reduces portfolio risk as you approach and enter retirement, when your portfolio is most vulnerable to sequence-of-returns risk.
A glide path defines how a portfolio's asset allocation changes over time. The most common approach reduces equity exposure and increases bond exposure as the investor ages — reflecting the principle that younger investors can tolerate more volatility than retirees who are drawing down their savings. Target-date funds are the most familiar implementation, but any planned allocation shift qualifies as a glide path.
How It Works
A traditional "to-retirement" glide path:
| Age | Stocks | Bonds | Cash |
|---|---|---|---|
| 35 | 85% | 10% | 5% |
| 45 | 75% | 20% | 5% |
| 55 | 65% | 30% | 5% |
| 65 (retirement) | 50% | 40% | 10% |
| 75 | 40% | 45% | 15% |
| 85 | 30% | 50% | 20% |
This path follows a simple logic: as time horizon shortens, reduce exposure to volatile assets.
However, recent research suggests a counter-intuitive alternative — the rising equity glide path:
| Phase | Stocks | Bonds | Rationale |
|---|---|---|---|
| Early retirement (65–75) | 30–40% | 60–70% | Protect against sequence-of-returns risk when it matters most |
| Mid retirement (75–85) | 50–60% | 40–50% | Danger zone has passed, increase growth |
| Late retirement (85+) | 60–70% | 30–40% | Long-term growth for longevity protection |
This "U-shaped" or rising equity approach starts conservative when sequence-of-returns risk is highest, then increases equity exposure as the portfolio proves it can sustain withdrawals.
Why It Matters for Retirement Planning
The glide path determines how much risk the portfolio carries at each life stage. Getting it wrong has serious consequences:
- Too aggressive at retirement: A bear market in the first 5 years — when sequence-of-returns risk is most dangerous — can permanently impair the portfolio
- Too conservative at retirement: Insufficient growth leads to slow depletion from inflation and withdrawals over a 30+ year retirement
- No glide path at all: A static allocation ignores changing risk needs as the retiree ages
The optimal glide path depends on individual factors: pension and Social Security income, spending flexibility, health, and legacy goals. Monte Carlo simulation can test different glide path strategies against thousands of market scenarios to find the best fit.
A Practical Example
A retiree at 65 with $1,000,000 comparing two glide path approaches over 30 years:
- Traditional declining equity: Starts at 60% stocks, reduces by 1% per year to 30% stocks at age 95
- Rising equity: Starts at 35% stocks, increases by 1% per year to 65% stocks at age 95
Both withdraw $40,000/year. The rising equity path shows a slightly higher success rate in Monte Carlo testing (~3–5 percentage points higher) because it's most conservative precisely when the portfolio is most at risk — during the critical first decade of retirement.
Frequently Asked Questions
- What is a retirement glide path?
- A glide path is a predetermined schedule for shifting your asset allocation over time — typically reducing stocks and increasing bonds as you age. Target-date funds automate this process. The goal is to gradually reduce portfolio volatility as your time horizon shortens and your vulnerability to market downturns increases.
- Should I continue a glide path after retirement?
- This is debated. Traditional advice says yes — continue reducing equity exposure. However, research by Wade Pfau and Michael Kitces suggests a 'rising equity glide path' that increases stock allocation during retirement can improve outcomes by starting conservative (protecting against early sequence-of-returns risk) and then growing more aggressive as the danger zone passes.
- What is a target-date fund glide path?
- Target-date funds (e.g., '2030 Fund') automatically shift from aggressive to conservative allocations as the target retirement year approaches. They typically start at 85-90% stocks and reduce to 30-50% stocks by the target date, then continue adjusting for 10-15 years after. They're a hands-off solution but lack personalization.