Reducing Retirement Risk with a Rising Equity Glide Path

by Sabrina I. Pacifici on January 26, 2014

Reducing Retirement Risk with a Rising Equity Glide Path by Wade D. Pfau, Ph.D., CFA; and Michael E. Kitces, CFP®, CLU®, ChFC®, RHU, REBC. Journal of Financial Planning, January 2014. Executive Summary: 

  • “This study explores the issue of what is an appropriate default equity glide path for client portfolios during the retirement phase of the lifecycle.
  • Results show, surprisingly, that rising equity glide paths in retirement—where the portfolio starts out conservative and becomes more aggressive through the retirement time horizon—have the potential to actually reduce both the probability of failure and the magnitude of failure for client portfolios.
  • Overall, the results show that rising equity glide paths from conservative starting points can achieve superior results, even with lower average lifetime equity exposure. For instance, a portfolio that starts at 30 percent in equities and finishes at 60 percent performs better than a portfolio that starts and finishes at 60 percent equities. A steady or rising glide path provides superior results compared to starting at 60 percent equities and declining to 30 percent over time.”

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