What Is a Retirement Glide Path?

As you near retirement, protecting your portfolio from risk becomes as important as ever. One way to do that is with a glide path strategy, which automatically adjusts your investments as you age. This helps you maintain an asset allocation that suits your current life stage.

Whether you’re retirement planning on your own or working with a financial advisor, you may hear about a glide path strategy for your portfolio. This article covers how the approach works and what it might do for your investments. We’ll also explain the pros and cons, as well as how a professional might help you implement this.

How the Glide Path Strategy Works

A glide path refers to an investment strategy that shifts your asset allocation over time according to your risk tolerance. This approach especially applies to retirement planning, where you may eventually need to restructure your investment mix away from higher-risk assets, like equities. Doing so can better protect you from market downturns and preserve what you’ve built.

The strategy itself often utilizes target date funds. These are mutual funds whose mix of assets becomes increasingly conservative when they approach a specific date. To achieve this, these funds will often invest in equities early on and, later, emphasize fixed-income securities, such as:

• Bonds
• Treasury bills
• Treasury inflation-protected securities (TIPS)

Keep in mind that target date funds don’t always follow the same exact glide path. They are meant to align with your needs as an investor and the preferences and expertise of your investment manager.

The approach of a glide path can vary depending on your needs and whomever may be managing your investments. Some follow a “to” retirement approach, where they reach a peak conservative level once at retirement. Others follow a “through” method, where your asset allocation will continue to adjust during your retirement years.

“Either approach could be sensible, depending on your tolerance for risk, which reflects both your willingness and ability to assume risk,” says Thomas J. Brock, CFA, CPA, expert contributor at Annuity.org.

Types of Retirement Glide Paths

There are a few different types of glide paths that help clients reach their goals. Some are meant to keep you at an asset allocation for an extended period, while others shift according to your needs. Below is a breakdown of each type and what they might mean for your portfolio:

Static

A static glide path is an approach that keeps your asset allocation the same once you reach retirement or for a long duration after you achieve a goal. This is a strategy that may work for people who have specific or predictable income needs and won’t need to reallocate anytime soon.

Declining

A declining glide path is the most traditional design and likely the one you’ll come across most. Your portfolio begins with an asset allocation focused on growth, then gradually shifts to a more conservative mix as you near your goal or as you age (if it follows a “through” timeline). This allows your portfolio to grow over time but protects it from risk once you need to begin taking withdrawals or receiving income.

Rising

An uncommon approach is the rising glide path. Here, your portfolio will focus on incrementally increasing its allocation of long-term growth equities. While this strategy exists, it’s not typically ideal for the common investor or someone simply planning for retirement.

Misconceptions About Glide Paths

Many investors assume that a glide path strategy guarantees them a smooth and risk-free retirement portfolio. While the method could help lessen risk, it may not eliminate it entirely. It’s important to understand what’s true about glide paths and what they may not do to get the best value out of them.

“The biggest thing people get wrong is thinking a glide path is some kind of guarantee,” notes Dan Pascone, CEO at Tailored Wealth. Many assume they’re automatically shielded from risk as they get older, but he points out that “a glide path is just a preset schedule for gradually shifting from stocks to bonds over time. It manages risk in a general direction, but it doesn’t make risk disappear.”

Another important detail, according to Pascone, is that “not all glide paths are created equal.” Two target date funds with the same year “can have completely different stock allocations at the same point in time, which means they’ll behave very differently when the market tanks.” Before choosing a fund or implementing a glide path, make sure you understand how aggressive the allocation is and whether it aligns with your goals, timeline, and comfort with volatility.

Finally, glide paths are rarely a true set-it-and-forget-it approach. Pascone recommends checking in periodically and asking yourself, “How much stock does this fund own right now?” and “How much stock will it own when I retire and after?” If those numbers don’t match how you would realistically react during a steep downturn, you “might need a different target date series or a different mix of investments around it,” he adds.

Should You Use a Glide Path?

Glide paths can be especially helpful if your goal is to reduce risk as you approach a major milestone, like retirement. However, some situations may call for a more customized or flexible plan that reflects your broader financial picture.

Using a glide path for retirement may be appropriate when you want a simple and automated way to reduce your risk over time. For example, Pascone explains that this approach may fit a busy professional using a 401(k) as their primary retirement vehicle. “For a busy professional who’s auto-enrolled and automatically bumping up their contributions each year, a solid target date fund with a reasonable glide path is way better than randomly picking funds or just leaving everything in cash,” he says.

On the other hand, you might find a glide path falling short of your needs if your “financial life is more complicated,” warns Pascone. “If you’ve got a pension, a big taxable brokerage account, a bunch of company stock from RSUs or options, or you’re planning to retire in stages with income that bounces around, a one-size-fits-all glide path might be way too aggressive or way too conservative for your actual needs,” he describes. In complex situations, you may use a target date fund, but it may not be the only element of your plan.

Glide paths can be a good default, but they aren’t necessarily a retirement plan in isolation. If your financial situation has several moving parts, it may be wise to speak to a professional first and build a custom plan that suits your complex needs.

How a Financial Advisor Can Help

A glide path, among other planning tools, may help you minimize risk and stay on track for retirement. However, implementing and managing one can be challenging unless you’re already a confident investor with the time and expertise to maintain your portfolio. A financial advisor can bring significant value here by helping you figure out which glide path fits your goals and integrating it smoothly.

To help select the ideal glide path, Pascone explains that he starts by “stepping back from the fund itself and looking at the whole picture” of a client’s retirement, including when they want to retire and how they react to seeing their account balance fluctuate. Once he understands the full context, he reviews “whether a particular glide path’s stock and bond mix at different ages actually supports what the client is trying to do.”

A financial advisor can also account for nuances that matter more for certain investors, particularly high earners or those with more complex financial lives. Pascone notes that he pays close attention to factors such as “concentration risk and where money is sitting from a tax perspective,” which can influence how a glide path should be implemented or customized.

Using a glide path works best when it reflects your income needs and risk tolerance in retirement. A financial advisor can help you evaluate whether a standard target date glide path is right for you or if you need a more custom plan in place.

If you need help choosing a strategy that fits your situation, consider speaking with a fiduciary advisor who can review your plan and guide you through the next steps. This free matching tool can connect you with a vetted professional who aligns with your goals and situation.