How Does a Glide Path Work?
A typical glide path might start at 90% stocks / 10% bonds for a 25-year-old and gradually shift to 40% stocks / 60% bonds by age 65. The transition happens automatically in target-date funds or manually through periodic portfolio rebalancing. The goal is to reduce volatility as you approach the withdrawal phase.
What Is a "To" vs. "Through" Glide Path?
A "to" glide path reaches its most conservative allocation at the retirement date and stays there. A "through" glide path continues adjusting for 10-20 years into retirement, reflecting the fact that a 65-year-old may still have a 30-year time horizon. Most major target-date fund providers use the "through" approach for better long-term outcomes.
Should You Customize Your Glide Path?
Default glide paths work well for most investors, but individual circumstances may warrant adjustments. If you have a guaranteed pension or Social Security covering most expenses, you can afford a more aggressive allocation. If your retirement income depends heavily on portfolio withdrawals, a more conservative glide path may be appropriate.
Frequently asked questions
Is a glide path the same as a target-date fund?
A glide path is the strategy; a target-date fund is a product that implements it. Target-date funds automate the glide path based on your expected retirement year. You can also implement your own glide path manually by adjusting your asset allocation over time.
Can your glide path be too conservative?
Yes. Being too conservative too early can mean your portfolio does not grow enough to last 30+ years of retirement. Some retirees actually need to increase stock exposure if their allocation became overly conservative relative to their time horizon and income needs.