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The glide from youth into life after work

Let me tell the story of how the GFC and market crash of 2008 affected different members of a family in different ways. This will enable me to draw lessons for how the competing goals of growth and safety typically change as we age.

What is a glide path?

Americans introduced a simple but powerful concept for all of us who invest for retirement. They called it a glide path. It concerns your exposure to equities. Like a plane, your exposure should start high and glide gradually down over time as you approach retirement. It considers:

  • How high it should start
  • How low it should reach at retirement

Those decisions should be customised to your goals, your other sources of retirement income, and your risk tolerance. But the notion of gliding down as you age is common to all such paths.

I could explain the rationale the way economists do, by referring to financial capital and human capital. But it’s much more compelling to tell a story.

Once upon a time …

There was a family where Dad was an investment geek, and the family endured his stories and lessons over the dinner table. He was fond of waving his arms and proclaiming that young people could invest 100% in equities without worrying. And the family was fond of Dad, tolerated him with affection, and generally ignored his well-meaning advice, whether on investments or anything else.

Son grew up, left home, got a job, and started investing in his company’s compulsory superannuation scheme. He chose a fund that invested 100% in global equities, as he had remembered about global diversification.

Along came the GFC, and early in 2009, Son took his annual statement to Dad and, with a reproachful look, showed it to him.

Dad was ashamed that his first instinct was a feeling of pleasure that Son had actually listened to him about something. This was not par for the course. But he suppressed that feeling, since Son’s look didn’t just imply “Look what’s happened to my assets.” It was worse than that. It was more like “Look what you’ve done to me.” Son was upset at the big loss, and at least needed empathy.

So, Dad also suppressed the geeky responses that came to mind. He didn’t say: “Did I ever tell you about mean reversion?” This is the notion that, over time, returns tend to revert to some sort of long-term average, and don’t stay extreme for long. No, Son’s money had depreciated permanently. Suggesting that the market would restore the loss wasn’t credible.

He also didn’t say: “Gosh, your fund only lost 30%. The global equity index lost 40%. You did 10% better than the index. People would kill for that sort of outperformance!” As another saying goes, you can’t eat relative performance; losing less than others is no consolation.

So Dad said, “Yes, we’ve all lost money. This has been the worst market in two generations. The loss is beyond anything we ever seriously considered. The thing is, let’s see how much of an impact it has on your goal, which is income security in retirement.”

When is the best time for exposure to equities?

Dad did some rough calculations about how much income Son could reasonably expect at retirement at age 70. (After those dinner conversations, Son knew he wasn’t likely to be able to retire earlier than 70. But that would still probably give him a generation of active enjoyment.) First Dad projected the income that might have accrued if the index hadn’t gone down at all. Then he reduced the current assets by 30% and repeated the projection. And lo and behold, the projected income only decreased by 3%. Just a nuisance, rather than a tragedy.

How was that? No, not sleight of hand. The explanation was that 90% of the projected 401(k) income was due to come from Son’s future savings. (Son was about 30 at the time, and hadn’t been saving long.) That portion didn’t suffer the market decline because it had not yet been saved. Only 10% of the projected retirement income was affected. A 30% loss there meant a 3% loss overall.

(Economists would say that Son’s retirement assets consisted, at that point, of 10% financial capital, invested in equities, and 90% in human capital – essentially future earning and saving power – and therefore not yet exposed to the market.)

Son absorbed this new perspective, this new framing of the issue, and was reassured by it. Then he asked: “How about you and Mum?” “Well,” said Dad, “our retirement assets were only 50% in equities. But it has cost us 9% of our projected income.”

Need to include future earning potential

In other words, even though Mum and Dad had only half of Son’s equity exposure (50% compared with Son’s 100%), they had actually taken three times as much risk. Why? Because the parents had much more in financial assets, and little human capital left.

And essentially that’s the rationale for a glide path. Most of us must necessarily take some long-term risk (in the expectation of long-term reward) in order to achieve our retirement income goals, because the amount we need to save, if we focused just on risk-free assets, is typically beyond us. The glide path approach tells us something very important: that we shouldn’t spread that long-term risk equally over our working lifetime. Instead, we should take much more at the start, when our financial capital is low, and reduce it as our financial capital increases.

How about after we retire? That’s much more complex, and there’s no broad agreement on the best approach. I’ll deal with it in a later post.

We should take investment risk when we’re young and have little financial capital at stake, and less when we mature and have much more at stake. The shape of our risk-taking during our years of saving should follow a sort of glide path, from higher risk to lower risk.


Don Ezra has an extensive background in investing and consulting and is also a widely-published author. His current writing project, blog posts at, is focused on helping people prepare for a happy, financially secure life after they finish full-time work.

Peter Vann
February 23, 2018

Peter G

The original study by Willian Bengen in 1994 indicated that allocations to equities from 50% to 75% produced the highest safe withdrawal rates (he coined the 4% rule which he has since updated to 4.5%). Lower allocations to stocks were risky since they increased the probability of running out of money! This is a seminal paper linking asset allocation to safe withdrawal rates in retirement and still a great read for some foundation knowledge.

Numerous recent studies, e.g. see paper on ASFA web site, still support that one should be very high in growth assets through the accumulation phase and still quite high through retirement. This is a result is also supported by work my colleague and I have undertaken on strategies to fund higher safe withdrawal rates.

Such studies are a foundation when looking at pragmatic investment and retirement withdrawal strategies.

Peter V

Peter Grace
February 23, 2018

Sorry guys I don't get why we retirees have to be safe and avoid shares in retirement. We are still long term investors (I'm 71 and plan on living to 95 and so is my wife). The secret is to have enough secure assets (cash and the like) so you can always pay your retirement income but never need to touch your long term share portfolio. And your shares will top up your cash account with dividends and other distributions. We are not frightened by volatility because just like when we were 35, 45 and 55 we know we have along time horizon and the markets will recover.

Robert Wight
February 23, 2018

I agree with you, Peter.
I'm 54 (my wife 51) and we are both fully retired and living entirely off personal dividends and interest (while our SMSF chugs along - my preservation age is 59). Like you, we take a long view and hold more than sufficient cash to cover any potential reduction in dividends, etc.if that happens.
Our allocation to ASX shares/LICs is ¬80%, both inside and outside of super.

Peter Vann
February 22, 2018

Glide paths

Glide paths appear to make sense and make a great marketing story, particularly if there is a defined target date.

Unpublished research I undertook comparing safe withdrawal rates through retirement when utilising glide paths or typical static asset allocations shows that
1) The glide path that maximised the safe withdrawal rate is quite idiosyncratic depending on age, contributions, probability of ruin, etc
2) And the optimum glide path only provided a slightly higher safe withdrawal rate that using typical static asset allocations

Hence this study indicated that the good old static asset allocation was quite robust and pragmatic.

Some Calculation Detail (for the technically inclined)
Safe withdrawal rates were estimated using an approximate closed form solution developed be a colleague and myself (e.g. given details such as current super balance and age, future contributions over time, retirement age, asset allocation over time, etc calculate the withdrawal rate in today’s dollars that delivers a specified probability of ruin). This calculation was called from EXCEL to perform optimisations that maximised the safe withdrawal rate by changing the asset allocation at a range of ages. Th safe withdrawal rates can be calculated with inclusion, or not, of the Australian age pension.

Peter Vann
February 22, 2018

1) Impact on son’s retirement outcomes
After the GFC drop, the son’s retirement income projection (performed just after the GFC) should have gone UP since over the next few years, contributions will be expected to obtain a higher distribution of returns as equity market valuations mean revert. Hence the son will be better off. So his future human capital will be working harder for him further enhancing the benefit of this asset.

2) Impact on parent’s retirement outcomes
The parent’s retirement outcomes may well have had no impact from the fall in equity markets. For example if the 50% outside equities didn’t fall in value, then they can fund typical safe withdrawal rates from these assets for numerous years while the equities move back to normal valuations, thus negating or minimising the need to sell equities until valuations recover whilst maintaining (but one has to watch asset allocation).

February 22, 2018

Felix - great point. I'm interested in part 2 as well. Not sure if anyone follows Peter Thornhill's mantra of "safest" being to be 100% invested in shares (due to the dividend flow which is what is chiefly needed in retirement) ? Don seems to be heading along this path too so I'll be interested to see the part 2 comment

Don ezra
March 19, 2018

Apologies to you and Felix: I'm new to Cuffelinks and have only just discovered the comments!

OK, I will send Graham a piece in the next few weeks about decumulation, which is quite different from accumulation.

Frank D
February 22, 2018

Thanks, Don, a much better way of explaining glide paths or target date than I have read in the past!

February 19, 2018

It would be good to see part 2, which I imagine looks at the 'glide path' that follows after retirement. Someone today who is 50, retiring earlish at age 60, may have another 25 years in retirement. Dialling an exposure to equities to 0% at age 60 will mean a potential loss of future earnings that could impact longevity risks.


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