The Glidepath Illusion...And Potential Solutions

Abstract

Target-date investment strategies purport to meet the two primary objectives of any retirement savings program: maximizing the real value of investors’ nest eggs while minimizing uncertainty around prospective income in retirement. The authors demonstrate that the classic glidepath approach to retirement investing — moving from equity-centric to bond-centric investing as we age — does not meet these objectives.

The authors summarize the flaws in traditional glidepath implementation and explore illustrative changes to the rules-based, mechanistic solution for retirement planning that can improve the expected outcome for investors, using simulations to test alternatives. Their findings show that, even with simple rules-based approaches, there are better ways to achieve our financial objectives for retirement.

Keywords: Target Date Fund, Glidepath, Retirement Investing, Asset Allocation, Alternative Assets